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1997
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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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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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 incorporation (I.R.S. Employer
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
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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
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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. [X]
At March 20, 1998, the Registrant had outstanding 174,934,668 shares of its
Common Stock. The aggregate market value of the Registrant's voting stock held
by non-affiliates at this date was approximately $4.2 billion, based on the
closing price of $28.25 as reported on the New York Stock Exchange. Shares of
common stock known by the Registrant to be beneficially owned by directors of
the Registrant and officers of the Registrant subject to the reporting and other
requirements of Section 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), 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 Exchange Act.
Documents Incorporated By Reference
Selected portions of the 1997 Annual Report to Stockholders - Part I, Part II
and Part IV of this Report.
Selected portions of the 1998 Proxy Statement - Part III of this Report.
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ALLEGHENY TELEDYNE INCORPORATED
SEC FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 1997
INDEX
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PART I PAGE NO.
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Item 1. Business 3
Item 2. Properties 20
Item 3. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 24
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 25
SIGNATURES 27
EXHIBIT INDEX 29
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PART I
ITEM 1. BUSINESS
THE COMPANY
Allegheny Teledyne Incorporated (the "Company" or "Allegheny Teledyne") 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 53.0%, 25.4%, 14.6%, and 7.0%, respectively, of the
Company's total revenues from continuing operations of $3.647 billion for the
year ended December 31, 1997.
Allegheny Teledyne 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. References to "Allegheny Teledyne," the "Company" or the "Registrant"
mean Allegheny Teledyne Incorporated and its subsidiaries, unless the context
otherwise requires.
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, 1997 is presented
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations" on pages 23 to 25 of the 1997
Annual Report to Stockholders (the "1997 Annual Report") and in Note 11 of Notes
to Consolidated Financial Statements on pages 44 to 45 of the 1997 Annual Report
and is incorporated herein by reference. The business segment information
presented herein reflects adjustments made during the 1997 fiscal year.
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, and acquired in 1998, Special Melted Products Limited
and Jessop Saville Limited (United Kingdom companies). These companies offer a
number of products including the following:
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.
The Company 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.
The Company's 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.
In February 1998, Allegheny Teledyne acquired manufacturing capability in
the United Kingdom for high integrity vacuum melted and remelted steel and
nickel alloys, forging capacity, and high technology testing services for the
steel and related metals manufacturing industry by purchasing Special Melted
Products Limited and other assets of the aerospace division of Sheffield
Forgemasters. This acquisition also is expected to benefit sales and
distribution of nickel-based alloys and titanium in Europe. As part of this
acquisition, the Company also acquired Jessop Saville Limited, a United Kingdom
operation, which produces
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non-magnetic drill collars and downhole components for the oil and gas industry
and two sales companies in the United States.
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.
The Company 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 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
the Company in various forms and alloys. It is used as an alloying element in
the manufacture of many steels. The higher quality grades produced by the
Company 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 the
Company for medical implants, chemical process equipment, and aerospace engine
components.
Pending Acquisitions. Allegheny Teledyne expects the acquisition of Oregon
Metallurgical Corporation ("OREMET(R) Titanium" or "OREMET"), which is scheduled
to be completed in March 1998, to enhance the competitiveness of the specialty
metals segment, particularly the higher value-added high performance specialty
metals markets. OREMET is one of two United States integrated producers of
titanium metal and related products. OREMET produces and distributes titanium
sponge, ingot, mill products and castings for use in the aerospace, industrial,
recreational and military markets. Titanium sponge is used by Allegheny
Teledyne's Allvac and Wah Chang units and Wah Chang's principal operations are
located near those of OREMET. Allegheny Teledyne expects the combined companies
to achieve significant efficiencies by consolidating administrative, sales and
marketing and research and development functions and to benefit from lower raw
materials costs. Allegheny Teledyne also believes that the combined companies
can benefit from the ability to offer a wider array of titanium-based and other
specialty metals and alloys to customers and from the coordinated utilization of
service center and other distribution and sales attributes of the companies both
in the United States and abroad.
OREMET operates manufacturing and finishing facilities in Oregon and
Pennsylvania, nine United States service centers, additional service centers in
the United Kingdom, Germany, Singapore, and Canada, and other United States and
foreign distribution and sales operations. OREMET employs approximately 850
employees.
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The Company has announced that that it has entered into three agreements
with Bethlehem Steel Corporation ("Bethlehem") which will become effective upon
completion of Bethlehem's pending acquisition of Lukens Inc. ("Lukens"), subject
to customary closing conditions. These agreements would enable the Company to
produce wide stainless steel products and provide additional melt capacity.
Under a 20-year conversion agreement, Bethlehem is to provide the Company with
up to 15% 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 wide stainless steel
products. Under an asset sales agreement, the Company would acquire certain
assets of Lukens including the Houston, Pennsylvania plant for melting, casting
and rolling stainless steel, the wide anneal and pickle line recently installed
at Lukens' Massillon, Ohio plant and the vacuum-oxygen decarburization unit used
in the refining of stainless steel at Lukens' Coatesville, Pennsylvania plant.
The Company has also agreed to supply Bethlehem with up to 150,000 tons of
stainless bands for processing at the Lukens' stainless cold finishing
facilities in southwestern Pennsylvania and eastern Ohio until Bethlehem sells
these facilities.
Additional information about recent and pending acquisitions is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Acquisitions and Divestitures" on page 21 to 22 of the 1997 Annual
Report and in Notes 15 and 16 to the Notes to Consolidated Financial Statements
on pages 49 to 52 of the 1997 Annual Report. Also see "Forward Looking and Other
Statements" herein.
AEROSPACE AND ELECTRONICS SEGMENT
Companies in the aerospace and electronics segment include Teledyne Ryan
Aeronautical, Teledyne Brown Engineering, Teledyne Electronic Technologies and
Teledyne Continental Motors. In 1997, Teledyne Controls was merged into and now
functions as a business unit of Teledyne Electronic Technologies. The companies
in this segment offer a variety of products and services including the
following:
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.
The Company has built the airframe for the U. S. Army's Apache attack
helicopter since the inception of the program in the mid-1970's. In 1997, The
Boeing Co. notified Ryan that it
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has decided to terminate the long-standing agreement with Ryan to fabricate the
Apache helicopter fuselage. Future business for this product from Boeing appears
unlikely.
Casting Services. The Company casts lightweight aluminum and magnesium
aircraft parts.
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.
Aerotronics Controls, Inc., a majority owned start-up company acquired in
1997, is engaged in the design and development for production of advanced
electronic engine controls and engine management systems for piston aircraft
engines, including Continental Motors' piston engines.
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 is
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.
The Company 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. Voice, data and
facsimile transmission equipment is also provided for business and commuter
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.
The Company 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
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production of a family of hydrophones based on piezoelectric ceramics. For over
a half century, precise seismometers developed and manufactured by the Company
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.
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, aircraft
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 is designed, manufactured, and sold worldwide for a
variety of communications, aerospace, defense-related, medical, industrial, and
consumer applications.
The Company'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.
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
filters, switching devices, oscillators and integrated subsystems for wireless
equipment. Monolithic microwave provide power amplification for satellite
communication systems and wireless local area networks.
Other components include operational amplifiers, digital-analog converters,
miniature relays, hybrid switching devices, connectors, 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
Metalworking Products, Teledyne Fluid Systems, Teledyne Specialty Equipment,
Casting Service, Portland Forge and Green River Steel Corporation. These
companies offer a variety of products including the following:
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 can 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 hydraulic breakers, boom systems and underground
mobile equipment, are designed and manufactured for the construction, quarry,
and mining industries.
Forgings and Castings. Allegheny Teledyne also processes metals by casting
and forging 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 housings and parts for power generation
equipment, tools, and automobiles.
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CONSUMER SEGMENT
Companies in Allegheny Teledyne's consumer segment include Teledyne Water
Pik and Teledyne Laars. These companies manufacture a number of specialty
products including the following:
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 toothbrush model, and oral
irrigation devices that are sold under the brand name of Teledyne Water Pik. The
Company 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 including the new Flexible
Shower Massage product. The Company designs, manufactures and sells these
products through domestic and foreign mass merchandise and specialty retail
outlets.
Residential Water Filtration. A wide range of residential water filtration
devices is 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. The Company'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 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 Company
also produces a broad line of water heating equipment that provides hot water
and heating for commercial, residential, and industrial applications. 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 and spa
industry. In 1998, the Company has begun offering fiber optic lighting to the
pool and spa industry under an agreement with Lumenyte International
Corporation.
COMPETITION
Markets for 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
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foreign competitors, a number of which are government subsidized. Sales for
Allegheny Ludlum and Rodney Metals, which consisted primarily of flat rolled
products, declined 6% in 1997, even though tons shipped increased 1% in 1997.
Sales declined due to continued European and Asian pricing pressure and
increased imports in the U.S. markets for commodity stainless steel products.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations Results of Operations - Specialty Metals - 1997 Compared to 1996" on
page 23 of the Annual Report.
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 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--Raw Materials for
Specialty Metals."
GOVERNMENT CONTRACTS
For the year ended December 31, 1997, approximately 14% 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 9% of total sales
in 1997. Sales by the Company to the U.S. Government included sales by the
specialty metals segment of $47.0 million in 1997, $66.9 million in 1996, and
$37.3 million in 1995, sales by the aerospace and electronics segment of $428.1
million in 1997, $543.1 million in 1996, and $485.5 million in 1995, and sales
by the industrial and consumer segments of $2.1 million in 1997, $2.3 million in
1996, and $3.5 million in 1995. 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--Government Contracts" and in Item 3. Legal
Proceedings. Additional related
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information is presented under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Other Matters--Government
Contracts" on pages 27 to 28 of the 1997 Annual Report and in Notes 11 and 14 of
Notes to Consolidated Financial Statements on pages 44 to 45 and 48 to 49 of the
1997 Annual Report.
EXPORT SALES AND FOREIGN OPERATIONS
Foreign sales represented approximately 17% of the Company's total sales in
1997 and 1996 and 15% of total sales in 1995. These figures include export sales
by U.S. operations to customers in foreign countries, which accounted for
approximately 13%, 12% and 13% of the Company's total sales in 1997, 1996 and
1995, respectively. See "Forward Looking and Other Statements--Export Sales."
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 1997, 1996, and 1995, 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, will continue to expand the Company's presence internationally.
In February 1998, Allegheny Teledyne acquired United Kingdom manufacturing
capability for high integrity vacuum melted and remelted steel and nickel
alloys, forging capacity, and high technology testing services for the steel and
related metals manufacturing industry by purchasing Special Melted Products
Limited and other assets of the aerospace division of Sheffield Forgemasters
Limited. This acquisition also is expected to benefit sales and distribution of
nickel-based alloys and titanium in Europe.
In February 1996, Allegheny Ludlum 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. Allegheny
Ludlum, which owns 60% of the joint venture company, will provide technology and
engineering, technical, and management services. The joint venture is known as
Shanghai STAL Precision Stainless Steel Limited Company. The new plant,
currently under construction in Shanghai, will produce and sell up to 15,000
metric tonnes of the Company's Precision Rolled Strip(R) 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 December 1995, the Company completed the acquisition of the Stellram
Group, based in Europe. With facilities in the United Kingdom, Germany, France
and Switzerland, the Stellram Group is a leader in highly engineered tooling for
milling, boring, threading, and drilling, and has enhanced the position of
Teledyne Metalworking Products in the global cutting tools market.
12
<PAGE> 13
BACKLOG, SEASONALITY AND CYCLICALITY
The Company's backlog of confirmed orders was approximately $1.3 billion at
December 31, 1997 and $1.2 billion at December 31, 1996. During the year ending
December 31, 1998, it is anticipated that approximately 97% of confirmed orders
on hand at December 31, 1997 will be filled. Backlog of confirmed orders of the
specialty metals segment was $631.9 million at December 31, 1997 and $578.0
million at December 31, 1996. During the year ending December 31, 1998, it is
anticipated that approximately 99 % of the confirmed orders on hand at December
31, 1997 for this segment will be filled. Backlog of confirmed orders of the
aerospace and electronics segment was $523.8 million at December 31, 1997 and
$453.4 million at December 31, 1996. During the year ending December 31, 1998,
it is anticipated that approximately 92% of the confirmed orders on hand at
December 31, 1997 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 specialty metals customers
operate in cyclical industries and are subject to changes in general economic
conditions. See "Forward Looking and Other Statements--Demand for Specialty
Metals."
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. 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, 1997, 1996, and 1995 included the following:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Customer-Sponsored:
Specialty metals segment $ 2.5 $ 3.8 $ 3.7
Aerospace and electronics segment 183.9 295.4 204.2
Other -- 3.9 26.0
------ ------ ------
186.4 303.1 233.9
------ ------ ------
Company-Sponsored:
Specialty metals segment 14.7 16.8 20.4
Aerospace and electronics segment 31.0 35.4 30.0
Other 14.6 14.0 16.1
------ ------ ------
60.3 66.2 66.5
------ ------ ------
Total Research and Development $246.7 $369.3 $300.4
====== ====== ======
</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
13
<PAGE> 14
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 chemical weapons without incineration. In addition,
Teledyne Continental Motors is leading an industry team to develop a new
piston-driven engine for small aircraft.
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.
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,
management believes that 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 is (and the industries in which it competes are) 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 35 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 10 of these sites,
and the potential loss exposure with respect to any of the 35 individual sites
is not considered to be material.
During 1998, the Company expects to spend approximately $8.4 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--Environmental Matters" 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 27 of the 1997 Annual Report
and in Notes 1 and 14 of Notes to Consolidated Financial Statements on pages 35
to 36 and 48 of the 1997 Annual Report.
14
<PAGE> 15
EMPLOYEES
The Company and its subsidiaries employ approximately 22,000 persons, 9,000
of whom are employed at companies in the specialty metals segment. Approximately
24% of the Company's workforce is covered by various union contracts, certain of
which are described below.
In February 1998, the United Steelworkers of America ("USWA") ratified a
three-year collective bargaining agreement covering substantially all of
Allegheny Ludlum's 3,300 production and maintenance employees. The new agreement
extends through June 30, 2001. Approximately 400 employees at Allegheny Ludlum's
Washington Plant are covered by a separate labor contract with the USWA which is
effective through September 30, 1999. In addition, approximately 700 Wah Chang
employees are covered by a labor contract with the USWA which is effective
through October 10, 2000.
CORPORATE OFFICERS OF THE REGISTRANT
Corporate officers of the Company as of March 16, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
<S> <C> <C>
Richard P. Simmons 66 Chairman, President and Chief Executive Officer*
Robert P. Bozzone 64 Vice Chairman*
Arthur H. Aronson 62 Executive Vice President*
James L. Murdy 59 Executive Vice President, Finance and Administration and Chief
Financial Officer*
Judd R. Cool 62 Senior Vice President, Human Relations
Robert Mehrabian 56 Senior Vice President*
Jon D. Walton 55 Senior Vice President, General Counsel & Secretary*
David F. Lewis 49 Vice President and Executive Assistant to the Chief Executive Officer
Dale G. Reid 42 Vice President-Controller and Chief Accounting Officer*
Robert S. Park 53 Vice President-Treasurer
Gary R. Stechmesser 54 Vice President, Corporate Communications and Investor Relations
</TABLE>
Set forth below are descriptions of the business background for the past
five years of the corporate officers of the Company.
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.
- -----------
*Such officers are subject to the reporting and other requirements of Section 16
of the Securities Exchange Act of 1934, as amended.
15
<PAGE> 16
Robert P. Bozzone has been Vice Chairman of the Board 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
also serves as a director of the Company. He was President of Allegheny Ludlum
from August 1994 to January 1998 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.
Judd R. Cool has been Senior Vice President, Human Resources since
September 1997. Prior to joining the Company, Mr. Cool served as Vice President
for Human Resources for Inland Steel Industries.
Robert Mehrabian has been Senior Vice President of the Company since August
1997 and is responsible for the Company's aerospace and electronics businesses.
He also serves as a director of the Company. Prior to joining the Company, Dr.
Mehrabian served as the President of Carnegie Mellon University from 1990 to
July 1997.
Jon D. Walton has been Senior Vice President, General Counsel and Secretary
of the Company since August 1997 and served as Vice President, General Counsel
and Secretary of the Company from August 1996 to August 1997, having previously
served in the same capacity as an officer of Allegheny Ludlum.
David F. Lewis has been Vice President and Executive Assistant to the
Chairman since August 1997. He previously had served as President of Teledyne
Specialty Equipment since August 1996. Prior to joining Teledyne Specialty
Equipment, Mr. Lewis was general manager of television and digital manufacturing
in the Americas for Thomson Consumer Electronics.
Dale G. Reid has served as a Vice President of the Company since May 1997
and Controller since August 1996. Mr. Reid previously served as Chief Accounting
Officer and Controller of Teledyne.
Robert S. Park has served as Vice President-Treasurer of the Company since
August 1996. From May 1994 to August 1996, Mr. Park served as Vice
President-Treasurer of Allegheny Ludlum. Previously, he served as Treasurer of
Allegheny Ludlum.
Gary R. Stechmesser has served as Vice President, Corporate Communications
and Investor Relations since December 1996. Previously, he served as Vice
President, Corporate Relations for Thomas & Betts Corporation. Prior to joining
Thomas & Betts, he was Assistant Vice President, Industry and Government Affairs
for AT&T Global Information Solutions.
16
<PAGE> 17
FORWARD LOOKING AND OTHER STATEMENTS
This Report on Form 10-K and the 1997 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 potential acquisition of Oregon
Metallurgical Corporation, the acquisition of the aerospace division of
Sheffield Forgemasters, the agreements with Bethlehem Steel Corporation and the
acquisition of Aerotronics Controls, Inc. on earnings, cost savings and
operations of the Company; net cash flow; aviation and aerospace industry
trends; certain expected capital expenditures; computer software modification
and replacement; 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
1997 total sales and its 1997 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 Allegheny Ludlum, Teledyne and
OREMET 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
regulations. The Company is a party to lawsuits and other proceedings involving
alleged violations of environmental laws. The Company records environmental
liabilities when the
17
<PAGE> 18
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.
Government for payment. If it chooses, the U.S. Government may intervene and
assume control of the case.
18
<PAGE> 19
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.
Acquisition and Disposition Strategy. The Company intends to continue to
strategically position its businesses in order to improve its competitive
posture by seeking specialty niches, expanding its global presence, acquiring
businesses complementary to existing strengths and continually evaluating the
performance and strategic fit of existing businesses. Accordingly, the Company
regularly considers acquisition and business combination opportunities as well
as possible business dispositions, and its management from time to time holds
discussions with management of other companies to explore such opportunities and
possible dispositions. As a result, the businesses comprising the Company are
subject to change.
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
acquisitions and other transactions in which the Company has made or may make or
generate additional revenue to offset any unanticipated inability to realize
such expected synergies. Realization of the anticipated benefits of acquisitions
and other transactions could take longer than expected and implementation
difficulties and market factors could alter the anticipated benefits.
19
<PAGE> 20
ITEM 2. PROPERTIES
The Company's principal domestic facilities as of December 31, 1997 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 37 of the 1997 Annual
Report. Although the facilities vary in terms of age and condition, management
believes that these facilities have generally been well maintained.
<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
Bagdad, PA strip 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 640,000 (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 221,000 (leased)
and high speed steel, and other specialty steel
long products.
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
- ----------------- ------------- --------------
<S> <C> <C>
South Boston, VA Production of nickel and titanium products, tool 116,000 (leased)
and high speed steel, and other specialty steel
long products.
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.
Dynamic Metals
Koppel, PA Manufacturing of specialty welded, seamless, and 151,000 (owned)
fabricated tubing.
Wah Chang
Albany, OR Production of zirconium, halfnium, niobium, 1,215,000 (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, 31,000 (leased)
and instrumentation technology. 25,000 (leased)
Grove Hill, AL Provision of engineered services and products, 208,000 (owned)
including systems engineering, optical
engineering, software and hardware engineering,
and instrumentation technology.
Teledyne Continental Motors
Mobile, AL Design, development, and production of new and 993,000 (leased)
rebuilt piston engines, ignition systems, and 536,000 (leased)
spare parts for general aviation market.
Redlands, CA Manufacturing of batteries for the general 91,000 (owned)
aviation market.
Teledyne Electronic Technologies
Los Angeles, CA
Development and production of electronic 141,000 (leased)
components and subsystems. 83,000 (owned)
Los Angeles, CA Production of digital data acquisition systems 154,000 (leased)
for monitoring commercial aircraft and engines.
Lewisburg, TN Development and production of electronic 153,000 (owned)
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, 1,100,000 (leased)
airframes, and high-performance aerial target
systems.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
- ----------------- ------------- --------------
<S> <C> <C>
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)
Cast Products and Picco
Pomona, CA Manufacturing of aluminum and magnesium
castings 231,000 (owned) for air frames,
turbine engines and missiles.
INDUSTRIAL
Teledyne Metalworking Products
Waynesboro, PA Production of thread-cutting and roll forming 386,000 (owned)
equipment and perishable tools.
Huntsville, AL Production of molybdenum, tungsten, and tungsten 293,000 (owned)
carbide powders and milled products.
Nashville, TN Production of tungsten carbide and cutting tools. 134,000 (owned)
Teledyne Fluid Systems
Brecksville, OH Manufacturing of nitrogen cylinder systems and 138,000 (owned)
industrial and pressure release valves.
Teledyne Specialty Equipment
Canal Winchester, OH Manufacturing of transportable material handlers. 41,000 (owned)
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.
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)
CONSUMER
Teledyne Laars
Moorpark, CA Manufacturing of pool heaters, pool filtration, 200,000 (owned)
and spa control equipment.
Rochester, NH Manufacturing of heating elements. 80,000 (owned)
Teledyne Water Pik
Fort Collins, CO Manufacturing of shower heads, water filtration 243,000 (owned)
products, and oral health products.
Loveland, CO Manufacturing of shower heads, water filtration 134,000 (owned)
products, and oral health products.
</TABLE>
22
<PAGE> 23
The Company also owns or leases facilities in a number of foreign
countries, including Canada, the United Kingdom, Germany, France, The
Netherlands, Switzerland, Sweden, Mexico and Taiwan. In connection with the
Company's February 1998 acquisition of Special Melted Products Limited, the
Company acquired facilities aggregating 625,000 square feet for melt and remelt,
machining and bar mill operations, laboratories and offices located on a 25 acre
site in Sheffield, England. The related acquisition of Jessop Saville Limited
includes a 40,000 square foot leased facility for computer numerically
controlled milling and machine operations.
Many of the Company's manufacturing facilities operated at or near their
productive capacities during 1997. 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, government contracting, product liability, patent
infringement, commercial, employment, taxes, employee benefits, and stockholder
matters.
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
23
<PAGE> 24
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.
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 17
of the Notes to Consolidated Financial Statements on page 53 of the 1997 Annual
Report and from "Common Stock Price" on page 54 of the 1997 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference from
"Selected Financial Data" on pages 56 and 57 of the 1997 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 21 to 29 of the 1997 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 53 of the 1997 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth under the caption "Corporate
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 1998 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 "Cumulative Total Stockholder Return," as set
forth in the 1998 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 1998 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 1998 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 to 53
of the 1997 Annual Report are incorporated by reference:
Consolidated Statements of Income - Years Ended December 31, 1997,
1996 and 1995
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
1997, 1996 and 1995
Report of Ernst & Young LLP, Independent Auditors
Notes to Consolidated Financial Statements
The report of Arthur Andersen LLP relating to the consolidated statements
of operations, shareholders' equity, and cash flows of Teledyne, Inc. for the
year ended December 31, 1995 is filed herewith as Exhibit 99.1.
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<PAGE> 26
(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 29 of this Report and incorporated
by reference.
(B) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1997:
Current Reports on Form 8-K were filed by the Company on November 3, 1997
(with respect to a press release concerning Registrant's agreement to
acquire Oregon Metallurgical Corporation) and December 23, 1997 (with
respect to a press release concerning Registrant's proposal to acquire
Lukens Inc.).
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<PAGE> 27
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 23, 1998 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 23rd day of March 1998.
<TABLE>
<CAPTION>
<S> <C>
/s/ RICHARD P. SIMMONS /s/ JAMES L. MURDY
- ------------------------------------------------- ------------------------------------------------------
Richard P. Simmons James L. Murdy
Chairman of the Board, President and Chief Executive Vice President, Finance and Administration
Executive Officer and Director (Principal and Chief Financial Officer (Principal Financial
Executive Officer) Officer)
/s/ ARTHUR H. ARONSON /s/ DALE G. REID
- ------------------------------------------------- ------------------------------------------------------
Arthur H. Aronson Dale G. Reid
Executive Vice President and Director Vice President-Controller and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ ROBERT P. BOZZONE /s/ PAUL S. BRENTLINGER
- ------------------------------------------------- ------------------------------------------------------
Robert P. Bozzone Paul S. Brentlinger
Vice Chairman of the Board and Director Director
/s/ FRANK V. CAHOUET /s/ DIANE C. CREEL
- ------------------------------------------------- ------------------------------------------------------
Frank V. Cahouet Diane C. Creel
Director Director
/s/ C. FRED FETTEROLF /s/ W. CRAIG McCLELLAND
- ------------------------------------------------- ------------------------------------------------------
C. Fred Fetterolf W. Craig McClelland
Director Director
/s/ ROBERT MEHRABIAN /s/ WILLIAM G. OUCHI
- ------------------------------------------------- ------------------------------------------------------
Robert Mehrabian William G. Ouchi
Director Director
/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
</TABLE>
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<PAGE> 28
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 Registrant'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 filed July 17, 1996).
3.2 Amended and Restated Bylaws of Allegheny Teledyne Incorporated
(incorporated by reference from Exhibit 3.1 to the 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 filed July 17, 1996).
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)) and Assignment and Assumption
Agreements dated as of August 22, 1997 and First Amendment to Credit
Agreement dated as of August 31, 1997 relating to Credit Agreement
dated as of August 30, 1996 (incorporated by reference from Exhibit 4
to Registrant's Form 10-Q for the quarter ended September 30, 1997
(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)), and First Supplemental Indenture by and among
Allegheny Teledyne Incorporated, Allegheny Ludlum Corporation and The
Chase Manhattan Bank (National Association), as Trustee, dated as of
August 15, 1996 (incorporated by reference from Exhibit 4.1 to
Registrant's Current Report on From 8-K dated August 15, 1996 (File
No. 1-12001)).
4.3 Rights Agreement dated March 12, 1998, including Certificate of
Designation for Series A Junior Participating Preferred Stock as filed
with the State of Delaware on March 13, 1998 (incorporated by
reference from Exhibit 1 to the Registrant's Current Report on Form
8-K dated March 12, 1998 (File No. 1-12001)).
10.1 Allegheny Teledyne Incorporated 1996 Incentive Plan, as amended as of
December 31, 1997. (1),(2)
10.2 Allegheny Teledyne Incorporated Stock Acquisition and Retention
Program effective January 1, 1997 (incorporated by reference from
Exhibit 10.2 to the Registrant's Form 10-K for the year ended December
31, 1996 (File No. 1-12001)). (1)
</TABLE>
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<PAGE> 29
<TABLE>
<CAPTION>
<S> <C>
10.3 Allegheny Teledyne Incorporated Stock Acquisition and Retention
Program effective January 1, 1998. (1),(2)
10.4 Allegheny Teledyne Incorporated 1996 Non-Employee Director Stock
Compensation Plan, as amended and restated effective as of December
31, 1997. (1),(2)
10.5 Allegheny Teledyne Incorporated Fee Continuation Plan for Non-Employee
Directors (incorporated by reference from Exhibit 10.4 to Registrant's
Form 10-K for the year ended December 31, 1996 (File No. 1-12001)). (1)
10.7 Supplemental Pension Plan for Certain Key Employees of Allegheny
Teledyne and its subsidiaries (formerly known as the Allegheny Ludlum
Corporation Key Man Salary Continuation Plan). (1),2
10.8 Allegheny Teledyne Incorporated Benefit Restoration Plan formerly
known as the 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)). (1)
10.9 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)). (1)
10.10 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). (1)
10.11 Allegheny Ludlum Corporation Stock Acquisition and Retention Plan, as
restated effective as of August 15, 1996 (incorporated by reference
from Exhibit 10.10 to Registrant's Form 10-K for the year ended
December 31, 1996 (File No. 1-12001)).(1)
10.12 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)).(1)
10.13 Teledyne, Inc. 1994 Long-Term Incentive Plan (incorporated by
reference from Exhibit A to Teledyne, Inc.'s 1994 proxy statement
(File No. 1-5212)). (1)
10.14 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)). (1)
10.15 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). (1)
</TABLE>
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<PAGE> 30
<TABLE>
<CAPTION>
<S> <C>
10.16 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)). (1)
10.17 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)). (1)
10.18 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)). (1)
10.19 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)). (1)
10.20 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)). (1)
10.21 Separation Agreement dated March 6, 1997 between Allegheny Teledyne
Incorporated and William P. Rutledge (incorporated by reference from
Exhibit 10.10 to Registrant's Form 10-K for the year ended December
31, 1996 (File No. 1-12001)). (1)
10.22 Agreement and Plan of Merger dated as of October 31, 1997 among
Allegheny Teledyne Incorporated, Sea Merger Inc. and Oregon
Metallurgical Corporation (incorporated by reference from Exhibit 2.1
to the Company's Registration Statement on Form S-4 (No. 333-46695)). (1)
13.1 Pages 21 through 57 inclusive of the Annual Report of Allegheny
Teledyne Incorporated for the year ended December 31, 1997.(2)
21.1 Subsidiaries of the Registrant.(2)
23.1 Consent of Ernst & Young LLP.(2)
23.2 Consent of Arthur Andersen LLP.(2)
27.1 Financial Data Schedule for Year Ended December 31, 1997.(2)
27.2 Restated Financial Data Schedule for Year Ended December 31, 1996.(2)
27.3 Restated Financial Data Schedule for Nine Months ended
September 30, 1997 and 1996.(2)
27.4 Restated Financial Data Schedule for Six Months ended
June 30, 1997.(2)
27.5 Restated Financial Data Schedule for Three Months Ended
June 30, 1997.(2)
99.1 Report of Arthur Andersen LLP.(2)
</TABLE>
- ---------------
(1) Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Report.
(2) Filed herewith.
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.
30
<PAGE> 1
EXHIBIT 10.1
ALLEGHENY TELEDYNE INCORPORATED
1996 INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF DECEMBER 31, 1997)
ARTICLE I
PURPOSE AND ADOPTION OF THE PLAN
1.01. PURPOSE. The purpose of the Allegheny Teledyne Incorporated 1996
Incentive Plan (hereinafter referred to as the "Plan") is to assist in
attracting and retaining highly competent employees, to act as an incentive in
motivating selected officers and other key employees of Allegheny Teledyne
Incorporated and its Subsidiaries to achieve long-term corporate objectives and
to enable cash incentive awards to qualify as performance-based for purposes of
the tax deduction limitations under Section 162(m) of the Code.
1.02. ADOPTION AND TERM. The Plan has been approved by the Board of
Directors of Allegheny Teledyne Incorporated, to be effective as of the
effective date of the transactions described in the Amended and Restated
Agreement and Plan of Merger and Combination, dated as of April 1, 1996, by and
among Allegheny Teledyne Incorporated, Allegheny Ludlum Corporation, ALS Merger
Corporation and Teledyne, Inc. and TDY Merger, Inc. (the "Effective Date"), but
is subject to the approval of the stockholders of the Company and the
stockholders of Allegheny Ludlum Corporation and Teledyne, Inc. The Plan shall
remain in effect until terminated by action of the Board; provided, however,
that no Incentive Stock Option may be granted hereunder after the tenth
anniversary of the Effective Date and the provisions of Articles VII, VIII, IX
and X with respect to performance-based awards to "covered employees" under
Section 162(m) of the Code shall expire as of the fifth anniversary of the
Effective Date.
ARTICLE II
DEFINITIONS
For the purpose of this Plan, capitalized terms shall have the
following meanings:
2.01. AWARD means any one or a combination of Non-Qualified Stock
Options or Incentive Stock Options described in Article VI, Stock Appreciation
Rights described in Article VI, Restricted Shares described in Article VII,
Performance Awards described in Article VIII, Awards of cash or any other Award
made under the terms of the Plan.
2.02. AWARD AGREEMENT means a written agreement between the Company and
a Participant or a written acknowledgment from the Company to a Participant
specifically setting forth the terms and conditions of an Award granted under
the Plan.
<PAGE> 2
2.03. AWARD PERIOD means, with respect to an Award, the period of time
set forth in the Award Agreement during which specified target performance goals
must be achieved or other conditions set forth in the Award Agreement must be
satisfied.
2.04. BENEFICIARY means an individual, trust or estate who or which, by
a written designation of the Participant filed with the Company or by operation
of law, succeeds to the rights and obligations of the Participant under the Plan
and the Award Agreement upon the Participant's death.
2.05. BOARD means the Board of Directors of the Company.
2.06. CHANGE IN CONTROL means, and shall be deemed to have occurred
upon the occurrence of, any one of the following events:
(a) The acquisition in one or more transactions, other than
from the Company, 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 Company Voting Securities in
excess of 25% of the Company Voting Securities unless such acquisition
has been approved by the Board;
(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 the Effective Date and (ii)
persons who were nominated for elections as members of the Board at a
time when two-thirds of the Board consisted of persons who were members
of the Board on the Effective Date; provided, however, that any person
nominated for election by a Board at least two-thirds of whom
constituted 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);
(c) Approval by the stockholders of the Company 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 Common Stock and Company Voting Securities
immediately prior to such reorganization, merger or consolidation,
following such reorganization, merger or consolidation beneficially
own, directly or indirectly, more than seventy five (75%) 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 Common Stock and Company Voting Securities
immediately prior to such reorganization, merger or consolidation, as
the case may be; or
2
<PAGE> 3
(d) Approval by the stockholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) a sale or
other disposition of all or substantially all the assets of the
Company.
2.07. 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.
2.08. COMMITTEE means the Committee defined in Section 3.01.
2.09. COMPANY means Allegheny Teledyne Incorporated, a Delaware
corporation, and its successors.
2.10. COMMON STOCK means Common Stock of the Company, par value $.10
per share.
2.11. COMPANY VOTING SECURITIES means the combined voting power of all
outstanding voting securities of the Company entitled to vote generally in the
election of directors to the Board.
2.12. DATE OF GRANT means the date designated by the Committee as the
date as of which it grants an Award, which shall not be earlier than the date on
which the Committee approves the granting of such Award.
2.13. EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
2.14. EXERCISE PRICE means, with respect to a Stock Appreciation Right,
the amount established by the Committee in the Award Agreement which is to be
subtracted from the Fair Market Value on the date of exercise in order to
determine the amount of the payment to be made to the Participant, as further
described in Section 6.02(b).
2.15. FAIR MARKET VALUE means, on any date, the average of the high and
low quoted sales prices of a share of Common Stock, as reported on the Composite
Tape for New York Stock Exchange Listed Companies on such date or, if there were
no sales on such date, on the last date preceding such date on which a sale was
reported.
2.16. INCENTIVE STOCK OPTION means a stock option within the meaning of
Section 422 of the Code.
2.17. MERGER means any merger, reorganization, consolidation, exchange,
transfer of assets or other transaction having similar effect involving the
Company.
2.18. NON-QUALIFIED STOCK OPTION means a stock option which is not an
Incentive Stock Option.
2.19. OPTIONS means all Non-Qualified Stock Options and Incentive Stock
Options granted at any time under the Plan.
3
<PAGE> 4
2.20. OUTSTANDING COMMON STOCK means, at any time, the issued and
outstanding shares of Common Stock.
2.21. PARTICIPANT means a person designated to receive an Award under
the Plan in accordance with Section 5.01.
2.22. PERFORMANCE AWARDS means Awards granted in accordance with
Article VIII.
2.23. PERFORMANCE GOALS means operating income, operating profit
(earnings from continuing operations before interest and taxes), earnings per
share, return on investment or working capital, return on stockholders' equity,
economic value added (the amount, if any, by which net operating profit after
tax exceeds a reference cost of capital), reductions in inventory, inventory
turns and on-time delivery performance, any one of which may be measured with
respect to the Company or any one or more of its Subsidiaries and divisions and
either in absolute terms or as compared to another company or companies, and
quantifiable, objective measures of individual performance relevant to the
particular individual's job responsibilities.
2.24. PLAN means the Allegheny Teledyne Incorporated 1996 Incentive
Plan as described herein, as the same may be amended from time to time.
2.25. PURCHASE PRICE, with respect to Options, shall have the meaning
set forth in Section 6.01(b).
2.26. RESTORATION OPTION means a Non-Qualified Stock Option granted
pursuant to Section 6.01(f).
2.27. RESTRICTED SHARES means Common Stock subject to restrictions
imposed in connection with Awards granted under Article VII.
2.28. RETIREMENT means early or normal retirement under a pension plan
or arrangement of the Company or one of its Subsidiaries in which the
Participant participates.
2.29. RULE 16B-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as the same may be
amended from time to time, and any successor rule.
2.30. STOCK APPRECIATION RIGHTS means Awards granted in accordance with
Article VI.
2.31. SUBSIDIARY means a subsidiary of the Company within the meaning
of Section 424(f) of the Code.
2.32. TERMINATION OF EMPLOYMENT means the voluntary or involuntary
termination of a Participant's employment with the Company or a Subsidiary for
any reason, including death, disability, retirement or as the result of the
divestiture of the Participant's employer or any similar transaction in which
the Participant's employer ceases to be the Company or one of its Subsidiaries.
Whether entering military or other government service shall constitute
Termination of Employment, or whether a Termination of Employment shall occur as
a result of disability, shall be determined in each case by the Committee in its
sole discretion.
4
<PAGE> 5
ARTICLE III
ADMINISTRATION
3.01. COMMITTEE. The Plan shall be administered by a committee of the
Board ("Committee") comprised of at least two persons. The Committee shall have
exclusive and final authority in each determination, interpretation or other
action affecting the Plan and its Participants. The Committee shall have the
sole discretionary authority to interpret the Plan, to establish and modify
administrative rules for the Plan, to impose such conditions and restrictions on
Awards as it determines appropriate, to cancel Awards (including those made
pursuant to other plans of the Company) and to substitute new Options for
previously awarded Options which, at the time of such substitution, have an
exercise price in excess of the Fair Market Value of the underlying Common Stock
(including options granted under other incentive compensation programs of the
Company) with the consent of the recipient, and to take such steps in connection
with the Plan and Awards granted hereunder as it may deem necessary or
advisable. The Committee shall not, however, have or exercise any discretion
that would disqualify amounts payable under Article X as performance-based
compensation for purposes of Section 162(m) of the Code. The Committee may
delegate such of its powers and authority under the Plan as it deems appropriate
to a subcommittee of the Committee and/or designated officers or employees of
the Company. In addition, the full Board may exercise any of the powers and
authority of the Committee under the Plan. In the event of such delegation of
authority or exercise of authority by the Board, references in the Plan to the
Committee shall be deemed to refer, as appropriate, to the delegate of the
Committee or the Board. The selection of members of the Committee or any
subcommittee thereof, and any delegation by the Committee to designated officers
or employees, under this Section 3.01 shall comply with Section 16(b) of the
Exchange Act, the performance-based provisions of Section 162(m) of the Code,
and the regulations promulgated under each of such statutory provisions, or the
respective successors to such statutory provisions or regulations, as in effect
from time to time.
ARTICLE IV
SHARES
4.01. NUMBER OF SHARES ISSUABLE. The total number of shares initially
authorized to be issued under the Plan shall be 9,000,000 shares of Common
Stock. The number of shares available for issuance under the Plan shall be
further subject to adjustment in accordance with Section 11.07. The shares to be
offered under the Plan shall be authorized and unissued Common Stock, or issued
Common Stock which shall have been reacquired by the Company.
4.02. SHARES SUBJECT TO TERMINATED AWARDS. Common Stock covered by any
unexercised portions of terminated Options (including canceled Options) granted
under Article VI, Common Stock forfeited as provided in Section 7.02(a) and
Common Stock subject to any Awards which are otherwise surrendered by the
Participant may again be subject to new Awards under the Plan. Common Stock
subject to Options, or portions thereof, which have been surrendered in
connection with the exercise of Stock Appreciation Rights shall not be available
for subsequent Awards under the Plan, but Common Stock issued in payment of such
Stock Appreciation Rights shall not be charged against the number of shares of
Common Stock available for the grant of Awards hereunder.
5
<PAGE> 6
ARTICLE V
PARTICIPATION
5.01. ELIGIBLE PARTICIPANTS. Participants in the Plan shall be such
officers and other key employees of the Company and its Subsidiaries, whether or
not members of the Board, as the Committee, in its sole discretion, may
designate from time to time. The Committee's designation of a Participant in any
year shall not require the Committee to designate such person to receive Awards
or grants in any other year. The designation of a Participant to receive awards
or grants under one portion of the Plan does not require the Committee to
include such Participant under other portions of the Plan. The Committee shall
consider such factors as it deems pertinent in selecting Participants and in
determining the type and amount of their respective Awards. Notwithstanding any
provision herein to the contrary, the Committee may grant Awards under the Plan,
other than Incentive Stock Options, to non-employees who, in the judgment of the
Committee, render significant services to the Company or any of its
Subsidiaries, on such terms and conditions as the Committee deems appropriate
and consistent with the intent of the Plan. Subject to adjustment in accordance
with Section 11.07, in any calendar year, no Participant shall be granted Awards
in respect of more than 750,000 shares of Common Stock (whether through grants
of Options or Stock Appreciation Rights or other grants of Common Stock or
rights with respect thereto) and $3,000,000 in cash.
ARTICLE VI
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
6.01. OPTION AWARDS.
(a) GRANT OF OPTIONS. The Committee may grant, to such
Participants as the Committee may select, Options entitling the
Participant to purchase shares of Common Stock from the Company in such
number, at such price, and on such terms and subject to such
conditions, not inconsistent with the terms of this Plan, as may be
established by the Committee. The terms of any Option granted under
this Plan shall be set forth in an Award Agreement.
(b) PURCHASE PRICE OF OPTIONS. The Purchase Price of each
share of Common Stock which may be purchased upon exercise of any
Option granted under the Plan shall be determined by the Committee;
provided, however, that the Purchase Price of the Common Stock
purchased pursuant to Options designated by the Committee as Incentive
Stock Options shall be equal to or greater than the Fair Market Value
on the Date of Grant as required under Section 422 of the Code.
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<PAGE> 7
(c) DESIGNATION OF OPTIONS. Except as otherwise expressly
provided in the Plan, the Committee may designate, at the time of the
grant of each Option, the Option as an Incentive Stock Option or a
Non-Qualified Stock Option.
(d) INCENTIVE STOCK OPTION SHARE LIMITATION. No Participant
may be granted Incentive Stock Options under the Plan (or any other
plans of the Company and its Subsidiaries) which would result in shares
with an aggregate Fair Market Value (measured on the Date of Grant) of
more than $100,000 first becoming exercisable in any one calendar year.
(e) RIGHTS AS A SHAREHOLDER. A Participant or a transferee of
an Option pursuant to Section 11.04 shall have no rights as a
shareholder with respect to Common Stock covered by an Option until the
Participant or transferee shall have become the holder of record of any
such shares, and no adjustment shall be made for dividends in cash or
other property or distributions or other rights with respect to any
such Common Stock for which the record date is prior to the date on
which the Participant or a transferee of the Option shall have become
the holder of record of any such shares covered by the Option;
provided, however, that Participants are entitled to share adjustments
to reflect capital changes under Section 11.07.
(f) RESTORATION OPTIONS UPON THE EXERCISE OF A NON-QUALIFIED
STOCK OPTION. In the event that any Participant delivers to the
Company, or has withheld from the shares otherwise issuable upon the
exercise of a Non-Qualified Stock Option, shares of Common Stock in
payment of the Purchase Price of any Non-Qualified Stock Option granted
hereunder in accordance with Section 6.04, the Committee shall have the
authority to grant or provide for the automatic grant of a Restoration
Option to such Participant. The grant of a Restoration Option shall be
subject to the satisfaction of such conditions or criteria as the
Committee in its sole discretion shall establish from time to time. A
Restoration Option shall entitle the holder thereof to purchase a
number of shares of Common Stock equal to the number of such shares so
delivered or withheld upon exercise of the original Option and, in the
discretion of the Committee, the number of shares, if any, delivered or
withheld to the Corporation to satisfy any withholding tax liability
arising in connection with the exercise of the original Option. A
Restoration Option shall have a per share Purchase Price of not less
than 100% of the per share Fair Market Value of the Common Stock on the
date of grant of such Restoration Option, a term not longer than the
remaining term of the original Option at the time of exercise thereof,
and such other terms and conditions as the Committee in its sole
discretion shall determine.
6.02. STOCK APPRECIATION RIGHTS.
(a) STOCK APPRECIATION RIGHT AWARDS. The Committee is
authorized to grant to any Participant one or more Stock Appreciation
Rights. Such Stock Appreciation Rights may be granted either
independent of or in tandem with Options granted to the same
Participant. Stock Appreciation Rights granted in tandem with Options
may be
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granted simultaneously with, or, in the case of Non-Qualified Stock
Options, subsequent to, the grant to such Participant of the related
Option; provided however, that: (i) any Option covering any share of
Common Stock shall expire and not be exercisable upon the exercise of
any Stock Appreciation Right with respect to the same share, (ii) any
Stock Appreciation Right covering any share of Common Stock shall
expire and not be exercisable upon the exercise of any related Option
with respect to the same share, and (iii) an Option and Stock
Appreciation Right covering the same share of Common Stock may not be
exercised simultaneously. Upon exercise of a Stock Appreciation Right
with respect to a share of Common Stock, the Participant shall be
entitled to receive an amount equal to the excess, if any, of (A) the
Fair Market Value of a share of Common Stock on the date of exercise
over (B) the Exercise Price of such Stock Appreciation Right
established in the Award Agreement, which amount shall be payable as
provided in Section 6.02(c).
(b) EXERCISE PRICE. The Exercise Price established under any
Stock Appreciation Right granted under this Plan shall be determined by
the Committee, but in the case of Stock Appreciation Rights granted in
tandem with Options shall not be less than the Purchase Price of the
related Option. Upon exercise of Stock Appreciation Rights granted in
tandem with options, the number of shares subject to exercise under any
related Option shall automatically be reduced by the number of shares
of Common Stock represented by the Option or portion thereof which are
surrendered as a result of the exercise of such Stock Appreciation
Rights.
(c) PAYMENT OF INCREMENTAL VALUE. Any payment which may become
due from the Company by reason of a Participant's exercise of a Stock
Appreciation Right may be paid to the Participant as determined by the
Committee (i) all in cash, (ii) all in Common Stock, or (iii) in any
combination of cash and Common Stock. In the event that all or a
portion of the payment is made in Common Stock, the number of shares of
Common Stock delivered in satisfaction of such payment shall be
determined by dividing the amount of such payment or portion thereof by
the Fair Market Value on the Exercise Date. No fractional share of
Common Stock shall be issued to make any payment in respect of Stock
Appreciation Rights; if any fractional share would be issuable, the
combination of cash and Common Stock payable to the Participant shall
be adjusted as directed by the Committee to avoid the issuance of any
fractional share.
6.03.TERMS OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
(a) CONDITIONS ON EXERCISE. An Award Agreement with respect to
Options and/or Stock Appreciation Rights may contain such waiting
periods, exercise dates and restrictions on exercise (including, but
not limited to, periodic installments) as may be determined by the
Committee at the time of grant.
(b) DURATION OF OPTIONS AND STOCK APPRECIATION RIGHTS. Options
and Stock Appreciation Rights shall terminate upon the first to occur
of the following events:
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(i) Expiration of the Option or Stock Appreciation
Right as provided in the Award Agreement; or
(ii) Termination of the Award in the event of a
Participant's disability, Retirement, Death or other
Termination of Employment as provided in the Award Agreement;
or
(iii) In the case of an Incentive Stock Option, ten
years from the Date of Grant; or
(iv) Solely in the case of a Stock Appreciation Right
granted in tandem with an Option, upon the expiration of the
related Option.
(c) ACCELERATION OR EXTENSION OF EXERCISE TIME. The Committee,
in its sole discretion, shall have the right (but shall not be obligated to),
exercisable on or at any time after the Date of Grant, to permit the exercise of
an Option or Stock Appreciation Right (i) prior to the time such Option or Stock
Appreciation Right would become exercisable under the terms of the Award
Agreement, (ii) after the termination of the Option or Stock Appreciation Right
under the terms of the Award Agreement, or (iii) after the expiration of the
Option or Stock Appreciation Right.
6.04. EXERCISE PROCEDURES. Each Option and Stock Appreciation Right
granted under the Plan shall be exercised by written notice to the Company which
must be received by the officer or employee of the Company designated in the
Award Agreement on or before the close of business on the expiration date of the
Award. The Purchase Price of shares purchased upon exercise of an Option granted
under the Plan shall be paid in full in cash by the Participant pursuant to the
Award Agreement; provided however, that the Committee may (but shall not be
required to) permit payment to be made by delivery to the Company of either (a)
Common Stock (which may include Restricted Shares or shares otherwise issuable
in connection with the exercise of the Option, subject to such rules as the
Committee deems appropriate) or (b) any combination of cash and Common Stock, or
(c) such other consideration as the Committee deems appropriate and in
compliance with applicable law (including payment in accordance with a cashless
exercise program under which, if so instructed by the Participant, Common Stock
may be issued directly to the Participant's broker or dealer upon receipt of an
irrevocable written notice of exercise from the Participant). In the event that
any Common Stock shall be transferred to the Company to satisfy all or any part
of the Purchase Price, the part of the Purchase Price deemed to have been
satisfied by such transfer of Common Stock shall be equal to the product derived
by multiplying the Fair Market Value as of the date of exercise times the number
of shares of Common Stock transferred to the Company. The Participant may not
transfer to the Company in satisfaction of the Purchase Price any fractional
share of Common Stock. Any part of the Purchase Price paid in cash upon the
exercise of any Option shall be added to the general funds of the Company and
may be used for any proper corporate purpose. Unless the Committee shall
otherwise determine, any Common Stock transferred to the Company as payment of
all or part of the Purchase Price upon the exercise of any Option shall be held
as treasury shares.
6.05. CHANGE IN CONTROL. Unless otherwise provided by the Committee in
the
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applicable Award Agreement, in the event of a Change in Control, all Options
outstanding on the date of such Change in Control, and all Stock Appreciation
Rights shall become immediately and fully exercisable. The provisions of this
Section 6.05 shall not be applicable to any Options or Stock Appreciation Rights
granted to a Participant if any Change in Control results from such
Participant's beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of Common Stock or Company Voting Securities.
ARTICLE VII
RESTRICTED SHARES
7.01. RESTRICTED SHARE AWARDS. The Committee may grant to any
Participant an Award of Common Stock in such number of shares, and on such
terms, conditions and restrictions, whether based on performance standards,
periods of service, retention by the Participant of ownership of purchased or
designated shares of Common Stock or other criteria, as the Committee shall
establish. With respect to performance-based Awards of Restricted Shares to
"covered employees" (as defined in Section 162(m) of the Code), performance
targets will be limited to specified levels of one or more of the Performance
Goals. The terms of any Restricted Share Award granted under this Plan shall be
set forth in an Award Agreement which shall contain provisions determined by the
Committee and not inconsistent with this Plan.
(a) ISSUANCE OF RESTRICTED SHARES. As soon as practicable
after the Date of Grant of a Restricted Share Award by the Committee,
the Company shall cause to be transferred on the books of the Company,
or its agent, Common Stock, registered on behalf of the Participant,
evidencing the Restricted Shares covered by the Award, but subject to
forfeiture to the Company as of the Date of Grant if an Award Agreement
with respect to the Restricted Shares covered by the Award is not duly
executed by the Participant and timely returned to the Company. All
Common Stock covered by Awards under this Article VII shall be subject
to the restrictions, terms and conditions contained in the Plan and the
Award Agreement entered into by the Participant. Until the lapse or
release of all restrictions applicable to an Award of Restricted Shares
the share certificates representing such Restricted Shares may be held
in custody by the Company, its designee, or, if the certificates bear a
restrictive legend, by the Participant. Upon the lapse or release of
all restrictions with respect to an Award as described in Section
7.01(d), one or more share certificates, registered in the name of the
Participant, for an appropriate number of shares as provided in Section
7.01(d), free of any restrictions set forth in the Plan and the Award
Agreement shall be delivered to the Participant.
(b) SHAREHOLDER RIGHTS. Beginning on the Date of Grant of the
Restricted Share Award and subject to execution of the Award Agreement
as provided in Section 7.01(a), the Participant shall become a
shareholder of the Company with respect to all shares subject to the
Award Agreement and shall have all of the rights of a shareholder,
including, but not limited to, the right to vote such shares and the
right to
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receive dividends; provided, however, that any Common Stock distributed
as a dividend or otherwise with respect to any Restricted Shares as to
which the restrictions have not yet lapsed, shall be subject to the
same restrictions as such Restricted Shares and held or restricted as
provided in Section 7.01(a).
(c) RESTRICTION ON TRANSFERABILITY. None of the Restricted
Shares may be assigned or transferred (other than by will or the laws
of descent and distribution, or to an inter vivos trust with respect to
which the Participant is treated as the owner under Sections 671
through 677 of the Code except to the extent that Section 16 of the
Exchange Act limits a participant's right to make such transfers),
pledged or sold prior to lapse of the restrictions applicable thereto.
(d) DELIVERY OF SHARES UPON VESTING. Upon expiration or
earlier termination of the forfeiture period without a forfeiture and
the satisfaction of or release from any other conditions prescribed by
the Committee, or at such earlier time as provided under the provisions
of Section 7.03, the restrictions applicable to the Restricted Shares
shall lapse. As promptly as administratively feasible thereafter,
subject to the requirements of Section 11.05, the Company shall deliver
to the Participant or, in case of the Participant's death, to the
Participant's Beneficiary, one or more share certificates for the
appropriate number of shares of Common Stock, free of all such
restrictions, except for any restrictions that may be imposed by law.
7.02. TERMS OF RESTRICTED SHARES.
(a) FORFEITURE OF RESTRICTED SHARES. Subject to Sections
7.02(b) and 7.03, all Restricted Shares shall be forfeited and returned
to the Company and all rights of the Participant with respect to such
Restricted Shares shall terminate unless the Participant continues in
the service of the Company or a Subsidiary as an employee until the
expiration of the forfeiture period for such Restricted Shares and
satisfies any and all other conditions set forth in the Award
Agreement. The Committee shall determine the forfeiture period (which
may, but need not, lapse in installments) and any other terms and
conditions applicable with respect to any Restricted Share Award.
(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 period and any other
conditions set forth in any Award Agreement under appropriate
circumstances (including the death, disability or Retirement of the
Participant or a material change in circumstances arising after the
date of an Award) and subject to such terms and conditions (including
forfeiture of a proportionate number of the Restricted Shares) as the
Committee shall deem appropriate.
7.03. CHANGE IN CONTROL. Unless otherwise provided by the Committee in
the applicable Award Agreement, in the event of a Change in Control, all
restrictions applicable to the Restricted Share Award shall terminate fully and
the Participant shall immediately have the right to the delivery of share
certificate or certificates for such shares in accordance with Section 7.01(d).
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ARTICLE VIII
PERFORMANCE AWARDS
8.01. PERFORMANCE AWARDS.
(a) AWARD PERIODS AND CALCULATIONS OF POTENTIAL INCENTIVE
AMOUNTS. The Committee may grant Performance Awards to Participants. A
Performance Award shall consist of the right to receive a payment
(measured by the Fair Market Value of a specified number of shares of
Common Stock, increases in such Fair Market Value during the Award
Period and/or a fixed cash amount) contingent upon the extent to which
certain predetermined performance targets have been met during an Award
Period. Performance Awards may be made in conjunction with, or in
addition to, Restricted Share Awards made under Article VII. The Award
Period shall be two or more fiscal or calendar years as determined by
the Committee. The Committee, in its discretion and under such terms as
it deems appropriate, may permit newly eligible employees, such as
those who are promoted or newly hired, to receive Performance Awards
after an Award Period has commenced.
(b) PERFORMANCE TARGETS. The performance targets may include
such goals related to the performance of the Company or, where
relevant, any one or more of its Subsidiaries or divisions and/or the
performance of a Participant as may be established by the Committee in
its discretion. In the case of Performance Awards to "covered
employees" (as defined in Section 162(m) of the Code), the targets will
be limited to specified levels of one or more of the Performance Goals.
The performance targets established by the Committee may vary for
different Award Periods and need not be the same for each Participant
receiving a Performance Award in an Award Period. Except to the extent
inconsistent with the performance-based compensation exception under
Section 162(m) of the Code, in the case of Performance Awards granted
to employees to whom such section is applicable, the Committee, in its
discretion, but only under extraordinary circumstances as determined by
the Committee, may change any prior determination of performance
targets for any Award Period at any time prior to the final
determination of the Award when events or transactions occur to cause
the performance targets to be an inappropriate measure of achievement.
(c) EARNING PERFORMANCE AWARDS. The Committee, at or as soon
as practicable after the Date of Grant, shall prescribe a formula to
determine the percentage of the Performance Award to be earned based
upon the degree of attainment of performance targets.
(d) PAYMENT OF EARNED PERFORMANCE AWARDS. Subject to the
requirements of Section 11.05, payments of earned Performance Awards
shall be made in cash or Common Stock, or a combination of cash and
Common Stock, in the discretion of the Committee. The Committee, in its
sole discretion, may define such terms and conditions with respect to
the payment of earned Performance Awards as it may deem desirable.
8.02. TERMS OF PERFORMANCE AWARDS.
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(a) TERMINATION OF EMPLOYMENT. Unless otherwise provided below
or in Section 8.03, in the case of a Participant's Termination of
Employment prior to the end of an Award Period, the Participant will
not have earned any Performance Awards.
(b) RETIREMENT. If a Participant's Termination of Employment
is because of Retirement prior to the end of an Award Period, the
Participant will not be paid any Performance Awards, unless the
Committee, in its sole and exclusive discretion, determines that an
Award should be paid. In such a case, the Participant shall be entitled
to receive a pro-rata portion of his or her Award as determined under
Subsection (d).
(c) DEATH OR DISABILITY. If a Participant's Termination of
Employment is due to death or disability (as determined in the sole and
exclusive discretion of the Committee) prior to the end of an Award
Period, the Participant or the Participant's personal representative
shall be entitled to receive a pro-rata share of his or her Award as
determined under Subsection (d).
(d) PRO-RATA PAYMENT. The amount of any payment made to a
Participant whose employment is terminated by Retirement, death or
disability (under circumstances described in Subsections (b) and (c))
will be the amount determined by multiplying the amount of the
Performance Award which would have been earned, determined at the end
of the Award Period, had such employment not been terminated, by a
fraction, the numerator of which is the number of whole months such
Participant was employed during the Award Period, and the denominator
of which is the total number of months of the Award Period. Any such
payment made to a Participant whose employment is terminated prior to
the end of an Award Period under this Section 8.02 shall be made at the
end of the respective Award Period, unless otherwise determined by the
Committee in its sole discretion. Any partial payment previously made
or credited to a deferred account for the benefit of a Participant as
provided under Section 8.01(d) of the Plan shall be subtracted from the
amount otherwise determined as payable as provided in this Section.
(e) OTHER EVENTS. Notwithstanding anything to the contrary in
this Article VIII, the Committee may, in its sole and exclusive
discretion, determine to pay all or any portion of a Performance Award
to a Participant who has terminated employment prior to the end of an
Award Period under certain circumstances (including the death,
disability or retirement of the Participant or a material change in
circumstances arising after the Date of Grant) and subject to such
terms and conditions as the Committee shall deem appropriate.
8.03. CHANGE IN CONTROL. Unless otherwise provided by the Committee in
the applicable Award Agreement, in the event of a Change in Control, all
Performance Awards for all Award Periods shall immediately become fully payable
to all Participants and shall be paid to Participants in accordance with Section
8.02(d), within 30 days after such Change in Control.
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ARTICLE IX
OTHER STOCK-BASED AWARDS
9.01. GRANT OF OTHER STOCK-BASED AWARDS. Other stock-based awards,
consisting of stock purchase rights (with or without loans to Participants by
the Company containing such terms as the Committee shall determine), Awards of
cash, Awards of Common Stock, or Awards valued in whole or in part by reference
to, or otherwise based on, Common Stock, may be granted either alone or in
addition to or in conjunction with other Awards under the Plan. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to
determine the persons to whom and the time or times at which such Awards shall
be made, the number of shares of Common Stock to be granted pursuant to such
Awards, and all other conditions of the Awards. Any such Award shall be
confirmed by an Award Agreement executed by the Committee and the Participant,
which Award Agreement shall contain such provisions as the Committee determines
to be necessary or appropriate to carry out the intent of this Plan with respect
to such Award.
9.02. TERMS OF OTHER STOCK-BASED AWARDS. In addition to the terms and
conditions specified in the Award Agreement, Awards made pursuant to this
Article IX shall be subject to the following:
(a) Any Common Stock subject to Awards made under this Article
IX may not be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the shares are issued, or, if
later, the date on which any applicable restriction, performance or
deferral period lapses; and
(b) If specified by the Committee in the Award Agreement, the
recipient of an Award under this Article IX shall be entitled to
receive, currently or on a deferred basis, interest or dividends or
dividend equivalents with respect to the Common Stock or other
securities covered by the Award; and
(c) The Award Agreement with respect to any Award shall
contain provisions dealing with the disposition of such Award in the
event of a Termination of Employment prior to the exercise, realization
or payment of such Award, whether such termination occurs because of
Retirement, disability, death or other reason, with such provisions to
take account of the specific nature and purpose of the Award.
9.03. FOREIGN QUALIFIED AWARDS. Awards under the Plan may be granted to
such employees of the Company and its Subsidiaries who are residing in foreign
jurisdictions as the Committee in its sole discretion may determine from time to
time. The Committee may adopt such supplements to the Plan as may be necessary
or appropriate to comply with the applicable laws of such foreign jurisdictions
and to afford Participants favorable treatment under such laws; provided,
however, that no Award shall be granted under any such supplement with terms or
conditions inconsistent with the provision set forth in the Plan.
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ARTICLE X
SHORT-TERM CASH INCENTIVE AWARDS
10.01. ELIGIBILITY. Executive officers of the Company who are from time
to time determined by the Committee to be "covered employees" for purposes of
Section 162(m) of the Code will be eligible to receive short-term cash incentive
awards under this Article X.
10.02. AWARDS.
(a) PERFORMANCE TARGETS. For each fiscal year of the Company
after fiscal year 1996, the Committee shall establish objective
performance targets based on specified levels of one or more of the
Performance Goals. Such performance targets shall be established by the
Committee on a timely basis to ensure that the targets are considered
"preestablished" for purposes of Section 162(m) of the Code.
(b) AMOUNTS OF AWARDS. In conjunction with the establishment
of performance targets for a fiscal year, the Committee shall adopt an
objective formula (on the basis of percentages of Participants'
salaries, shares in a bonus pool or otherwise) for computing the
respective amounts payable under the Plan to Participants if and to the
extent that the performance targets are attained. Such formula shall
comply with the requirements applicable to performance-based
compensation plans under Section 162(m) of the Code and, to the extent
based on percentages of a bonus pool, such percentages shall not exceed
100% in the aggregate.
(c) PAYMENT OF AWARDS. Awards will be payable to Participants
in cash each year upon prior written certification by the Committee of
attainment of the specified performance targets for the preceding
fiscal year.
(d) NEGATIVE DISCRETION. Notwithstanding the attainment by the
Company of the specified performance targets, the Committee shall have
the discretion, which need not be exercised uniformly among the
Participants, to reduce or eliminate the award that would be otherwise
paid.
(e) GUIDELINES. The Committee shall adopt from time to time
written policies for its implementation of this Article X. Such
guidelines shall reflect the intention of the Company that all payments
hereunder qualify as performance-based compensation under Section
162(m) of the Code.
(f) NON-EXCLUSIVE ARRANGEMENT. The adoption and operation of
this Article X shall not preclude the Board or the Committee from
approving other short-term incentive compensation arrangements for the
benefit of individuals who are Participants hereunder as the Board or
Committee, as the case may be, deems appropriate and in the best of the
Company.
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ARTICLE XI
TERMS APPLICABLE GENERALLY TO AWARDS GRANTED UNDER THE PLAN
11.01. PLAN PROVISIONS CONTROL AWARD TERMS. Except as provided in
Section 11.16, the terms of the Plan shall govern all Awards granted under the
Plan, and in no event shall the Committee have the power to grant any Award
under the Plan which is contrary to any of the provisions of the Plan. In the
event any provision of any Award granted under the Plan shall conflict with any
term in the Plan as constituted on the Date of Grant of such Award, the term in
the Plan as constituted on the Date of Grant of such Award shall control. Except
as provided in Section 11.03 and Section 11.07, the terms of any Award granted
under the Plan may not be changed after the Date of Grant of such Award so as to
materially decrease the value of the Award without the express written approval
of the holder.
11.02. AWARD AGREEMENT. No person shall have any rights under any Award
granted under the Plan unless and until the Company and the Participant to whom
such Award shall have been granted shall have executed and delivered an Award
Agreement or received any other Award acknowledgment authorized by the Committee
expressly granting the Award to such person and containing provisions setting
forth the terms of the Award.
11.03. MODIFICATION OF AWARD AFTER GRANT. No Award granted under the
Plan to a Participant may be modified (unless such modification does not
materially decrease the value of the Award) after the Date of Grant except by
express written agreement between the Company and the Participant, provided that
any such change (a) shall not be inconsistent with the terms of the Plan, and
(b) shall be approved by the Committee.
11.04. LIMITATION ON TRANSFER. Except as provided in Section 7.01(c) in
the case of Restricted Shares, a Participant's rights and interest under the
Plan may not be assigned or transferred other than by will or the laws of
descent and distribution, and during the lifetime of a Participant, only the
Participant personally (or the Participant's personal representative) may
exercise rights under the Plan. The Participant's Beneficiary may exercise the
Participant's rights to the extent they are exercisable under the Plan following
the death of the Participant. Notwithstanding the foregoing to the extent
permitted under Section 16(b) of the Exchange Act with respect to Participants
subject to such Section, the Committee may grant Non-Qualified Stock Options
that are transferable, without payment of consideration, to immediate family
members of the Participant or to trusts or partnerships for such family members,
and the Committee may also amend outstanding Non-Qualified Stock Options to
provide for such transferability.
11.05. TAXES.
The Company shall be entitled, if the Committee deems it
necessary or desirable, 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 Company with respect to any amount payable and/or
shares issuable under such Participant's Award, or with respect to any income
recognized upon a disqualifying disposition of shares received pursuant to the
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exercise of an Incentive Stock Option, and the Company may defer payment or
issuance of the cash or shares upon exercise or vesting of an Award 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
and shall be payable by the Participant at such time as the Committee determines
in accordance with the following rules:
(a) The Participant shall have the right to elect to meet his
or her withholding requirement (i) by having withheld from such Award
at the appropriate time that number of shares of Common Stock, rounded
up to the next whole share, whose Fair Market Value is equal to the
amount of withholding taxes due, (ii) by direct payment to the Company
in cash of the amount of any taxes required to be withheld with respect
to such Award or (iii) by a combination of shares and cash.
(b) The Committee shall have the discretion as to any Award,
to cause the Company to pay to tax authorities for the benefit of any
Participant, or to reimburse such Participant for the individual taxes
which are due on the grant, exercise or vesting of any share Award, or
the lapse of any restriction on any share Award (whether by reason of a
Participant's filing of an election under Section 83(b) of the Code or
otherwise), including, but not limited to, Federal income tax, state
income tax, local income tax and excise tax under Section 4999 of the
Code, as well as for any such taxes as may be imposed upon such tax
payment or reimbursement.
(c) In the case of Participants who are subject to Section 16
of the Exchange Act, the Committee may impose such limitations and
restrictions as it deems necessary or appropriate with respect to the
delivery or withholding of shares of Common Stock to meet tax
withholding obligations.
11.06. SURRENDER OF AWARDS. Any Award granted under the Plan may be
surrendered to the Company for cancellation on such terms as the Committee and
the holder approve.
11.07. ADJUSTMENTS TO REFLECT CAPITAL CHANGES.
(a) RECAPITALIZATION. The number and kind of shares subject to
outstanding Awards, the Purchase Price or Exercise Price for such
shares, the number and kind of shares available for Awards subsequently
granted under the Plan and the maximum number of shares in respect of
which Awards can be made to any Participant in any calendar year shall
be appropriately adjusted to reflect any stock dividend, stock split,
combination or exchange of shares, merger, consolidation or other
change in capitalization with a similar substantive effect upon the
Plan or the Awards granted under the Plan. The Committee shall have the
power and sole discretion to determine the amount of the adjustment to
be made in each case.
(b) MERGER. After any Merger in which the Company is the
surviving corporation, each Participant shall, at no additional cost,
be entitled upon any exercise of
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all Options or receipt of other Award to receive (subject to any
required action by shareholders), in lieu of the number of shares of
Common Stock receivable or exercisable pursuant to such Award, the
number and class of shares or other securities to which such
Participant would have been entitled pursuant to the terms of the
Merger if, at the time of the Merger, such Participant had been the
holder of record of a number of shares equal to the number of shares
receivable or exercisable pursuant to such Award. Comparable rights
shall accrue to each Participant in the event of successive Mergers of
the character described above. In the event of a Merger in which the
Company is not the surviving corporation, the surviving, continuing,
successor, or purchasing corporation, as the case may be (the
"Acquiring Corporation"), shall either assume the Company's rights and
obligations under outstanding Award Agreements or substitute awards in
respect of the Acquiring Corporation's stock for such outstanding
Awards. In the event the Acquiring Corporation fails to assume or
substitute for such outstanding Awards, the Board shall provide that
any unexercisable and/or unvested portion of the outstanding Awards
shall be immediately exercisable and vested as of a date prior to such
Merger, as the Board so determines. The exercise and/or vesting of any
Award that was permissible solely by reason of this Section 11.07(b)
shall be conditioned upon the consummation of the Merger. Any Options
which are neither assumed by the Acquiring Corporation nor exercised as
of the date of the Merger shall terminate effective as of the effective
date of the Merger.
(c) OPTIONS TO PURCHASE SHARES OR STOCK OF ACQUIRED COMPANIES.
After any Merger in which the Company or a Subsidiary shall be a
surviving corporation, the Committee may grant substituted options
under the provisions of the Plan, pursuant to Section 424 of the Code,
replacing old options granted under a plan of another party to the
Merger whose shares or stock subject to the old options may no longer
be issued following the Merger. The foregoing adjustments and manner of
application of the foregoing provisions shall be determined by the
Committee in its sole discretion. Any such adjustments may provide for
the elimination of any fractional shares which might otherwise become
subject to any Options.
11.08. NO RIGHT TO EMPLOYMENT. No employee or other person shall have
any claim of right to 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 Company or any of its Subsidiaries.
11.09. AWARDS NOT INCLUDABLE FOR BENEFIT PURPOSES. Payments received by
a Participant pursuant to the provisions of the Plan shall not be included in
the determination of benefits under any pension, group insurance or other
benefit plan applicable to the Participant which is maintained by the Company or
any of its Subsidiaries, except as may be provided under the terms of such plans
or determined by the Board.
11.10. GOVERNING LAW. All determinations made and actions taken
pursuant to the Plan shall be governed by the laws of the State of Delaware and
construed in accordance therewith.
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11.11. NO STRICT CONSTRUCTION. No rule of strict construction shall be
implied against the Company, 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.
11.12. COMPLIANCE WITH RULE 16B-3. It is intended that, unless the
Committee determines otherwise, Awards under the Plan be eligible for exemption
under Rule 16B-3. The Board is authorized to amend the Plan and to make any such
modifications to Award Agreements to comply with Rule 16b-3, as it may be
amended from time to time, and to make any other such amendments or
modifications as it deems necessary or appropriate to better accomplish the
purposes of the Plan in light of any amendments made to Rule 16b-3.
11.13. CAPTIONS. The captions (i.e., all Section 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 have
been used in the Plan.
11.14. SEVERABILITY. Whenever possible, each provision in the Plan and
every Award at any time granted under the Plan 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 at any time granted under the Plan 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 other Award at any time granted under the Plan shall remain
in full force and effect.
11.15. AMENDMENT AND TERMINATION.
(a) AMENDMENT. The Board shall have complete power and
authority to amend the Plan at any time; provided, however, that the
Board shall not, without the requisite affirmative approval of
shareholders of the Company, make any amendment which requires
shareholder approval under Rule 16b-3 or the Code, unless such
compliance is no longer desired under Rule 16b-3, the Code or under any
other applicable law or rule of any stock exchange which lists Common
Stock or Company Voting Securities. 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.
(b) TERMINATION. The Board shall have the right and the power
to terminate the Plan at any time. 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.
11.16. SPECIAL PROVISION RELATING TO CERTAIN STOCK ISSUANCES.
Notwithstanding anything to the contrary contained in this Plan, shares of
Common Stock authorized to be issued under this Plan may be issued to pay
awards made under the Performance Share Plan for Key Employees of Allegheny
Ludlum Corporation and Subsidiaries (As Amended and Restated) (the "Allegheny
Ludlum Performance Plan") and the Teledyne, Inc. Senior Executive Performance
Plan (the "Teledyne SEP Plan"). All decisions with respect to the making of
awards, and the payment of such awards in shares of Common Stock, under the
Allegheny Ludlum Performance Plan or the Teledyne SEP Plan (each a "Subsidiary
Plan") shall be made by the body in whom the power to administer the applicable
Subsidiary Plan is vested from time to time and shall be complied with by the
Committee and the Company. All shares of Common Stock issued in payment of an
award under either Subsidiary Plan shall be governed exclusively by the terms
of such award, and any terms of this Plan inconsistent therewith shall be
inapplicable to such shares.
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<PAGE> 1
EXHIBIT 10.3
ALLEGHENY TELEDYNE INCORPORATED
1996 INCENTIVE PLAN
ADMINISTRATIVE RULES FOR THE
ALLEGHENY TELEDYNE INCORPORATED
STOCK ACQUISITION AND RETENTION PROGRAM
EFFECTIVE AS OF JANUARY 1, 1998
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 Subcommittee 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 Allegheny Teledyne
Incorporated Stock Acquisition and Retention Program (the "SARP") is to
assist the Corporation and its subsidiaries in retaining and motivating
selected key management employees who will contribute to the success of
the Corporation and its subsidiaries. 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 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.
2.02 BOARD means the Board of Directors of the Corporation.
2.03 BUSINESS DAY means any day on which the New York Stock
Exchange shall be open for trading.
2.04 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
2.05 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
January 1, 1998 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 January 1, 1998; 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.
2.06 COMMITTEE means the Stock Incentive Award Subcommittee of
the Board, in the case of individuals who are "officers" of the
Corporation as defined in Rule 16a-1(f) as promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, as such Rule may be amended from time to time, and
the Personnel and Compensation Committee of the Board, in the case of
individuals who are not such officers of the Corporation.
2.07 CORPORATION means Allegheny Teledyne Incorporated, a
Delaware corporation, and its successors.
2.08 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.
2.09 DATE OF GRANT means the date as of which an award of
Restricted Stock is granted in accordance with Article VII of these
rules.
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<PAGE> 3
2.10 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.
2.11 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.
2.12 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.
2.13 EFFECTIVE DATE means January 1, 1998.
2.14 EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended.
2.15 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.
2.16 OUTSTANDING STOCK means, at any time, the issued and
outstanding Stock.
2.17 PARTICIPANT means any person selected by the Committee,
pursuant to Section 5.01 of these rules, as eligible to participate
under the SARP.
2.18 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.
2.19 PLAN means the Allegheny Teledyne Incorporated 1996
Incentive Plan, as the same may be amended from time to time.
2.20 PURCHASE AMOUNT means the dollar amount that a
Participant specifies in a Purchase Notice with respect to a particular
Purchase Date.
2.21 PURCHASE DATE means, with respect to any Window Period,
the Business Day immediately following the last day of the Window
Period.
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<PAGE> 4
2.22 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.
2.23 PURCHASE LOAN means a loan provided to a Participant by
the Corporation to facilitate the Participant's purchase of Stock
pursuant hereto.
2.24 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.
2.25 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.
2.26 RESTRICTED STOCK means shares of Stock awarded to a
Participant subject to restrictions as described in Article VII of
these rules.
2.27 SARP means the Stock Acquisition and Retention Program,
as the same may be amended from time to time.
2.28 SARP YEAR means each of the calendar years during the
term the SARP remains in effect.
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.
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.
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<PAGE> 5
ARTICLE IV. STOCK ISSUABLE UNDER THE SARP
4.01 SHARES OF STOCK ISSUABLE. 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.
ARTICLE V. PARTICIPATION
5.01 DESIGNATION OF PARTICIPANTS. Participants in the SARP
shall be such officers and senior executives of the Corporation and its
subsidiaries whose actions most directly affect the long-term success
of the Corporation as the Committee, in its sole discretion, after
consultation with the Chief Executive Officer, 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 a company-sponsored defined
contribution plan 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.
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<PAGE> 6
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. Each
election shall take effect as of the Purchase Date immediately
following the close of the Window Period that follows the date the
Purchase Notice is received by the Corporation. 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 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 minimum rate required to avoid imputed
interest under the applicable provisions of the Internal
Revenue Code of 1986.
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(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 (i) shares of Stock
credited to the Participant's account under a
company-sponsored defined contribution plan or (ii) shares of
Stock subject to outstanding and as yet unexercised stock
options. 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
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<PAGE> 8
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) 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
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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 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.
9
<PAGE> 1
EXHIBIT 10.4
ALLEGHENY TELEDYNE INCORPORATED
1996 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF DECEMBER 31, 1997)
ARTICLE I. GENERAL
1.1. 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.
1.2. Adoption and Term. The Plan has been approved by the Board and
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.
1.3. Definitions. As used herein the following terms have the following
meanings:
(a) "Annual Options" means the Stock Options issuable under Section
4.4(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.
(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.
<PAGE> 2
(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.
(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 for serving as a Director and for serving as
the chair of the Board or any committee of the Board as of a
particular 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 Agreement and Plan of Merger and Combination, dated as of
April 1, 1996, as amended and restated, by and among the Company,
Allegheny Ludlum Corporation and Teledyne, Inc.
(l) "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 4.4(b) of the Plan.
(o) "Non-Employee Director" means a Director who is not an Employee.
(p) "Non-Employee Director Notice" means a written notice delivered in
accordance with Section 4.2.
(q) "Plan" means this Allegheny Teledyne Incorporated 1996
Non-Employee Director Stock Compensation Plan, as it may hereafter
be amended from time to time.
2
<PAGE> 3
(r) "Payment Date" means the first business day of January and July of
each Compensation Year on which the Director's Retainer Fee
Payment for serving as a Director is paid by the Company and the
first business day of January of each Compensation Year on which
the Director's Retainer Fee Payment for serving as the chair of
the Board or any committee of the Board is paid by the Company.
(s) "Retainer Fee Options" means the Stock Options issuable under
Section 4.3 of the Plan.
(t) "Stock Options" means options to purchase shares of Common Stock
of the Company issuable hereunder.
1.4. 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 5.1 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
2.1. 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
3.1. Participants. Each Non-Employee Director shall participate in the
Plan on the terms and conditions hereinafter set forth.
ARTICLE IV. PAYMENT OF DIRECTOR'S FEES
4.1. General. The Director's Retainer Fee Payment shall be paid to each
Non-Employee Director, as of each 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
3
<PAGE> 4
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 twenty-five percent (25%) of the Director's
Retainer Fee Payment pursuant to Section 4.2, seventy-five percent (75%) of the
director's Retainer Fee Payment shall be paid in cash and twenty-five percent
(25%) of the Director's Retainer Fee Payment shall be paid in the form of Common
Stock.
4.2 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 December first of 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) either twenty-five percent (25%), fifty
percent (50%), seventy-five percent (75%) or one hundred (100%) of his or her
Director's Retainer Fee Payment in the form of Stock Options and/or Common Stock
with the balance to be paid in cash, and/or (ii) either one hundred percent
(100%) in cash or twenty-five percent (25%), fifty percent (50%), seventy-five
percent (75%) or one hundred percent (100%) of his or her Director's Meeting Fee
Payment in the form of Stock Options and/or Common Stock with the balance, if
any, to be paid in cash. If a Director does not timely file an election, he or
she shall receive twenty-five percent (25%) of the Director's Retainer Fee
Payment in Common Stock and seventy-five percent (75%) in cash and one hundred
percent (100%) of the Director's Meeting Fee Payment in cash. 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 4.2.
4.3 Conversion to Shares.
(a) Director's Retainer Fee Payment. Each Non-Employee Director who
pursuant to Section 4.1 or 4.2 is to receive Common Stock as all or 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 as of the applicable Payment
Date, shall receive as of each 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
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 4.2 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 as of
the first business day in January of the next following Compensation Year a
number of shares of Common Stock equal to the quotient
4
<PAGE> 5
obtained by dividing (i) the amount of the Director's Meeting Fee Payment for
the Compensation Year to be paid in the form of Common Stock by (ii) the Fair
Market Value of the Common Stock per share on such day. Cash shall be paid in
lieu of any fractional shares.
4.4 Stock Options.
(a) Annual Option Grants. An Annual Option covering 1,000 shares of
Common Stock shall be granted to each Non-Employee Director on the date of
adoption of the Director Stock Plan by the Board, subject to approval by the
stockholders of Allegheny Ludlum Corporation and Teledyne, Inc. at their
respective special meetings of shareholders presently scheduled to be held in
1996 and to the effectiveness of the Plan. Thereafter, an Annual Option covering
1,000 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 Fee Options will be granted on the
Payment Dates of each Compensation Year. The number of shares of Common Stock to
be subject to a Retainer 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 applicable 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 the first business day of the next following Compensation
Year 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 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 4.4(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 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.
5
<PAGE> 6
(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 already owned
by, and in the possession of 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
5.1. 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.
5.2. 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,
6
<PAGE> 7
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.
5.3. 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.
5.4. No Guarantee of Membership. Nothing in the Plan shall confer upon
a Non-Employee Director any right to continue to serve as a Director.
5.5. 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 10.7
RESTATED
ALLEGHENY TELEDYNE INCORPORATED
SUPPLEMENTAL PENSION PLAN
1. ESTABLISHMENT. The Board of Directors of Allegheny Teledyne
Incorporated ("Corporation") hereby adopts the Supplemental Pension Plan
previously maintained by Allegheny Ludlum Corporation as the Supplemental
Pension Plan ("Plan") pursuant to which officers and key salaried employees of
the Corporation and its subsidiaries who are mainly responsible for its
continued growth and development and future financial success may be awarded
supplemental pension income subsequent to retirement in addition to their
regular pensions from the Corporation and its subsidiaries and continuing income
to them in the event of their disability and to their survivors in the event of
their death, all as hereinafter provided.
2. OBJECTIVE. The objective of this Plan is to provide for an officer
or key employee who may be designated to participate in the Plan the payment in
the event of his retirement, disability or death of 50% of his monthly base
salary in effect on the date of his retirement, disability or death, as the case
may be. These payments shall be made as supplemental pension income for a period
of 118 months following the end of the two-month period immediately succeeding
the later of (i) the retirement of the participant and (ii) the participant
attaining age 62. If a designated participant suffers a total disability while
employed by the Corporation or a subsidiary, he may, by notice to the
Corporation during the initial 6 months' waiting period before his disability
payments begin under the Corporation's or employing subsidiary's disability
plan, elect to receive supplementary pension income payments monthly in the
amount described in the first sentence of this paragraph while he is receiving
his total disability payments for up to 120 months. Any payments made to a
participant under the previous sentence while disabled shall reduce dollar for
dollar the payments that may otherwise be payable under the Plan for him
following retirement or to another as hereafter provided following his death. If
a designated participant dies following retirement and prior to the completion
of his 118 month payment period the balance of the payments will be made or
continued to his surviving spouse and/or his estate or designated beneficiary
for the remainder of such period, or, if he dies after becoming totally disabled
and during the period of such disability but before expiration of the 120 month
payment period, the balance of the payments will be made or continued to his
surviving spouse and/or his estate or designated beneficiary for the remainder
of such 120 month period. If a designated participant dies before his retirement
and while an active employee of the Corporation, or a subsidiary, monthly
payments in an amount aforesaid will be paid to his surviving spouse and/or his
estate or designated beneficiary for a period of 10 years following his death. A
participant (or in the event of his death, his spouse, estate or beneficiary)
shall be entitled to receive supplemental or continuing pension income under the
Plan only if he (i) retires on or after his Normal Retirement Age within the
meaning of the Corporation's Pension Plan for Salaried Employees or on or after
age 58 with approval of
<PAGE> 2
the Corporation's Board of Directors under conditions whereby he is entitled to
receive an immediate pension under the Corporation's Pension Plan for Salaried
Employees or if he would be entitled to receive such a pension but for the fact
that he has not had the necessary years of continuous service with the
Corporation, (ii) becomes totally disabled within the meaning of the
Corporation's long-term disability insurance plan (and the term "total
disability" as used herein refers to such a disability) or (iii) dies while
actively employed by the Corporation or a subsidiary or after becoming totally
disabled as described in clause (ii) immediately above and while still receiving
disability payments for such disability or during the initial waiting period
before the disability payments commence. If a participant retires prior to his
62nd birthday, but after attaining age 58, or he recovers from total disability
status before completion of his 120 month payment period, such supplemental or
continuing pension income may be paid commencing at his age 62 or may continue
to be paid after the termination of disability status, but only at the option
and in the sole discretion of the Corporation's Board of Directors (but without
intending in a disability situation to affect the rights of a participant or
others as otherwise provided herein or his retirement or death to receive
payments under the Plan).
3. TERMINATION OF PARTICIPATION. Except as provided in the last
sentence of section 2 hereof if a designated participant is discharged,
voluntarily quits, retires on a deferred vested retirement pension, or if his
employment is terminated for any reason other than total disability, normal
retirement or early retirement on or after his 58th birthday or death, his
participation in the Plan will immediately terminate.
4. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the Corporation. The Board of Directors shall, in its sole
discretion, select from the officers and key employees of the Corporation and
its subsidiaries (including officers and employees who are directors of the
Corporation) those persons who shall be designated to participate in the Plan.
No officer or employee shall have any right to be designated as a participant
except as the Board of Directors in its sole discretion shall determine. The
Board of Directors may, in its sole discretion, increase benefits payable
pursuant to the Plan to any designated participants after they become members of
the Plan. The Board of Directors shall determine the manner in which payments
are to be reduced following retirement or death of a participant as a result of
prior payments made during the participant's total disability, although
generally the reduction would be applied ratably over the entire payment period
so as to provide an even payment stream to the payment recipient. Each officer
and key employee designated as a participant in this Plan shall enter into a
written agreement with the Corporation, or employing subsidiary, containing
appropriate terms and conditions consistent with the provisions of this Plan,
including a provision that the participant will not compete with the Corporation
or its subsidiaries for a ten year period following his retirement, or onset of
total disability, without the written consent of the Corporation.
5. INSURANCE. In order to insure that funds will be available to make
or repay the Corporation for the supplemental pension payments, the Corporation
and its subsidiaries may purchase insurance on the lives of the designated
participants. Any such insurance
<PAGE> 3
policies will be owned by, and will name as beneficiary, the Corporation or the
employing subsidiary, as the case may be.
6. AMENDMENT; TERMINATION. This Plan shall continue in effect until
amended or terminated by the Corporation's Board of Directors. Any such
amendment or termination shall not adversely affect any agreement theretofore
entered into with a designated participant.
<PAGE> 1
Exhibit 13
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.
FINANCIAL OVERVIEW
During 1997, Allegheny Teledyne Incorporated and subsidiaries (the "Company")
continued to build upon the operating and financial strengths created when
Allegheny Ludlum Corporation ("Allegheny Ludlum") and Teledyne, Inc.
("Teledyne") combined in August of 1996.
* Sales from continuing operations increased to $3,647 million despite a
severe decline in commodity stainless steel prices.
* Operating profit improved 5 percent to $453 million or 12 percent of
sales.
* Corporate expenses declined 23 percent to $31 million as a result of
consolidating headquarter operations in Pittsburgh, Pennsylvania.
* Cash from operating activities continued strong at $257 million, up from
$233 million in 1996. Capital spending totaled $112 million, which
included $96 million in purchases of property, plant and equipment and the
investment of $13 million in a joint venture in China to produce stainless
steel.
* The Company repurchased 3.8 million shares of its common stock at a cost
of $108 million.
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
access to low cost capital markets.
During 1997, the Company repaid $110 million of debt. With net debt at 22% of
total capitalization, the Company is well-positioned financially to carry
through on its strategic plans.
The Company's debt structure has several important attributes. First, 46% of
long-term debt has a maturity of 28 years and a fixed rate of 6.95%. Second, the
Company's 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 3.3%. This low cost incremental
liquidity of $408 million on available bank lines at December 31, 1997, is an
important strategic advantage for the Company.
ACQUISITIONS AND DIVESTITURES
OREGON METALLURGICAL CORPORATION
In October 1997, the Company announced that it had entered into a definitive
merger agreement to acquire Oregon Metallurgical Corporation ("OREMET") in a
transaction valued at $553 million using December 31, 1997 values. Under the
terms of the merger agreement, each outstanding share of OREMET common stock
will be converted into 1.296 shares of Allegheny Teledyne common stock. 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 with 850 employees. 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.
The merger is expected to be tax-free to OREMET shareholders and will be
accounted for under the pooling of interest method.
The following table shows unaudited pro forma sales for the year ended
December 31, 1997, after giving effect to the proposed acquisition:
<TABLE>
<CAPTION>
(In millions)
Business Segment: Sales % of Total
- ---------------------------------------------------
<S> <C> <C>
Specialty Metals
- Commodity
stainless steel $ 573.5 14.6%
- Premium stainless steel 402.0 10.2
- Titanium 449.6 11.4
- Nickel-based superalloys 278.6 7.1
- Other specialty metals 515.6 13.1
- ---------------------------------------------------
Subtotal 2,219.3 56.4
Aerospace and Electronics 927.0 23.6
Industrial 532.0 13.5
Consumer 253.8 6.5
- ---------------------------------------------------
Total Continuing Operations 3,932.1 100.0%
- ---------------------------------------------------
Operations sold
or held for sale 98.0
- ---------------------------------------------------
Total Sales $4,030.1
- ---------------------------------------------------
</TABLE>
----------
21
<PAGE> 2
Combined net income and basic and diluted earnings per share of the two
companies, based on unaudited pro forma financial results for the year ending
December 31, 1997, were $328.8 million, $1.67 and $1.64 per share, respectively.
Combined assets totaled $2.9 billion. Unaudited pro forma combined net equity
was nearly $1.2 billion; net debt to total capitalization improved to 18
percent. The effect of conforming accounting policies is not expected to be
material.
The transaction is subject to the approval of the shareholders of OREMET, as
well as other customary closing conditions. The meeting of OREMET's shareholders
to vote on the merger is scheduled to be held on March 24, 1998.
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.
Sheffield Forgemasters' aerospace division consists of three companies in the
United Kingdom as well as two sales companies in the United States:
* Special Melted Products Limited, which produces high integrity vacuum
melted and remelted steel and nickel alloys in various forms;
* Jessop Saville Limited, which produces non-magnetic drill collars and
downhole components for the oil and gas industry; and
* Commercial Testing Services Limited, which offers high technology
testing services to the steel and related metals manufacturing industries.
The acquisition of these companies is expected to provide significant support
to the Company's high performance metals businesses, primarily Allvac, as well
as enhance service to customers by improving sales and distribution of
nickel-based alloys and titanium in Europe. The acquisition provides additional
vacuum melting, vacuum consumable remelting, electroslag remelting, and forging
capacity, which will complement Allvac's facilities. The division's GFM forging
machine is one of the largest in the world.
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 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 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 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. 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.
AEROTRONICS CONTROLS
In November 1997, the Company acquired a controlling interest in Aerotronics
Controls, Inc. ("ACI"), a Connecticut-based startup company specializing in the
design and development of electronic engine controls and management systems for
piston aircraft engines. The microprocessor-based products under development by
ACI are designed to modernize the engine management systems of both new and
existing piston-powered light aircraft, including those powered by engines
produced by Teledyne Continental Motors, an Allegheny Teledyne company.
Piston aircraft engines for light aircraft currently operate with mechanical
ignition systems and pilot-controlled fuel scheduling. The incorporation of
microprocessor-based products being developed by ACI on piston-powered light
aircraft is designed to yield improved fuel efficiencies, emissions reduction,
reduced pilot workload, and to reduce engine maintenance cost induced by
variations in pilot operating patterns. ACI expects to certify and begin
production of initial product offerings within approximately two years.
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<PAGE> 3
DIVESTITURES
In 1997, the Company announced a program of divesting businesses which did not
meet long-term criteria for critical mass, strategic fit and opportunities for
growth. During the year the Company sold six businesses which manufactured
collapsible metal and laminate packaging tubes, thread cutting and rolling
machines, electric heating elements, metal dies and plastic compression molds,
welded stainless tubular products, and operated job training centers for the
U.S. government. Net after-tax proceeds from sales of these non-strategic
businesses together with proceeds from sales of investments, surplus real estate
and Company aircraft totaled $82.4 million in 1997. The Company continues to
work on the divestiture of other non-strategic businesses and the sale of
surplus real estate holdings.
RESULTS OF OPERATIONS
The Company's sales from continuing businesses were $3.6 billion in 1997 and
1996 and $3.7 billion in 1995. Foreign sales represented approximately 17% of
sales in 1997 and 1996 and 15% of total sales in 1995. Sales under contracts
with the U.S. Government, which included contracts with the Department of
Defense, represented approximately 14%, 18%, and 19% of total sales in 1997,
1996, and 1995, respectively. Defense sales represented approximately 9%, 12%,
and 15% of total sales in 1997, 1996, and 1995, 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. Certain amounts for 1996 and 1995 have been reclassified to conform
with the 1997 presentation.
<TABLE>
<CAPTION>
SPECIALTY METALS
(In millions) 1997 % Change 1996 % Change 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $1,934.3 1% $1,915.7 (7)% $2,070.3
- ----------------------------------------------------------------------------------------------------------
Operating Profit 267.4 -- 268.0 (9)% 294.1
- ----------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 13.8% 14.0% 14.2%
- ----------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 11.7% 10.4% 10.7%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
1997 COMPARED TO 1996
Sales for the specialty metals segment increased 1% and operating profit
remained virtually unchanged in 1997 compared to 1996, despite an increasingly
difficult pricing environment for stainless steel commodity grades and a $4.9
million charge for environmental expenses. Tight operating cost controls
remained in effect throughout the specialty metals segment.
Sales of Allegheny Ludlum and Rodney Metals, which consist primarily of
flat-rolled products, declined 6% in 1997. Tons shipped increased 1% in 1997,
but sales declined due to the significant pricing pressure in commodity
stainless steel products. Tons shipped in 1997 were 542,000 compared to 535,000
in 1996. Operating profit declined 22% 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 $2,380 per ton in
1997 from $2,568 in 1996.
Operating profit, excluding the environmental charge, and sales from
businesses other than flat-rolled products increased 51% and 19%, respectively,
compared to 1996. These results reflected strong demand from commercial
aerospace and chemical processing industries for specialized metals such as
nickel-based superalloys, titanium, niobium and zirconium.
The Company invested $12.7 million in 1997 and has invested $19.2 million
to-date in a Chinese joint venture, Shanghai STAL Precision Stainless Steel
Limited Company, and plans to invest approximately $6 million in 1998. Allegheny
Ludlum own 60% of the venture. It is expected that the plant being constructed
by the joint venture will become operational in December 1998.
In February 1998, an early settlement was reached on a new three-year labor
agreement covering United Steelworkers of America union members working at
Allegheny Ludlum plants in Pennsylvania, New York, Indiana, and Connecticut
which is effective through June 30, 2001.
1996 COMPARED TO 1995
Sales and operating profit for the specialty metals segment declined 7% and 9%,
respectively, 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.
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<PAGE> 4
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 $2,568 per ton in 1996
from a high of $2,725 in 1995. In addition, raw material surcharges declined
throughout 1996 and were virtually eliminated by year-end. 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.
Sales and operating profit at Allvac increased substantially in 1996
primarily due to increased shipments and higher average sales prices for
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.
<TABLE>
<CAPTION>
AEROSPACE AND ELECTRONICS
(In millions) 1997 % Change 1996 % Change 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $927.0 (4)% $970.0 8% $897.1
- ----------------------------------------------------------------------------------------------------------
Operating Profit 90.3 (10)% 100.4 18% 85.1
- ----------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 9.7% 10.4% 9.5%
- ----------------------------------------------------------------------------------------------------------
U.S. Government Sales as a Percentage of Sales 46.2% 56.0% 54.1%
- ----------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 18.7% 21.0% 22.7%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
1997 COMPARED TO 1996
Sales for the aerospace and electronics segment decreased 4% and operating
profit decreased 10% in 1997 compared to 1996. Teledyne Ryan Aeronautical
experienced declines in sales and operating profit primarily due to the
scheduled wind-down of the current phase of the Global Hawk High Altitude
Endurance Unmanned Aerial Surveillance/ Reconnaissance Vehicle program and the
completion in 1996 of a contract to supply mid-range unmanned aerial vehicles.
In September 1997, Ryan received authorization from the Pentagon to build two
additional Global Hawk vehicles and to begin procuring certain items for a fifth
vehicle. In 1997, The Boeing Company notified Ryan that it has decided to
terminate the long-standing agreement with Ryan to fabricate the Apache
helicopter fuselage. Future business for this product from Boeing appears
unlikely. Operating results declined at Teledyne Brown Engineering due to lower
shipments and funding levels on defense and NASA contracts and costs associated
with restructuring its operations. Nonrecurring expenses, primarily research and
development-related expenses for avionics, resulted in declines in operating
profit at Teledyne Controls, a business unit of Teledyne Electronic
Technologies. Teledyne Electronic Technologies continued to be the largest
contributor to the segment's sales and profit for 1997. Demand for
electromechanical relays, circuit board contract manufacturing, and
microelectronic hybrid products paced these results.
1996 COMPARED TO 1995
Sales for the aerospace and electronics segment increased 8% and operating
profit increased 18% in 1996 compared to 1995. Sales increased in development
work on the Global Hawk unmanned aerial vehicle and in electronic devices,
electromechanical relays and avionics for commercial customers.
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
a 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.
Operating profit for the segment benefited from the increase in sales and
improved profitability on a contract to supply mid-range unmanned aerial
vehicles.
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24
<PAGE> 5
<TABLE>
<CAPTION>
INDUSTRIAL
(In millions) 1997 % Change 1996 % Change 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $532.0 3% $515.7 11% $465.8
- ----------------------------------------------------------------------------------------------------------
Operating Profit 60.7 25% 48.5 23% 39.3
- ----------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 11.4% 9.4% 8.4%
- ----------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 35.4% 36.6% 25.1%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
1997 COMPARED TO 1996
Sales for the industrial segment increased 3% and operating profit increased 25%
in 1997 compared to 1996. Operating profit improved for Teledyne Metalworking
Products, formerly Teledyne Advanced Materials. This business unit is the
largest revenue and profit producer in this segment. It manufactures tungsten
and tungsten carbide products, including cutting tools and inserts, for the
global metal forming market. In addition, sales and operating profit improved at
Portland Forge and at Teledyne Specialty Equipment's mining and construction
equipment and material handling businesses. These improvements in results were
offset by a decline in operating profit and sales at Casting Service due
primarily to discontinuing certain product lines and costs associated with other
restructuring activities.
1996 COMPARED TO 1995
Sales for the industrial segment increased 11% and operating profit increased
23% in 1996 compared to 1995. Improvements were primarily the result of the
acquisition of the European-based Stellram Group, a 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. A decline in operating results at Portland Forge due
to weakness in the heavy truck market partially offset these improvements.
<TABLE>
<CAPTION>
CONSUMER
(In millions) 1997 % Change 1996 % Change 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $253.8 11% $228.3 5% $218.2
- ----------------------------------------------------------------------------------------------------------
Operating Profit 34.5 141% 14.3 42% 10.1
- ----------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 13.6% 6.3% 4.6%
- ----------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 18.0% 18.7% 19.2%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
1997 COMPARED TO 1996
Sales for the consumer segment increased 11% and operating profit increased 141%
in 1997 compared to 1996. The improvement in operating results at Teledyne Water
Pik was particularly strong due to the favorable performance of new products and
cost reductions. Sales and operating profit improved at Teledyne Laars primarily
due to the successful integration of the pool products of Laars and Jandy
Industries, a major United States producer of water flow control valves and
electronic control systems for the swimming pool industry which was acquired in
1996, and the introduction of a new pool heater product.
1996 COMPARED TO 1995
Sales for the consumer segment increased 5% and operating profit increased 42%
in 1996 compared to 1995. Sales improved primarily due to the acquisition of
Jandy Industries. 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 acquisition of
Jandy 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.
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25
<PAGE> 6
MERGER AND RESTRUCTURING COSTS
The Company recorded charges of $11.2 million in 1997 and $57.5 million in 1996
for severance, financial advisory, legal, accounting, and other costs associated
with the combination of Allegheny Ludlum and Teledyne.
CORPORATE EXPENSES
Corporate expenses declined to $31.0 million in 1997 from $40.1 million in 1996
and $47.7 million in 1995, excluding a one-time gain discussed below. The
decline in 1997 resulted primarily from the consolidation and restructuring of
the Allegheny Ludlum and Teledyne corporate operations and the continued focus
on cost controls. 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.
OPERATIONS SOLD OR HELD FOR SALE
Income from operations sold or held for sale in 1997 included pretax gains of
$18.1 million on the divestitures of six businesses which operated job training
centers for the U.S. Government and which manufactured collapsible metal and
laminate packaging tubes, thread cutting and rolling machines, electric heating
elements, metal dies and plastic compression molds, and welded stainless tubular
products, $27.6 million on the sale of the Company's investment in Semtech
Corporation common stock, and $17.3 million on the sale of the Company's
investment in Nitinol Development Corporation. In addition, operating results
for operations sold or held for sale included a charge of $5.3 million to write
off the Company's investment in a research and development venture in 1997 and
charges of $6.8 million in 1997 and $7.7 million in 1996 to settle certain U.S.
Government contracting matters relating to former Teledyne businesses.
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.
INCOME TAXES
The Company's effective income tax rate was 37.4%, 41.1% and 37.2% in 1997, 1996
and 1995, respectively. The 1997 rate includes the effect of favorable
adjustments to prior years' tax liabilities. The 1996 rate resulted from
non-deductible business combination costs in 1996.
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, 1997 will be realized.
FINANCIAL CONDITION AND LIQUIDITY
In 1997, cash generated from operations of $256.7 million, proceeds from the
sales of businesses and investments of $142.8 million and proceeds from the
exercise of stock options of $35.4 million were used to purchase treasury stock
of $107.7 million, pay dividends of $112.2 million, invest $111.5 million in
capital equipment and business expansion and reduce long-term debt by $109.8
million. Cash transactions plus cash on hand at the beginning of the year
resulted in a cash position of $50.3 million at December 31, 1997.
Working capital increased to $667.2 million at December 31, 1997 compared to
$614.0 million at the end of 1996. The current ratio increased to 2.2 in 1997
from 2.0 in 1996. The increase in working capital was primarily due to higher
inventory levels related to increased demand for high performance superalloys
and lower accrued liabilities.
The Company redeemed the Teledyne, Inc. 7% subordinated debentures on
September 23, 1997. Payment was made in an amount equal to 100% of the principal
amount of the debentures, in the aggregate amount of $19.5 million, plus accrued
interest to the redemption date.
The Company's debt to capitalization ratio declined to 25% in 1997 from 34%
in 1996. The Company's net debt to total capitalization ratio declined to 22% in
1997 from 31% in 1996.
Total capital expenditures for 1998 are expected to approximate $150 million
with the largest item being $30 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, Pennsylvania plant in late 1999 and approximately $10
million (of the total cost of approximately $19 million) for the 60-inch wide
upgrade of the anneal and pickle line at Allegheny Ludlum's West Leechburg,
Pennsylvania plant which is expected to be completed by mid-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 1997, the Company recovered the pretax amount of
$31.9 million under these regulations. While not affecting reported operating
profit, cash flow increased by the after-tax effect of the recovered amount.
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26
<PAGE> 7
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 1997, the Company repurchased 3.8 million shares of common stock at a cost
of $107.7 million at per share prices ranging from $25-1/8 to $32-3/4. However,
average common shares outstanding for 1997 are slightly higher than 1996 because
share issuances upon stock option exercises exceeded share repurchases. The 12
million share repurchase program initiated earlier in 1997 was terminated
October 31, 1997 in connection with the announced proposed acquisition of
OREMET, which will be accounted for as a pooling of interests.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." These statements will be adopted by
the Company in 1998, and are not expected to have a material effect on the
consolidated financial statements.
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 remediation totaled approximately $40 million at December 31,
1997. Based on currently available information, 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, although the
resolution in any reporting period of one or more of these matters could have a
material adverse effect on the Company's results of operations for that period.
With respect to proceedings brought under the federal Superfund laws, or
similar state statutes, the Company has been identified as a potentially
responsible party at approximately 35 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 10 of these sites, and the potential loss
exposure with respect to any of these 35 individual 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 was adopted in 1997, did not have
a material effect on the consolidated financial statements.
For additional discussion of environmental matters, see Notes 1 and 14 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.
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27
<PAGE> 8
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 14 of the
Notes to Consolidated Financial Statements.
IMPACT OF YEAR 2000 ON COMPUTER SYSTEMS
For the past several years, the Company has been working 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. The year 2000
date is an issue that affects most businesses including suppliers and customers
of the Company. The Company anticipates spending approximately $9 million in
1998 and may spend additional amounts in subsequent years to address the issue.
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 complete
prior to any significant impact on the Company's operating systems.
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 potential acquisition of OREMET, the acquisition of the aerospace
division of Sheffield Forgemasters, the agreements with Bethlehem Steel
Corporation and the acquisition of Aerotronics on earnings, cost savings and
operations of the Company; net cash flow; aviation and aerospace industry
trends; certain expected capital expenditures; computer software modification or
replacement; 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 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, which accounted for a significant portion of the Company's
1997 total sales and its 1997 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 Allegheny Ludlum, Teledyne and
OREMET from time to time during their respective histories. As a result, the
Company's operating results could be subject to significant fluctuation.
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<PAGE> 9
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.
Acquisition and Disposition Strategy. The Company intends to continue to
strategically position its businesses in order to improve its competitive
posture by seeking specialty niches, expanding its global presence, acquiring
businesses complementary to existing strengths and continually evaluating the
performance and strategic fit of existing businesses. Accordingly, the Company
regularly considers acquisition and business combination opportunities as well
as possible business dispositions, and its management from time to time holds
discussions with management of other companies to explore such opportunities and
possible dispositions. As a result, the businesses comprising the Company are
subject to change.
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
acquisitions and other transactions the Company has made or may make or generate
additional revenue to offset any unanticipated inability to realize such
expected synergies. Realization of the anticipated benefits of acquisitions and
other transactions could take longer than expected and implementation
difficulties and market factors could alter the anticipated benefits.
Employees. The Company employs approximately 22,000 persons, 9,000 of whom
are employed at companies in the specialty metals segment. Approximately 24% 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 3,300 other production and maintenance employees are covered by a
recently approved three-year labor contract between the Company and the USWA,
which is effective through June 30, 2001. In addition, approximately 700 Wah
Chang employees are covered by a labor contract with the USWA which is effective
through October 10, 2000.
Additional risk factors are described from time to time in the Company's
filings with the Securities and Exchange Commission.
----------
29
<PAGE> 10
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, December 31, December 31,
For the Years Ended 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 3,745.1 $ 3,815.6 $ 4,048.1
- ----------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 2,828.8 2,901.7 3,158.9
Selling and administrative expenses 484.1 515.5 479.0
Merger and restructuring costs 11.2 57.5 6.4
Interest expense, net 19.6 34.7 37.6
- ----------------------------------------------------------------------------------------------------------
3,343.7 3,509.4 3,681.9
- ----------------------------------------------------------------------------------------------------------
Earnings before Other Income 401.4 306.2 366.2
Other Income 73.8 78.5 74.7
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 475.2 384.7 440.9
Provision for Income Taxes 177.6 158.2 164.1
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 297.6 226.5 276.8
Extraordinary Loss on Redemption
of Debt, Net of Income Tax Benefit -- (13.5) (2.9)
- ----------------------------------------------------------------------------------------------------------
NET INCOME 297.6 213.0 273.9
Dividends on Preferred Stock -- 2.0 1.6
- ----------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 297.6 $ 211.0 $ 272.3
- ----------------------------------------------------------------------------------------------------------
Basic Net Income per Common Share:
Income before Extraordinary Loss $ 1.70 $ 1.28 $ 1.56
Extraordinary Loss -- (0.08) (0.02)
- ----------------------------------------------------------------------------------------------------------
BASIC NET INCOME PER COMMON SHARE $ 1.70 $ 1.20 $ 1.54
- ----------------------------------------------------------------------------------------------------------
Diluted Net Income per Common Share:
Income before Extraordinary Loss $ 1.67 $ 1.27 $ 1.53
Extraordinary Loss -- (0.08) (0.02)
- ----------------------------------------------------------------------------------------------------------
DILUTED NET INCOME PER COMMON SHARE $ 1.67 $ 1.19 $ 1.51
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
---------
30
<PAGE> 11
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 50.3 $ 62.5
Accounts receivable 518.0 522.5
Inventories 582.4 518.4
Deferred income taxes 37.0 70.1
Tax refund 9.4 --
Prepaid expenses and other current assets 31.6 26.3
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,228.7 1,199.8
Property, plant and equipment 687.7 731.4
Prepaid pension cost 379.7 352.5
Cost in excess of net assets acquired 169.9 177.1
Other assets 138.5 145.6
- ---------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,604.5 $ 2,606.4
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 247.5 $ 241.7
Accrued liabilities 314.0 344.1
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 561.5 585.8
Long-term debt 326.1 443.4
Accrued postretirement benefits 572.8 567.5
Other 144.4 138.2
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,604.8 1,734.9
- ---------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock, par value $0.10: authorized - 50,000,000 shares; issued - none -- --
Common stock, par value $0.10: authorized - 600,000,000 shares; issued -
176,346,720 in 1997 and 174,389,377 in 1996; outstanding - 174,329,604
shares in 1997 and 174,389,377 shares in 1996 17.6 17.4
Additional paid-in capital 290.7 246.6
Retained earnings 752.7 596.7
Treasury stock: 2,017,116 shares in 1997 (60.2) --
Other (1.1) 10.8
- ---------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 999.7 871.5
- ---------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,604.5 $ 2,606.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
----------
31
<PAGE> 12
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
DECEMBER 31, December 31, December 31,
For the Years Ended 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 297.6 $ 213.0 $ 273.9
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 98.5 105.3 110.9
Gains on sales of businesses (69.2) (64.5) (51.1)
Deferred income taxes (5.7) 18.6 42.4
Extraordinary loss on redemption of debt -- 13.5 2.9
Change in operating assets and liabilities:
Inventories (68.8) (67.1) (12.9)
Accrued liabilities (43.5) (13.8) (30.8)
Tax refund 37.7 -- --
Accrued income taxes 36.4 17.9 12.5
Prepaid pension costs (24.7) (41.8) (83.6)
Accounts payable 10.6 21.3 (46.3)
Long-term postretirement liability 5.3 11.6 (0.6)
Accounts receivable (4.7) 13.0 (7.5)
Other (12.8) 6.4 3.3
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 256.7 233.4 213.1
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from the sales of businesses and investments 112.1 124.8 69.0
Purchases of property, plant and equipment (96.3) (88.6) (93.8)
Disposals of property, plant and equipment 30.7 16.0 14.8
Investment in ventures and purchases of businesses (15.2) (23.6) (43.2)
Other (5.9) (9.3) (15.1)
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 25.4 19.3 (68.3)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (114.2) (436.5) (114.9)
Increase in long-term debt 4.4 290.5 167.3
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in long-term debt (109.8) (146.0) 52.4
Dividends paid - common and preferred stock (112.2) (106.1) (57.1)
Purchases of common stock (107.7) (23.7) (75.6)
Exercises of stock options 35.4 13.9 6.4
Redemption of preferred stock -- (41.4) --
Other -- 0.5 0.8
- ---------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (294.3) (302.8) (73.1)
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12.2) (50.1) 71.7
Cash and cash equivalents at beginning of year 62.5 112.6 40.9
- ---------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 50.3 $ 62.5 $ 112.6
- ---------------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Preferred stock dividends on common stock $ -- $ 8.3 $ 33.1
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Amounts presented on the Statements of Cash Flows may not agree to the
corresponding changes in balance sheet items due to the accounting for purchases
and sales of businesses, and the effects of foreign currency translation.
The accompanying notes are an integral part of these statements.
----------
32
<PAGE> 13
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions except per share amounts)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury Stockholders'
Stock Capital Earnings Stock Other Equity
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------
Net income -- -- 297.6 -- -- 297.6
Cash dividends on common stock
($0.64 per common share) -- -- (112.2) -- -- (112.2)
Employee stock plans 0.2 44.1 (29.4) 47.5 -- 62.4
Purchase of common stock -- -- -- (107.7) -- (107.7)
Decrease in net unrealized appreciation -- -- -- -- (7.3) (7.3)
Currency translation adjustment -- -- -- -- (4.6) (4.6)
- -------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 17.6 $290.7 $752.7 $(60.2) $ (1.1) $999.7
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
----------
33
<PAGE> 14
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, 1997 and 1996 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, 1997.
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 did not audit the 1995 financial statements of Teledyne, Inc.,
a wholly owned subsidiary, which statements reflect total revenues constituting
63.1% of the related consolidated total for the year ended December 31, 1995.
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 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 and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits 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, 1997 and 1996, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December
31, 1997, 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
- ---------------------
Ernst & Young LLP
Pittsburgh, Pennsylvania
January 19, 1998
----------
34
<PAGE> 15
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 $17.9
million at December 31, 1997 and $13.0 million at December 31, 1996. 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 method adopted on July 1, 1996 more appropriately reflects
its financial results by better allocating costs of new property over the useful
lives of these assets. In addition, the 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, 1997. 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.
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
----------
35
<PAGE> 16
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 ($60.3 million in 1997, $66.2
million in 1996, and $66.5 million in 1995), 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
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." These statements will be adopted by
the Company in 1998, and are not expected to have a material effect on the
consolidated financial statements.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified to conform with the 1997
presentation.
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.
The Company recorded merger and restructuring costs of $11.2 million ($6.8
million net of tax) and $57.5 million ($42.9 million net of tax) in 1997 and
1996, respectively, for financial advisory, legal, accounting, severance and
other costs associated with the combination of the companies.
----------
36
<PAGE> 17
NOTE 3.
INVENTORIES --
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 166.9 $ 153.8
Work-in-process 524.2 515.1
Finished goods 112.9 104.8
- ---------------------------------------------------------------------------------------------------------
Total inventories at current cost 804.0 773.7
Less allowances to reduce current cost values to LIFO basis (206.4) (229.6)
Progress payments (15.2) (25.7)
- ---------------------------------------------------------------------------------------------------------
TOTAL INVENTORIES $ 582.4 $ 518.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Inventories, before progress payments, determined on the last-in, first-out
method were $531.4 million at December 31, 1997 and $423.3 million at December
31, 1996. 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 1997, 1996, and 1995, 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 $7.3 million in 1997, $4.9 million in 1996, and $8.0 million in
1995.
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
$16.2 million and $8.1 million at December 31, 1997 and 1996, respectively.
Progress payments related to long-term contracts were $5.7 million and $8.5
million at December 31, 1997 and 1996, respectively.
NOTE 4.
LONG-TERM DEBT --
CREDIT AGREEMENTS
In August 1996, Allegheny Teledyne entered into a credit agreement with a group
of banks that provides for borrowings of up to $500 million on a revolving
credit basis. The agreement, as extended, has a five-year term. 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 60% 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 $58.5 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 $42.1
million at December 31, 1997 and $38.3 million at December 31, 1996.
DEBENTURES
In 1997, Allegheny Teledyne redeemed the Teledyne 7% subordinated debentures.
Payment was made in an amount equal to 100% of the principal amount of the
debentures, in the aggregate amount of $19.5 million, plus accrued interest to
the redemption date.
In 1996, Allegheny Teledyne guaranteed the outstanding Allegheny Ludlum 6.95%
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.
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.
----------
37
<PAGE> 18
Long-term debt at December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit agreements $ 150.1 $ 241.3
Allegheny Ludlum 6.95% debentures, due 2025 150.0 150.0
Industrial revenue bonds due 1998 through 2007 15.2 16.6
Capitalized leases and other 13.6 19.3
Teledyne 7% subordinated debentures -- 20.7
- ---------------------------------------------------------------------------------------------------------
328.9 447.9
Current portion (2.8) (4.5)
- ---------------------------------------------------------------------------------------------------------
Total long-term debt $ 326.1 $ 443.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rate of borrowings outstanding under the credit
agreements was 5.5% at December 31, 1997 and 5.2% at December 31, 1996.
Scheduled maturities of long-term borrowings during the next five years are
$2.8 million in 1998, $2.1 million in 1999, $1.5 million in 2000, $1.2 million
in 2001, and $11.5 million in 2002. Scheduled repayments under revolving credit
agreements are $45.1 million in 1999 and $105.0 million in 2002.
Interest expense was $28.5 million in 1997, $48.5 million in 1996, and $50.6
million in 1995. Interest and commitment fees paid were $29.6 million in 1997,
$48.5 million in 1996, and $48.1 million in 1995.
NOTE 5.
SUPPLEMENTAL BALANCE SHEET INFORMATION --
Cash and cash equivalents were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash (Gross of outstanding checks: 1997 - $22.5 million; 1996 - $30.6 million) $ 11.1 $ 24.3
Other short-term investments, at cost which approximates market 39.2 38.2
- ----------------------------------------------------------------------------------------------------------
Total cash and cash equivalents $ 50.3 $ 62.5
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 37.3 $ 41.1
Buildings 266.0 281.4
Equipment and leasehold improvements 1,264.4 1,256.9
- ----------------------------------------------------------------------------------------------------------
1,567.7 1,579.4
Accumulated depreciation and amortization (880.0) (848.0)
- ----------------------------------------------------------------------------------------------------------
Total property, plant and equipment $ 687.7 $ 731.4
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Accrued liabilities included salaries and wages of $79.1 million and $80.7
million in 1997 and 1996, respectively, and accrued severance costs of $5.6
million and $11.9 million in 1997 and 1996, respectively.
----------
38
<PAGE> 19
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, 1997, 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 or options to acquire shares may be issued under the
1996 Non-Employee Director Stock Compensation Plan to directors who are not
employees of the Company.
The Company accounts 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. If compensation
cost for these plans had been determined using the fair-value method prescribed
by FASB Statement No. 123, "Accounting for Stock-based Compensation," net income
would have been reduced by $2.7 million, or $0.02 per share, $2.0 million, or
$0.01 per share, and $0.3 million, with no impact on per share amounts, for the
years ended December 31, 1997, 1996 and 1995, respectively. The impact on
earnings per share is the same under both the basic and diluted methods for each
of these years. Under FASB Statement No. 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected Dividend Yield 2.5% 3.6% 3.9%
Expected Volatility 31% 31% 31%
Risk-Free Interest Rate 6.4% 6.4% 6.2%
Expected Lives 8.0 8.0 8.0
Weighted-average fair value of options granted during year $ 8.74 $5.15 $3.82
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Stock option transactions under the Company's employee plans are summarized
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
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 8,552,958 $12.42 7,937,884 $10.90 7,626,897 $10.51
Granted 110,000 $24.36 2,058,200 $16.57 1,207,301 $12.54
Exercised (3,626,713) $10.21 (1,074,512) $ 9.35 (723,339) $ 9.28
Cancelled (675,504) $12.67 (368,614) $11.75 (172,975) $11.31
- -----------------------------------------------------------------------------------------------------------
Outstanding
end of year 4,360,741 $14.52 8,552,958 $12.42 7,937,884 $10.90
- -----------------------------------------------------------------------------------------------------------
Exercisable at
end of year 1,987,947 $12.47 4,003,054 $10.49 3,500,875 $9.71
- -----------------------------------------------------------------------------------------------------------
</TABLE>
----------
39
<PAGE> 20
Exercise prices for options outstanding as of December 31, 1997 ranged from
$8.51 to $28.25. 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, 1997, a
maximum of 231,200 shares were issuable to 42 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 $4.3
million in 1997, $5.5 million in 1996 and $10.0 million in 1995.
NOTE 8.
INCOME TAXES --
Provision for income taxes was as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
- Federal $136.4 $114.6 $100.4
- State 24.8 19.0 17.3
- Foreign 8.5 6.0 4.0
- ---------------------------------------------------------------------------------------------------------
- Total 169.7 139.6 121.7
- ---------------------------------------------------------------------------------------------------------
Deferred
- Federal 1.3 11.2 29.8
- State 6.2 7.2 12.6
- Foreign 0.4 0.2 --
- ---------------------------------------------------------------------------------------------------------
- Total 7.9 18.6 42.4
- ---------------------------------------------------------------------------------------------------------
Provision for income taxes $177.6 $158.2 $164.1
- ---------------------------------------------------------------------------------------------------------
Income taxes paid $110.2 $115.4 $ 55.0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Income before income taxes and extraordinary loss included income from
domestic operations of $452.4 million in 1997, $366.6 million in 1996 and $437.1
million in 1995.
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<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 4.3 4.4
Capitalization of merger and restructuring costs -- 1.8 --
Amortization of cost in excess of net assets acquired 0.3 0.3 0.3
Foreign sales corporation exemption (0.6) (0.6) (0.4)
Other (1.6) 0.3 (2.1)
- ---------------------------------------------------------------------------------------------------------
Effective income tax rate 37.4% 41.1% 37.2%
- ---------------------------------------------------------------------------------------------------------
</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:
----------
40
<PAGE> 21
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Income Tax Assets
- ---------------------------------------------------------------------------------------------------------
Postretirement benefits other than pensions $225.8 $223.2
Deferred compensation and other benefit plans 32.3 37.4
Self-insurance reserves 21.9 16.5
Long-term contracts 3.3 6.9
Other items 81.0 85.1
- ---------------------------------------------------------------------------------------------------------
Total deferred income tax assets 364.3 369.1
- ---------------------------------------------------------------------------------------------------------
Deferred Income Tax Liabilities
- ---------------------------------------------------------------------------------------------------------
Pension asset 154.7 143.1
Bases of property, plant and equipment 112.2 110.8
Inventory valuation 15.8 15.2
Other items 10.1 26.3
- ---------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 292.8 295.4
- ---------------------------------------------------------------------------------------------------------
Net deferred income tax asset $ 71.5 $ 73.7
- ---------------------------------------------------------------------------------------------------------
</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.
Components of pension expense (income) for the Company's defined benefit
plans included the following:
<TABLE>
<CAPTION>
Expense (Income)
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 36.3 $ 33.9 $ 28.4
Interest cost on benefits earned in prior years 130.9 124.1 121.8
Expected return on plan assets (206.7) (202.7) (164.1)
Net amortization of unrecognized amounts (19.8) (22.3) (42.8)
- ---------------------------------------------------------------------------------------------------------
Pension income $ (59.3) $ (67.0) $ (56.7)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Actual return on plan assets was income of $426.0 million, $28.8 million and
$375.6 million in 1997, 1996 and 1995, respectively. Pension costs for defined
contribution plans were $15.4 million in 1997, $16.2 million in 1996 and $14.9
million in 1995.
Actuarial assumptions used to develop the components of pension expense
(income) were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25% 7.5% 7.9%
Rate of increase in future compensation levels 3%-4.5% 3%-4.5% 3%-4.5%
Expected long-term rate of return on assets 9.0% 8.6% 7.8%
</TABLE>
----------
41
<PAGE> 22
Plan assets in excess of projected benefit obligation were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily listed stocks,
government securities and pooled investment funds $2,615.7 $2,359.2
- ---------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefit obligation 1,781.7 1,573.4
Non-vested benefit obligation -- 91.1
- ---------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 1,781.7 1,664.5
Additional benefits related to future compensation levels 142.4 172.8
- ---------------------------------------------------------------------------------------------------------
Projected benefit obligation 1,924.1 1,837.3
- ---------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 691.6 $ 521.9
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets in excess of projected benefit obligation:
Included in balance sheet:
Prepaid pension cost $ 379.7 $ 352.5
Other long-term liabilities (10.4) (4.0)
Not included in balance sheet:
Unrecognized net gain due to experience different from
that assumed and changes in the discount rate 276.9 90.5
Unrecognized net asset at adoption of SFAS No. 87, net of amortization 131.4 161.9
Unrecognized prior service cost (86.0) (79.0)
- ---------------------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation $ 691.6 $ 521.9
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Any reversion of pension plan assets to the Company would be subject to
federal and state income taxes, substantial excise tax and other possible
claims.
Discount rates of 7.0% at December 31, 1997 and 7.25% at December 31, 1996
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 $31.9 million in 1997 and $30.5 million in
1996 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 expense included the following:
<TABLE>
<CAPTION>
Expense (Income)
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 7.8 $ 7.9 $ 6.9
Interest cost on benefits earned in prior years 43.4 46.1 46.7
Expected return on plan assets (8.4) (6.5) (4.7)
Net amortization of unrecognized amounts (0.7) 2.3 0.5
- ---------------------------------------------------------------------------------------------------------
Postretirement benefit expense $42.1 $49.8 $49.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
----------
42
<PAGE> 23
Actual return on plan assets was $21.7 million in 1997, $5.4 million in 1996 and
$4.8 million in 1995. Discount rates of 7.25% in 1997, 7.5% in 1996 and 7.7% in
1995 were used in determining the postretirement 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 8.21% in 1997 and was assumed to
decrease to 5.00% 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,
1997 by $82.3 million and the postretirement benefit expense for 1997 by $6.7
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) 1997 1996
- ---------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $452.9 $441.7
Other fully eligible
plan participants 82.2 72.5
Other active plan participants 133.4 121.9
- ---------------------------------------------------
Total accumulated
postretirement benefit
obligation 668.5 636.1
Less plan assets at fair value 79.6 52.5
- ---------------------------------------------------
Accumulated postretirement
benefit obligation in
excess of plan assets 588.9 583.6
Unrecognized net loss (32.8) (35.1)
Unrecognized prior
service cost 16.7 19.0
- ---------------------------------------------------
Accrued postretirement
benefit cost $572.8 $567.5
- ---------------------------------------------------
</TABLE>
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.
At the end of 1997, approximately one-half of the plan assets for the
postretirement benefit plans were invested in marketable securities and one-half
in limited partnership funds. 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 7.0% at December 31,
1997 and 7.25% at December 31, 1996. The expected long-term rate of return on
plan assets ranged from 9% to 15% in 1997 and 1996.
NOTE 10.
DIVESTITURES AND ACQUISITIONS --
In 1997, the Company announced a program of divesting businesses which did not
meet long-term criteria for critical mass, strategic fit and opportunities for
growth. During the year, the Company sold six businesses which manufactured
collapsible metal and laminate packaging tubes, (including Envases Comerciales
S.A., which was acquired in December 1995), thread cutting and rolling machines,
electric heating elements, metal dies and plastic compression molds, welded
stainless tubular products, and operated job training centers for the U.S.
government. In addition, the Company sold its equity interest in Nitinol
Development Corporation. The pretax gain recognized on the sales of these
non-strategic businesses was $35.4 million. The pretax proceeds from these sales
totaled $77.2 million in 1997. The Company continues to work on the divestiture
of other non-strategic businesses.
In 1996, the Company sold its defense vehicle business. The pretax gain and
proceeds on the sale of this business were $41.0 million and $59.2 million,
respectively. 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 1995, the Company sold its defense electronic systems business,
recognizing a pretax gain of $50.7 million. The pretax proceeds on this sale
were $60.1 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
----------
43
<PAGE> 24
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.
Information on the Company's business segments was as follows:
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Specialty metals $1,934.3 $1,915.7 $2,070.3
Aerospace and electronics 927.0 970.0 897.1
Industrial 532.0 515.7 465.8
Consumer 253.8 228.3 218.2
- ---------------------------------------------------------------------------------------------------------
Total continuing operations 3,647.1 3,629.7 3,651.4
Operations sold or held for sale 98.0 185.9 396.7
- ---------------------------------------------------------------------------------------------------------
Total sales $3,745.1 $3,815.6 $4,048.1
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Company's backlog of confirmed orders was approximately $1.3 billion at
December 31, 1997 and $1.2 billion at December 31, 1996. Backlog of the
specialty metals segment was $631.9 million at December 31, 1997 and $578.0
million at December 31, 1996.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to the U.S. Government including direct sales
as prime contractor and indirect sales as subcontractor:
Specialty metals $ 47.0 $ 66.9 $ 37.3
Aerospace and electronics 428.1 543.1 485.5
Industrial and consumer 2.1 2.3 3.5
Operations sold or held for sale 31.9 70.4 234.1
- ---------------------------------------------------------------------------------------------------------
Total sales to U.S. Government $ 509.1 $ 682.7 $ 760.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Sales to the U.S. Government included sales to the Department of Defense of
$342.6 million in 1997, $450.5 million in 1996 and $613.4 million in 1995.
Total foreign sales were $647.6 million in 1997, $652.6 million in 1996 and
$626.2 million in 1995. Of these amounts, sales by operations in the United
States to customers in other countries were $471.5 million in 1997, $440.5
million in 1996 and $517.1 million in 1995. Sales between business segments,
which were not material, generally were priced at prevailing market prices.
----------
44
<PAGE> 25
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit:
Specialty metals $267.4 $268.0 $294.1
Aerospace and electronics 90.3 100.4 85.1
Industrial 60.7 48.5 39.3
Consumer 34.5 14.3 10.1
- ---------------------------------------------------------------------------------------------------------
Total operating profit 452.9 431.2 428.6
Merger and restructuring costs (11.2) (57.5) (6.4)
Corporate expenses (31.0) (40.1) (41.8)
Interest expense, net (19.6) (34.7) (37.6)
Operations sold or held for sale 66.9 68.6 90.8
Excess pension income 17.2 17.2 7.3
- ---------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary loss $475.2 $384.7 $440.9
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Operating results for operations sold or held for sale included pretax gains
on the divestiture of certain non-strategic businesses and the related operating
profit of those businesses. Also included was a gain in 1997 of $27.6 million on
the sale of the Company's investment in Semtech Corporation common stock and a
gain of $20.3 million in 1996 on the sale of surplus real estate in California.
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 included a charge of $5.3 million to write off the Company's investment
in a research and development venture in 1997 and charges of $6.8 million in
1997 and $7.7 million in 1996 to settle certain U.S. Government contracting
matters relating to former Teledyne businesses. Merger and restructuring
expenses included proxy expenses in 1995.
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.
<TABLE>
<CAPTION>
(In millions) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization:
Specialty metals $ 60.8 $ 65.4 $ 64.8
Aerospace and electronics 12.2 13.5 15.7
Industrial 12.6 14.0 12.2
Consumer 5.9 4.5 5.5
Corporate and operations sold or held for sale 7.0 7.9 12.7
- ---------------------------------------------------------------------------------------------------------
$ 98.5 $ 105.3 $ 110.9
- ---------------------------------------------------------------------------------------------------------
Capital expenditures:
Specialty metals $ 48.4 $ 42.7 $ 54.6
Aerospace and electronics 15.2 16.1 13.3
Industrial 20.9 16.9 15.6
Consumer 7.4 7.0 5.2
Corporate and operations sold or held for sale 4.4 5.9 5.1
- ---------------------------------------------------------------------------------------------------------
$ 96.3 $ 88.6 $ 93.8
- ---------------------------------------------------------------------------------------------------------
Identifiable assets:
Specialty metals $1,285.5 $1,244.6 $1,289.1
Aerospace and electronics 274.5 276.6 254.8
Industrial 249.8 250.6 192.9
Consumer 116.8 120.5 99.0
Corporate:
Pension asset 379.7 352.5 314.9
Other 272.3 301.2 323.5
Operations sold or held for sale 25.9 60.4 154.7
- ---------------------------------------------------------------------------------------------------------
$2,604.5 $2,606.4 $2,628.9
- ---------------------------------------------------------------------------------------------------------
</TABLE>
----------
45
<PAGE> 26
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:
Allegheny Ludlum Teledyne
December 31 December 31
(In millions) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $450.8 $450.8 $796.5 $748.0
Non-current assets 945.0 862.3 371.2 449.1
Current liabilities 171.1 196.7 383.5 394.4
Non-current liabilities 491.1 489.0 572.8 578.7
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS:
Allegheny Ludlum Teledyne
(In millions) 1997 1996 1995 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,194.9 $1,277.8 $1,494.3 $2,554.5 $2,551.5 $2,553.8
Gross profit 168.9 223.5 234.2 730.8 676.6 655.0
Net income before
extraordinary loss on
redemption of debt 62.0 73.2 114.8 222.9 144.1 162.0
Net income 62.0 73.2 111.9 222.9 130.6 162.0
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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 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.
Solely for purposes of this presentation, pension income has been allocated to
Allegheny Ludlum and Teledyne to offset pension and postretirement expenses
which may be funded with pension assets. This allocated pension income has not
been recorded in the financial statements of Allegheny Ludlum or of Teledyne.
---------
46
<PAGE> 27
NOTE 13.
EARNINGS PER SHARE --
The following table sets forth the computation of basic and diluted net income
per common share:
(In millions except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income before Extraordinary Loss $297.6 $226.5 $276.8
Extraordinary Loss on Redemption of Debt -- (13.5) (2.9)
Dividends on Preferred Stock -- (2.0) (1.6)
- ---------------------------------------------------------------------------------------------------------
Numerator for Basic Net Income per Common Share --
Net Income Available to Common Stockholders 297.6 211.0 272.3
Effect of Dilutive Securities:
5.875% Allegheny Ludlum Convertible Debentures -- -- 3.2
- ---------------------------------------------------------------------------------------------------------
Numerator for Diluted Net Income per Common Share --
Net Income Available to Common
Stockholders after Assumed Conversions $297.6 $211.0 $275.5
- ---------------------------------------------------------------------------------------------------------
Denominator:
Weighted Average Shares 175.2 174.1 176.4
Contingent Issuable Stock 0.2 0.4 0.1
- ---------------------------------------------------------------------------------------------------------
Denominator for Basic Net Income per Common Share 175.4 174.5 176.5
Effect of Dilutive Securities:
Employee Stock Options 3.0 3.4 1.9
5.875% Allegheny Ludlum Convertible Debentures -- -- 4.5
- ---------------------------------------------------------------------------------------------------------
Dilutive Potential Common Shares 3.0 3.4 6.4
Denominator for Diluted Net Income per
Common Share - Adjusted Weighted
Average Shares and Assumed Conversions 178.4 177.9 182.9
- ---------------------------------------------------------------------------------------------------------
Basic Net Income per Common Share:
Income before Extraordinary Loss $ 1.70 $ 1.28 $ 1.56
Extraordinary Loss -- (0.08) (0.02)
- ---------------------------------------------------------------------------------------------------------
Basic Net Income per Common Share $ 1.70 $ 1.20 $ 1.54
- ---------------------------------------------------------------------------------------------------------
Diluted Net Income per Common Share:
Income before Extraordinary Loss $ 1.67 $ 1.27 $ 1.53
Extraordinary Loss -- (0.08) (0.02)
- ---------------------------------------------------------------------------------------------------------
Diluted Net Income per Common Share $ 1.67 $ 1.19 $ 1.51
- ---------------------------------------------------------------------------------------------------------
</TABLE>
For additional disclosures regarding the employee stock options and contingent
stock-acquisition arrangements, see Note 7.
----------
47
<PAGE> 28
NOTE 14.
COMMITMENTS AND CONTINGENCIES --
Rental expense under operating leases was $29.3 million in 1997, $31.1 million
in 1996 and $30.2 million in 1995. Future minimum rental commitments under
operating leases with non-cancelable terms of more than one year as of December
31, 1997, were as follows: $16.4 million in 1998, $16.8 million in 1999, $14.8
million in 2000, $13.4 million in 2001, $11.7 million in 2002 and $45.4 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 the amounts, and the possible range of loss in excess of the amounts
accrued, 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, 1997, the Company's reserves for environmental remediation
obligations totaled approximately $40 million, of which approximately $11
million was included in other current liabilities. The reserve includes
estimated probable future costs of $11 million for federal Superfund and
comparable state-managed sites; $5 million for formerly owned or operated sites
for which the Company has remediation or indemnification obligations; $6 million
for owned or controlled sites at which Company operations have been
discontinued; and $18 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, AICPA Statement of Position 96-1, Environmental Remediation
Liabilities, was issued which 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.
In October 1996, the Company reached an agreement in principle with the U.S.
Government for a joint
----------
48
<PAGE> 29
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.
NOTE 15. ACQUISITION OF OREGON
METALLURGICAL CORPORATION --
In October 1997, the Company announced that it had entered into a definitive
merger agreement to acquire Oregon Metallurgical Corporation ("OREMET") in a
transaction valued at $553 million using December 31, 1997 values. Under the
terms of the merger agreement, each outstanding share of OREMET common stock
will be converted into 1.296 shares of Allegheny Teledyne common stock. 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 with 850 employees. 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.
The merger is expected to be tax-free to OREMET shareholders and will be
accounted for under the pooling of interest method.
The following table shows unaudited pro forma sales for the year ended
December 31, 1997, after giving effect to the proposed acquisition:
<TABLE>
<CAPTION>
(In millions)
Business Segment: Sales % of Total
- ----------------------------------------------------
<S> <C> <C>
Specialty Metals
- Commodity
stainless steel $ 573.5 14.6%
- Premium stainless steel 402.0 10.2
- Titanium 449.6 11.4
- Nickel-based superalloys 278.6 7.1
- Other specialty metals 515.6 13.1
- ----------------------------------------------------
Subtotal 2,219.3 56.4
Aerospace and Electronics 927.0 23.6
Industrial 532.0 13.5
Consumer 253.8 6.5
- ----------------------------------------------------
Total Continuing Operations 3,932.1 100.0%
- ----------------------------------------------------
Operations sold
or held for sale 98.0
- ----------------------------------------------------
Total Sales $4,030.1
- ----------------------------------------------------
</TABLE>
Combined net income and basic and diluted earnings per share of the two
companies, based on unaudited pro forma financial results for the year ending
December 31, 1997, were $328.8 million, $1.67 and $1.64 per share, respectively.
Combined assets totaled $2.9 billion. Unaudited pro forma combined net equity
was nearly $1.2 billion; net debt to total capitalization improved to 18
percent. The effect of conforming accounting policies is not expected to be
material.
The transaction is subject to the approval of the shareholders of OREMET, as
well as other customary closing conditions. The meeting of OREMET shareholders
to vote on the merger is scheduled to be held on March 24, 1998.
The following unaudited pro forma consolidated balance sheet gives effect to
the merger by combining the respective balance sheets of the Company and OREMET
as of December 31, 1997 on a pooling of interests basis. The following unaudited
pro forma consolidated statements of income give effect to the merger by
combining the respective statements of income for the Company and OREMET for the
years ended December 31, 1997, 1996 and 1995. The unaudited pro forma
consolidated statements of income do not give effect to anticipated expenses and
nonrecurring charges related to the merger and the estimated revenue
enhancements and expense savings associated with the combination of the
operations of the Company and OREMET. With respect to the unaudited pro forma
earnings per share computations, shares have been adjusted to the equivalent
shares of the Company for each year.
----------
49
<PAGE> 30
ALLEGHENY TELEDYNE INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Allegheny Pro Forma
(In millions) Teledyne OREMET Adjustments Pro Forma
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 50.3 $ 3.4 $ $ 53.7
Short-term investments available-for-sale -- 34.4 34.4
Accounts receivable 518.0 58.0 576.0
Inventories 582.4 115.5 697.9
Deferred income taxes 37.0 3.3 40.3
Tax refund 9.4 -- 9.4
Prepaid expenses and other current assets 31.6 0.7 32.3
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,228.7 215.3 1,444.0
Property, plant and equipment 687.7 66.1 753.8
Prepaid pension cost 379.7 -- 379.7
Cost in excess of net assets acquired 169.9 16.6 186.5
Other assets 138.5 0.8 (5.1) 134.2
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,604.5 $298.8 $(5.1) $2,898.2
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 247.5 $ 20.4 $ $ 267.9
Accrued liabilities 311.2 17.6 13.0 341.8
Current portion of long-term debt 2.8 1.9 4.7
- -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 561.5 39.9 13.0 614.4
Long-term debt 326.1 4.3 330.4
Accrued postretirement benefits 572.8 1.7 574.5
Other 144.4 8.0 (5.1) 147.3
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,604.8 53.9 7.9 1,666.6
- -----------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 17.6 16.6 (14.4) 19.8
Additional paid-in-capital 290.7 158.4 14.4 463.5
Retained earnings 752.7 69.9 (13.0) 809.6
Treasury stock (60.2) -- (60.2)
Other (1.1) -- (1.1)
- -----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 999.7 244.9 (13.0) 1,231.6
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,604.5 $298.8 $(5.1) $2,898.2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Pro forma adjustments include the reclassification of $5.1 million of
deferred income tax liabilities and the recording of a $13.0 million reserve to
reflect management's estimate of anticipated expenses related to the merger. The
capital accounts have been adjusted to reflect the issuance of 21.4 million
shares of Allegheny Teledyne common stock in exchange for all the outstanding
shares of OREMET common stock.
----------
50
<PAGE> 31
ALLEGHENY TELEDYNE INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share and share data)
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $4,030.1 $4,052.6 $4,194.9
- ----------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 3,039.6 3,081.0 3,289.9
Selling and administrative expenses 511.1 538.2 495.1
Merger and restructuring costs 11.2 57.5 6.4
Interest expense, net 16.9 35.1 39.7
- ----------------------------------------------------------------------------------------------------------
3,578.8 3,711.8 3,831.1
- ----------------------------------------------------------------------------------------------------------
Earnings before Other Income 451.3 340.8 363.8
Other Income 72.9 77.6 74.2
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 524.2 418.4 438.0
Provision for Income Taxes 195.4 169.6 163.7
- ----------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 328.8 248.8 274.3
Extraordinary Loss on Redemption
of Debt, Net of Income Tax Benefit -- (13.5) (2.9)
- ----------------------------------------------------------------------------------------------------------
NET INCOME 328.8 235.3 271.4
Dividends on Preferred Stock -- 2.0 1.6
- ----------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 328.8 $ 233.3 $ 269.8
- ----------------------------------------------------------------------------------------------------------
Basic Net Income Per Common Share:
Income before Extraordinary Loss $ 1.67 $ 1.29 $ 1.44
Extraordinary Loss -- (0.07) (0.02)
- ----------------------------------------------------------------------------------------------------------
BASIC NET INCOME PER COMMON SHARE $ 1.67 $ 1.22 $ 1.42
- ----------------------------------------------------------------------------------------------------------
Diluted Net Income per Common Share:
Income before Extraordinary Loss $ 1.64 $ 1.27 $ 1.39
Extraordinary Loss -- (0.07) (0.01)
- ----------------------------------------------------------------------------------------------------------
DILUTED NET INCOME PER COMMON SHARE $ 1.64 $ 1.20 $ 1.38
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 196,369,564 190,856,426 190,539,957
- ----------------------------------------------------------------------------------------------------------
</TABLE>
----------
51
<PAGE> 32
NOTE 16.
SUBSEQUENT EVENTS --
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 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 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 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. 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.
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.
Sheffield Forgemasters' aerospace division consists of three companies in the
United Kingdom as well as two sales companies in the United States:
* Special Melted Products Limited, which produces high integrity vacuum
melted and remelted steel and nickel alloys in various forms;
* Jessop Saville Limited, which produces non-magnetic drill collars and
downhole components for the oil and gas industry; and
* Commercial Testing Services Limited, which offers high technology testing
services to the steel and related metals manufacturing industries.
The acquisition of these companies is expected to provide significant support
to the Company's high performance metals businesses, primarily Allvac, as well
as enhance service to customers by improving sales and distribution of
nickel-based alloys and titanium in Europe. The acquisition provides additional
vacuum melting, vacuum consumable remelting, electroslag remelting, and forging
capacity, which will complement Allvac's facilities. The division's GFM forging
machine is one of the largest in the world.
----------
52
<PAGE> 33
NOTE 17.
QUARTERLY DATA (UNAUDITED) --
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------
(In millions except share and per share amounts) March 31 June 30 September 30 December 31
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 --
Sales $957.9 $957.1 $909.2 $920.9
Gross profit 226.1 240.3 210.6 239.3
Net income 63.4 87.0 64.3 82.9
- ---------------------------------------------------------------------------------------------------------
Basic net income per common share $ 0.36 $ 0.50 0.37 $ 0.48
- ---------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 0.35 $ 0.49 $ 0.36 $ 0.47
- ---------------------------------------------------------------------------------------------------------
Average shares outstanding 175,163,476 175,766,313 175,508,743 174,374,636
- ---------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income before extraordinary loss $ 0.46 $ 0.34 $ 0.11 $ 0.38
Extraordinary loss -- -- -- (0.08)
- ---------------------------------------------------------------------------------------------------------
Basic net income per common share $ 0.46 $ 0.34 $ 0.11 $ 0.30
- ---------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income before extraordinary loss $ 0.46 $ 0.33 $ 0.11 $ 0.37
Extraordinary loss -- -- -- (0.08)
- ---------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 0.46 $ 0.33 $ 0.11 $ 0.29
- ---------------------------------------------------------------------------------------------------------
Average shares outstanding 174,122,080 173,841,171 174,068,161 174,297,782
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, "Earnings per Share."
Net income for the 1997 first quarter included an after-tax gain of $9.2
million on the sale of the Company's investment in Nitinol Development
Corporation partially offset by after-tax charges of $7.9 million from merger
and restructuring costs and the write-off of a research and development venture.
The 1997 second quarter net income included after-tax gains of $18.9 million
on the sale of the Company's investment in Semtech Corporation common stock and
other investments. These gains were partially offset by after-tax charges of
$6.7 million for a legal settlement of a U.S. Government contract dispute
related to a unit divested in 1995 and merger and restructuring costs.
Net income for the 1997 third quarter included a net after-tax gain of $3.9
million on the sale of a business which operated job training centers for the
U.S. Government partially offset by a charge relating to legal matters.
The 1997 fourth quarter net income included a
net after-tax gain of $6.3 million on divestitures of businesses which
manufactured collapsible metal and laminate packaging tubes, electric heating
elements and metal dies and plastic compression molds.
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.
The Company paid a cash dividend of $0.16 per share on its common stock in
each of the 1997 quarters and in the fourth quarter of 1996.
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.
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.
----------
53
<PAGE> 34
COMMON STOCK PRICE
(Per quarter)
<TABLE>
<CAPTION>
1997 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allegheny Teledyne Incorporated
High $29-1/2 $28-7/8 $32-13/16 $29-7/8
Low $21 $25-1/8 $25-7/8 $23-1/8
- ----------------------------------------------------------------------------------------------------------
1996 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ----------------------------------------------------------------------------------------------------------
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 --
- ----------------------------------------------------------------------------------------------------------
</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, 1997, there were approximately 9,213 record
holders of Allegheny Teledyne common stock.
----------
54
<PAGE> 35
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
/s/ D. G. REID
- -------------------------------------------------------
D. G. Reid
Vice President,
Controller and Chief Accounting Officer
----------
55
<PAGE> 36
SELECTED FINANCIAL DATA
(In millions except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales:
Continuing $3,647.1 $3,629.7 $3,651.4 $2,986.4 $2,974.3
Operations sold or held for sale 98.0 185.9 396.7 470.9 587.7
- ---------------------------------------------------------------------------------------------------------
$3,745.1 $3,815.6 $4,048.1 $3,457.3 $3,562.0
- ---------------------------------------------------------------------------------------------------------
Income, after tax, before
extraordinary loss and
cumulative effect of
accounting change $ 297.6 $ 226.5 $ 276.8 $ 9.8 $ 143.6
Extraordinary loss on
redemption of debt -- (13.5) (2.9) -- (3.7)
Cumulative effect of
accounting change -- -- -- -- (185.6)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) $ 297.6 $ 213.0 $ 273.9 $ 9.8 $ (45.7)
- ---------------------------------------------------------------------------------------------------------
Basic income (loss) per common share:
Income after tax, before
extraordinary loss
and cumulative effect
of accounting change $ 1.70 $ 1.28 $ 1.56 $ 0.06 $ 0.83
Extraordinary loss on
redemption of debt -- (0.08) (0.02) -- (0.02)
Cumulative effect of
accounting change -- -- -- -- (1.07)
- ---------------------------------------------------------------------------------------------------------
Basic net income (loss)
per common share $ 1.70 $ 1.20 $ 1.54 $ 0.06 $ (0.26)
- ---------------------------------------------------------------------------------------------------------
Diluted income (loss) per common share:
Income after tax, before
extraordinary loss
and cumulative effect
of accounting change $ 1.67 $ 1.27 $ 1.53 $ 0.06 $ 0.82
Extraordinary loss on
redemption of debt -- (0.08) (0.02) -- (0.02)
Cumulative effect of
accounting change -- -- -- -- (1.04)
- ---------------------------------------------------------------------------------------------------------
Diluted net income (loss)
per common share $ 1.67 $ 1.19 $ 1.51 $ 0.06 $ (0.24)
- ---------------------------------------------------------------------------------------------------------
Dividends declared:
Allegheny Teledyne $ 0.64 $ 0.16 $ -- $ -- $ --
Allegheny Ludlum $ -- $ 0.42 $ 0.49 $ 0.48 $ 0.47
Teledyne $ -- $ 0.52 $ 0.52 $ -- $ 0.42
- ---------------------------------------------------------------------------------------------------------
Working capital $ 667.2 $ 614.0 $ 679.8 $ 540.1 $ 635.8
- ---------------------------------------------------------------------------------------------------------
Total assets $2,604.5 $2,606.4 $2,628.9 $2,479.4 $2,535.1
- ---------------------------------------------------------------------------------------------------------
Long-term debt $ 326.1 $ 443.4 $ 561.1 $ 489.7 $ 495.5
- ---------------------------------------------------------------------------------------------------------
Redeemable preferred stock $ -- $ -- $ 33.1 $ -- $ --
- ---------------------------------------------------------------------------------------------------------
Stockholders' equity $ 999.7 $ 871.5 $ 785.8 $ 655.4 $ 686.3
- ---------------------------------------------------------------------------------------------------------
</TABLE>
----------
56
<PAGE> 37
The historical selected financial data reflects the results of Allegheny
Ludlum and of Teledyne as if they had been combined for all periods presented.
The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, "Earnings
per Share."
Net income included after-tax gains of $34.1 million on the divestitures of
certain non-strategic businesses and the sale of investments in Semtech
Corporation common stock and Nitinol Development Corporation in 1997, $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 and $24.2 million on the sale of an
investment in Litton Industries common stock in 1993.
Net income was adversely affected by after-tax merger, restructuring and
proxy contest charges of $6.8 million in 1997, $42.9 million in 1996 and $3.9
million in 1995.
Results of operations included after-tax charges of $4.1 million in 1997,
$4.7 million in 1996, $88.0 million in 1994 and $10.7 million in 1993 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 included charges of $185.6 million for the cumulative
effect of changing the accounting for postretirement health care and life
insurance benefits for Teledyne in 1993.
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.
----------
57
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
The following lists the subsidiaries of Allegheny Teledyne Incorporated,
excluding those subsidiaries which, considered in the aggregate as a single
subsidiary, do not constitute 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
ALC Funding Corporation 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 19, 1998, included in the 1997
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 19, 1998, with respect to the
consolidated financial statements incorporated herein by reference.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 23, 1998
<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 the year
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.
/s/ Arthur Andersen LLP
Los Angeles, California
March 23, 1998
<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>
<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> 50
<SECURITIES> 0
<RECEIVABLES> 536
<ALLOWANCES> 18
<INVENTORY> 582
<CURRENT-ASSETS> 1,229
<PP&E> 1,568
<DEPRECIATION> 880
<TOTAL-ASSETS> 2,605
<CURRENT-LIABILITIES> 562
<BONDS> 326
0
0
<COMMON> 18
<OTHER-SE> 982
<TOTAL-LIABILITY-AND-EQUITY> 2,605
<SALES> 3,745
<TOTAL-REVENUES> 3,745
<CGS> 2,829
<TOTAL-COSTS> 2,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 475
<INCOME-TAX> 177
<INCOME-CONTINUING> 298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.67
</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>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<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> 1.19
</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 1996 and consolidated balance sheets as of September 30,
1997 and 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 33 205
<SECURITIES> 0 0
<RECEIVABLES> 598 533
<ALLOWANCES> 13 13
<INVENTORY> 550 462
<CURRENT-ASSETS> 1,244 1,273
<PP&E> 1,597 1,577
<DEPRECIATION> 895 847
<TOTAL-ASSETS> 2,639 2,673
<CURRENT-LIABILITIES> 548 544
<BONDS> 410 591
0 0
0 0
<COMMON> 18 17
<OTHER-SE> 946 828
<TOTAL-LIABILITY-AND-EQUITY> 2,639 2,673
<SALES> 2,824 2,895
<TOTAL-REVENUES> 2,824 2,895
<CGS> 2,147 2,220
<TOTAL-COSTS> 2,147 2,220
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 16 29
<INCOME-PRETAX> 347 277
<INCOME-TAX> 132 115
<INCOME-CONTINUING> 215 162
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 215 162
<EPS-PRIMARY> 1.22 0.91
<EPS-DILUTED> 1.20 0.90
</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>
<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> 46
<SECURITIES> 0
<RECEIVABLES> 621
<ALLOWANCES> 13
<INVENTORY> 507
<CURRENT-ASSETS> 1,242
<PP&E> 1,579
<DEPRECIATION> 873
<TOTAL-ASSETS> 2,609
<CURRENT-LIABILITIES> 560
<BONDS> 386
0
0
<COMMON> 18
<OTHER-SE> 939
<TOTAL-LIABILITY-AND-EQUITY> 2,609
<SALES> 1,915
<TOTAL-REVENUES> 1,915
<CGS> 1,449
<TOTAL-COSTS> 1,449
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 245
<INCOME-TAX> 95
<INCOME-CONTINUING> 150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.84
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
registrant's consolidated statement of income for the three months ended March
31, 1997 and consolidated balance sheet as of March 31, 1997 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 84
<SECURITIES> 0
<RECEIVABLES> 574
<ALLOWANCES> 12
<INVENTORY> 478
<CURRENT-ASSETS> 1,200
<PP&E> 1,571
<DEPRECIATION> 856
<TOTAL-ASSETS> 2,609
<CURRENT-LIABILITIES> 541
<BONDS> 431
0
0
<COMMON> 18
<OTHER-SE> 916
<TOTAL-LIABILITY-AND-EQUITY> 2,609
<SALES> 958
<TOTAL-REVENUES> 958
<CGS> 732
<TOTAL-COSTS> 732
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 104
<INCOME-TAX> 41
<INCOME-CONTINUING> 63
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.35
</TABLE>
<PAGE> 1
EXHIBIT 99.1
To the Board of Directors of Allegheny Teledyne Incorporated:
We have audited the consolidated statements of operations, shareholders' equity
and cash flows of Teledyne, Inc. (a Delaware corporation) and subsidiaries
(Company) for the year 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Teledyne,
Inc. and subsidiaries for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 13, 1996
