<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____ to _____
Commission File Number 1-12001
ALLEGHENY TELEDYNE INCORPORATED
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 25-1792394
- ------------------------------- -------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation of Organization) Number)
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
- -------------------------------- -------------------------------
(Address of Principal Executive (Zip Code)
Offices)
(412) 394-2800
-------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
At November 5, 1999, the Registrant had outstanding 187,114,591 shares of its
Common Stock.
<PAGE> 2
ALLEGHENY TELEDYNE INCORPORATED
SEC FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 30
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 49.2 $ 74.8
Accounts receivable 500.8 534.7
Inventories 647.6 659.9
Deferred income taxes 60.8 59.3
Tax refund 3.5 5.9
Prepaid expenses and other current assets 28.1 29.9
---------- ----------
Total Current Assets 1,290.0 1,364.5
Property, plant and equipment 994.3 1,003.6
Prepaid pension cost 501.9 418.6
Cost in excess of net assets acquired 242.8 256.0
Other assets 112.0 132.8
---------- ----------
Total Assets $ 3,141.0 $ 3,175.5
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 238.9 $ 227.0
Accrued liabilities 324.6 327.1
Current portion of long-term debt 73.9 68.2
---------- ----------
Total Current Liabilities 637.4 622.3
Long-term debt 256.7 446.8
Accrued postretirement benefits 578.0 582.6
Other 251.2 183.9
---------- ----------
Total Liabilities 1,723.3 1,835.6
---------- ----------
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-197,937,664 shares at September 30, 1999 and
December 31, 1998; outstanding-189,059,875 shares at September 30,
1999 and 194,873,151 shares at December 31, 1998 19.8 19.8
Additional paid-in capital 470.8 467.3
Retained earnings 1,107.7 923.9
Treasury stock: 8,877,789 shares at September 30, 1999
and 3,064,513 shares at December 31, 1998 (183.9) (67.6)
Foreign currency translation losses (4.4) (5.9)
Unrealized gains on securities 7.7 2.4
---------- ----------
Total Stockholders' Equity 1,417.7 1,339.9
---------- ----------
Total Liabilities and Stockholders' Equity $ 3,141.0 $ 3,175.5
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ --------------------------
1999 1998 1999 1998
------ ------ -------- --------
<S> <C> <C> <C> <C>
Sales $855.9 $927.1 $2,708.4 $2,948.4
Costs and expenses:
Cost of sales 675.0 707.8 2,093.8 2,248.8
Selling and administrative expenses 118.1 119.4 349.1 363.4
Transformation, merger and
restructuring costs 3.1 -- 7.4 67.8
Interest expense, net 2.5 4.0 19.8 12.7
------ ------ -------- --------
798.7 831.2 2,470.1 2,692.7
Earnings before other income 57.2 95.9 238.3 255.7
Other income 2.0 11.2 5.1 15.9
------ ------ -------- --------
Income before income taxes and
extraordinary gains 59.2 107.1 243.4 271.6
Provision for income taxes 21.2 41.6 87.5 103.7
------ ------ -------- --------
Income before extraordinary gains 38.0 65.5 155.9 167.9
Extraordinary gains on sales of
operations, net of income tax 129.6 -- 129.6 --
------ ------ -------- --------
Net income $167.6 $ 65.5 $ 285.5 $ 167.9
====== ====== ======== ========
Basic net income per common share:
Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85
Extraordinary gains 0.68 -- 0.67 --
------ ------ -------- --------
Basic net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85
====== ====== ======== ========
Diluted net income per common share:
Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85
Extraordinary gains 0.68 -- 0.67 --
------ ------ -------- --------
Diluted net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85
====== ====== ======== ========
Dividends declared per common share $ 0.16 $0.16 $ 0.48 $ 0.48
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
------- -------
<S> <C> <C>
Operating Activities:
Net income $ 285.5 $ 167.9
Adjustments to reconcile net income to net cash
provided by operating activities:
Gains on sales of businesses and investments (209.3) (0.2)
Depreciation and amortization 92.6 81.2
Deferred income taxes 7.4 1.7
Non-cash restructuring costs -- 50.8
Change in operating assets and liabilities:
Prepaid pension cost (83.3) (66.1)
Accrued income taxes 40.4 (28.6)
Accounts payable 22.7 (70.3)
Accrued liabilities (16.3) 22.1
Accounts receivable (1.9) 55.0
Inventories (6.9) 39.7
Other 8.6 (15.1)
------- -------
Cash provided by operating activities 139.5 238.1
Investing Activities:
Proceeds from the sale of businesses and investments 346.8 27.2
Purchases of property, plant and equipment (78.6) (118.3)
Disposals of property, plant and equipment 10.0 12.5
Purchases of businesses and investment in ventures (9.4) (129.3)
Short-term investments - sales -- 34.4
Other (1.5) (6.9)
------- -------
Cash provided (used) by investing activities 267.3 (180.4)
Financing Activities:
Net borrowings (repayments) under credit agreements (196.8) 43.2
Payments on long-term debt and capital leases (1.5) (4.3)
------- -------
Net increase (decrease) in debt (198.3) 38.9
Purchases of treasury stock (148.3) --
Cash dividends (92.2) (91.0)
Exercises of stock options 6.4 9.1
------- -------
Cash used by financing activities (432.4) (43.0)
Increase (decrease) in cash and cash equivalents (25.6) 14.7
Cash and cash equivalents at beginning of the year 74.8 53.7
------- -------
Cash and cash equivalents at end of period $ 49.2 $ 68.4
======= =======
Non-cash transactions:
Assets acquired under promissory note $ 6.6 $ --
======= =======
</TABLE>
Cash provided by operating activities in the 1999 nine months is net of
payments of taxes on gains on sales of businesses of $79.9 million. Excluding
these tax payments, cash provided by operating activities was $219.4 million.
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
Basis of Presentation
These interim consolidated financial statements include the accounts of
Allegheny Teledyne Incorporated and its subsidiaries ("Allegheny Teledyne" or
the "Company"). These unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and note
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company, all adjustments (which
include only normal recurring adjustments) considered necessary for a fair
presentation have been included. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's 1998 Annual Report. The
results of operations for these interim periods are not necessarily indicative
of the operating results for a full year.
Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, FASB
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities: Deferral of the Effective Date of FASB Statement No. 133" was
issued. This statement delays the effective date of FASB Statement No. 133 to
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is presently evaluating the effect of adopting this statement.
Note 2. Inventories
Inventories were as follows (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials and supplies $ 145.7 $ 196.1
Work-in-process 491.9 471.6
Finished goods 145.8 133.4
---------- ----------
Total inventories at current cost 783.4 801.1
Less allowances to reduce current cost
values to LIFO basis (122.5) (128.7)
Progress payments (13.3) (12.5)
---------- ----------
Total inventories $ 647.6 $ 659.9
========== ==========
</TABLE>
5
<PAGE> 7
Note 3. Business Segments
Information on the Company's business segments was as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------------
1999 1998 1999 1998
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Sales:
Specialty metals $ 495.5 $ 487.0 $ 1,506.7 $ 1,559.5
Aerospace and electronics 206.0 192.4 606.3 596.5
Industrial 67.0 80.8 214.0 266.6
Consumer 58.0 56.5 176.5 162.0
-------- -------- ---------- ----------
Total continuing
operations 826.5 816.7 2,503.5 2,584.6
Operations sold or held
for sale 29.4 110.4 204.9 363.8
-------- -------- ---------- ----------
Total sales $ 855.9 $ 927.1 $ 2,708.4 $ 2,948.4
======== ======== ========== ==========
Operating Profit:
Specialty metals $ 28.4 $ 59.6 $ 139.5 $ 208.8
Aerospace and electronics 23.6 21.8 61.5 64.7
Industrial 1.8 8.0 10.2 30.5
Consumer 3.9 5.7 12.0 13.1
-------- -------- ---------- ----------
Total operating profit 57.7 95.1 223.2 317.1
Transformation, merger
and restructuring costs (3.1) -- (7.4) (67.8)
Corporate expenses (10.8) (8.9) (27.8) (27.3)
Interest expense, net (2.5) (4.0) (19.8) (12.7)
Investments and
operations sold or held
for sale 0.5 14.3 26.0 30.5
Excess pension income 17.4 10.6 49.2 31.8
-------- -------- ---------- ----------
Income before income
taxes and
extraordinary gains $ 59.2 $ 107.1 $ 243.4 $ 271.6
======== ======== ========== ==========
</TABLE>
In the 1999 third quarter and 1999 nine months, transformation, merger and
restructuring costs included costs of $3.1 million and $7.4 million,
respectively, related to the previously announced transformation of the Company.
In the 1998 nine months, transformation, merger and restructuring costs
included deal costs of $10.3 million related to the acquisition of OREMET, along
with pretax charges of $5.8 million for a planned salaried workforce reduction
related to integrating the operations of OREMET and Wah Chang. Allegheny Ludlum
also recorded a $19.3 million pretax charge due to a planned
6
<PAGE> 8
salaried workforce reduction. In addition, pretax charges of $32.4 million were
recorded for costs associated with exiting certain product lines and asset
impairments resulting from capital expenditure programs.
Pension income in excess of amounts allocated to business segments to offset
pension and other postretirement benefit expenses is presented separately.
Note 4. Divestitures
In the 1999 third quarter, the Company completed the sale of its unmanned
aerial vehicle and its pyrotechnic components and systems businesses, Ryan
Aeronautical and McCormick Selph Ordnance Unit. In addition, the Company sold
its pressure relief valve, vehicle control valve, nitrogen gas springs, consumer
drinkware and its construction and mining equipment businesses.
During the 1999 third quarter, the Company realized more than $340 million in
gross proceeds and recognized extraordinary gains of $129.6 million, net of
$79.9 million in taxes, in connection with the sales of these businesses.
7
<PAGE> 9
Note 5. Net Income 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>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
---------------------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary gains $ 38.0 $ 65.5 $ 155.9 $ 167.9
Extraordinary gains on sales of
operations 129.6 -- 129.6 --
------- ------- ------- -------
Numerator for basic and diluted
net income per common share -
net income available to common
stockholders $ 167.6 $ 65.5 $ 285.5 $ 167.9
======= ======= ======= =======
Denominator:
Weighted average shares 190.3 197.0 192.2 196.6
Contingent issuable stock 0.2 0.4 0.2 0.3
------- ------- ------- -------
Denominator for basic net income
per common share 190.5 197.4 192.4 196.9
Effect of dilutive securities:
Employee stock options 0.7 1.0 0.9 1.6
------- ------- ------- -------
Dilutive potential common shares 0.7 1.0 0.9 1.6
Denominator for diluted net
income per common share -
Adjusted weighted average shares 191.2 198.4 193.3 198.5
======= ======= ======= =======
Basic net income per common share:
Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85
Extraordinary gains on sales of
operations 0.68 -- 0.67 --
------- ------- ------- -------
Basic net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85
======= ======= ======= =======
Diluted net income per common share:
Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85
Extraordinary gains on sales of
operations 0.68 -- 0.67 --
------- ------- ------- -------
Diluted net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85
======= ======= ======= =======
</TABLE>
8
<PAGE> 10
Note 6. Comprehensive Income
The components of comprehensive income, net of tax, were as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net income $167.6 $ 65.5 $285.5 $167.9
Foreign currency translation gains
(losses) arising during the
period 1.7 (2.9) (3.4) (6.5)
Less: foreign currency translation
losses due to sale of foreign entities (4.9) -- (4.9) --
------ ------ ------ ------
6.6 (2.9) 1.5 (6.5)
Unrealized holding gains arising
during period 0.7 0.6 5.3 0.2
------ ------ ------ ------
Comprehensive income $174.9 $ 63.2 $292.3 $161.6
====== ====== ====== ======
</TABLE>
Note 7. Stockholders' Equity
Allegheny Teledyne paid a cash dividend of $0.16 per common share in each of
the 1999 and 1998 first, second and third quarters. On November 11, 1999, the
Company's Board of Directors declared a regular quarterly dividend of $0.16 per
share of common stock. The dividend is payable on December 14, 1999 to
stockholders of record at the close of business on November 22, 1999.
At a stockholders meeting held on November 11, 1999, Allegheny Teledyne's
stockholders approved a one-for-two reverse split of the Company's stock. The
reverse split will be effective immediately following the spin-offs of the
Company's Aerospace and Electronics and Consumer segments to Allegheny
Teledyne's stockholders. Allegheny Teledyne will complete the spin-offs on
November 29, 1999.
The Board of Directors has preliminarily approved setting the regular
quarterly dividend at $0.10 per share of common stock, or $0.20 per share after
giving effect to the reverse split. It is anticipated that this new dividend
rate will be implemented with the regular quarterly dividend payable in March
2000.
On October 1, 1998, the Company's Board of Directors authorized a stock
repurchase program to acquire up to 20 million shares of Allegheny Teledyne's
common stock. The shares may be purchased from time-to-time in the open market
or in negotiated transactions. In the first nine months of 1999, the Company had
purchased 7.3 million shares for $148.3 million under this program. In the 1999
third quarter, the Company had purchased 2.1 million shares for $39.7 million
under this program. During the month of October 1999 the Company purchased over
1.7 million shares at a cost of approximately $28 million. From the inception of
the share repurchase program through November
9
<PAGE> 11
9, 1999, the Company has repurchased approximately 12.0 million shares at an
aggregate cost of $232.5 million.
On November 12, 1999, the Company announced that its board of directors had
set November 22, 1999 as the record date and November 29, 1999 as the
distribution date for the spin-offs of the Company's Aerospace and Electronics
and Consumer segments. The Aerospace and Electronics segment will be spun off to
Allegheny Teledyne's stockholders at the ratio of one share of the common stock
of the new aerospace and electronics company, which will be known as Teledyne
Technologies Incorporated, for each seven shares of Allegheny Teledyne common
stock. The Consumer segment will be spun off to Allegheny Teledyne's
stockholders at the ratio of one share of the common stock of the new consumer
company, which will be known as Water Pik Technologies, Inc., for each 20 shares
of Allegheny Teledyne common stock.
Note 8. Commitments and Contingencies
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws.
Environmental liabilities are recorded when the Company's liability is
probable and the costs are reasonably estimable. In many cases, however,
investigations are not yet at a stage where the Company has been able to
determine whether it is liable or, if liability is probable, to reasonably
estimate the loss or range of loss, or certain components thereof. Estimates of
the Company's liability are further subject to uncertainties regarding the
nature and extent of site contamination, the range of remediation alternatives
available, evolving remediation standards, imprecise engineering evaluations and
estimates of appropriate cleanup technology, methodology and cost, the extent of
corrective actions that may be required, and the number and financial condition
of other potentially responsible parties, as well as the extent of their
responsibility for the remediation. Accordingly, as investigation and
remediation of these sites proceeds, it is likely that adjustments in the
Company's accruals will be necessary to reflect new information. The amounts of
any such adjustments could have a material adverse effect on the Company's
results of operations in a given period, but the amounts, and the possible range
of loss in excess of amounts accrued, are not reasonably estimable. Based on
currently available information, however, management does not believe future
environmental costs in excess of those accrued with respect to sites with which
the Company has been identified are likely to have a material adverse effect on
the Company's financial condition or liquidity. However, there can be no
assurance that additional future developments, administrative actions or
liabilities relating to environmental matters will not have a material adverse
effect on the Company's financial condition or results of operations.
At September 30, 1999, the Company's reserves for environmental remediation
obligations totaled approximately $44.0 million, of which approximately $10.6
million was included in other current liabilities. The reserve includes
estimated probable future costs of $12.6 million for federal Superfund and
10
<PAGE> 12
comparable state-managed sites; $14.5 million for formerly owned or operated
sites for which the Company has remediation or indemnification obligations; $6.4
million for owned or controlled sites at which Company operations have been
discontinued; and $10.5 million for sites utilized by the Company in its ongoing
operations. The Company is evaluating whether it may be able to recover a
portion of future costs for environmental liabilities from its insurance
carriers and from third parties other than participating potentially responsible
parties.
The timing of expenditures depends on a number of factors that vary by site,
including the nature and extent of contamination, the number of potentially
responsible parties, the timing of regulatory approvals, the complexity of the
investigation and remediation, and the standards for remediation. The Company
expects that it will expend present accruals over many years, and will complete
remediation of all sites for which it has identified remediation obligations in
up to thirty years.
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, including claims based on business
practices and cost classifications and actions under the False Claims Act.
Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal
legal or administrative proceedings may ensue. Depending on the circumstances
and the outcome, such proceedings could result in fines, penalties, compensatory
and treble damages or the cancellation or suspension of payments under one or
more U.S. Government contracts. Under government regulations, a company, or one
or more of its operating divisions or units, can also be suspended or debarred
from government contracts based on the results of investigations. However,
although the outcome of these matters cannot be predicted with certainty,
management does not believe there is any audit, review or investigation
currently pending against the Company of which management is aware that is
likely to result in suspension or debarment of the Company, or that is otherwise
likely to have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
The Company learns from time to time that it has been named as a defendant in
civil actions filed under seal pursuant to the False Claims Act. Generally,
since such cases are under seal, the Company does not in all cases possess
sufficient information to determine whether the Company will sustain a material
loss in connection with such cases, or to reasonably estimate the amount of any
loss attributable to such cases.
A number of other lawsuits, claims and proceedings have been or may be
asserted against the Company relating to the conduct of its business, including
those pertaining to product liability, patent infringement, commercial,
employment, employee benefits, tax, and stockholder matters. While the outcome
of litigation cannot be predicted with certainty, and some of these lawsuits,
claims or proceedings may be determined adversely to the Company, management
does not believe that the disposition of any such pending matters is likely to
have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
11
<PAGE> 13
Note 9. Subsequent Events
In November 1999, the Company completed the previously announced sale of
Specialty Equipment's material handling business to Terex Corporation. The
Material Handling business is the last remaining business to be sold as part of
the transformation initiatives Allegheny Teledyne announced in January 1999.
On November 12, 1999, the Company announced that its subsidiary, Allegheny
Ludlum Corporation, has entered into a definitive agreement with Bethlehem Steel
Corporation in which Allegheny Ludlum will acquire the Washington, PA plant of
Lukens' Washington Steel Division for approximately $20 million. The plant has
been idle since April 1999 and was formerly used to cold roll and finish
stainless steel sheet and strip. The agreement is subject to customary
regulatory approval and closing conditions.
Note 10. Unaudited Pro Forma Financial Information
Following extensive studies and strategic analyses initiated in the summer of
1998, the Company announced in January 1999 that it would pursue a significant
strategic transformation and reconfiguration of the Company. As part of this
transformation, the Company is spinning off its Aerospace and Electronics
segment as a stand-alone company (which will be called Teledyne Technologies
Incorporated) and its Consumer segment as a stand-alone company (which will be
called Water Pik Technologies, Inc.) on November 29, 1999. In addition, the
Company has sold several of its businesses as described in Note 4 and Note 9.
At the time of the spin-offs, Allegheny Teledyne will change its name to
Allegheny Technologies Incorporated ("Allegheny Technologies"). In addition, the
Company will effect a one-for-two reverse split of its common stock immediately
after the spin-offs. The reverse stock split was approved by the Company's
stockholders at a special meeting held on November 11, 1999.
The following unaudited pro forma consolidated income statements for the nine
months ended September 30, 1999 and 1998 and the year ended December 31, 1998
and the unaudited pro forma balance sheet at September 30, 1999 present the
results of operations and financial position of Allegheny Technologies assuming
that the transactions contemplated by the spin-offs of the Aerospace and
Electronics and Consumer segments and the reverse stock split had been completed
as of the beginning of 1998 with respect to the consolidated income statements
and as of September 30, 1999 with respect to the consolidated balance sheet. In
addition, the statements reflect the operations of the segments to be spun-off
and the companies sold or to be sold as discontinued. In the opinion of
management, the statements include all material adjustments necessary to
reflect, on a pro forma basis, the impact of the spin-off transactions and the
reverse stock split on the historical financial information of Allegheny
Teledyne Incorporated. The adjustments are described in the notes to pro forma
consolidated financial information and are set forth in the "Pro Forma
Adjustments" column.
The unaudited pro forma financial information has been presented for
informational purposes only and does not reflect the results of operations or
12
<PAGE> 14
financial position of Allegheny Technologies that would have occurred had
Allegheny Technologies operated as a company without the spun-off operations and
the companies sold or to be sold for the period represented. Actual results
might have differed. The unaudited pro forma consolidated information should not
be relied upon as being indicative of results Allegheny Technologies would have
had or of future results after the spin-offs and sales of companies.
13
<PAGE> 15
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
Allegheny Pro Forma Allegheny
(In millions) Technologies Adjustments Technologies
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 49.2 $ 133.7 $ 182.9
Accounts receivable 504.3 (163.8) 340.5
Inventories 647.6 (88.5) 559.1
Deferred income taxes 60.8 (26.0) 34.8
Prepaid expenses and other current assets 28.1 (3.6) 24.5
- -----------------------------------------------------------------------------------------------------------------
Total Current Assets 1,290.0 (148.2) 1,141.8
Property, plant and equipment 994.3 (88.7) 905.6
Prepaid pension cost 501.9 16.5 518.4
Cost in excess of net assets acquired 242.8 (36.5) 206.3
Net assets of discontinued operations -- 20.7 20.7
Other assets 112.0 (15.7) 96.3
- -----------------------------------------------------------------------------------------------------------------
Total Assets $3,141.0 $(251.9) $2,889.1
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 238.9 $ (76.3) $ 162.6
Accrued liabilities 324.6 (75.0) 249.6
Short-term debt and current portion of long-term debt 73.9 (0.2) 73.7
- -----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 637.4 (151.5) 485.9
Long-term debt 256.7 (6.8) 249.9
Accrued postretirement benefits 578.0 (33.3) 544.7
Other 251.2 (11.1) 240.1
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities 1,723.3 (202.7) 1,520.6
- -----------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock -- -- --
Common stock 19.8 (9.9) 9.9
Additional paid-in capital 470.8 9.9 480.7
Retained earnings 1,107.7 (50.1) 1,057.6
Treasury stock (183.9) -- (183.9)
Foreign currency translation losses (4.4) 0.9 (3.5)
Unrealized gains on securities 7.7 -- 7.7
- -----------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,417.7 (49.2) 1,368.5
- -----------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $3,141.0 $(251.9) $2,889.1
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 16
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Pro Forma Effect of
Allegheny Pro Forma Allegheny Reverse
(In millions except per share amounts) Technologies Adjustments Technologies Stock Split
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 2,708.4 $ (987.7) $ 1,720.7
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 2,093.8 (701.2) 1,392.6
Selling and administrative expenses 349.1 (190.0) 159.1
Transformation costs 7.4 (7.4) --
Interest expense, net 19.8 (0.1) 19.7
- -----------------------------------------------------------------------------------------------------------------------------
2,470.1 (898.7) 1,571.4
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before other income 238.3 (89.0) 149.3
Other income 5.1 (1.5) 3.6
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes and extraordinary gains 243.4 (90.5) 152.9
Provision for income taxes 87.5 (38.9) 48.6
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
extraordinary gains 155.9 (51.6) 104.3
Income from discontinued operations, net of
income taxes -- 51.6 51.6
Extraordinary gains on sales of operations, net
of income taxes 129.6 -- 129.6
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 285.5 $ -- $ 285.5
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations before
extraordinary gains $ 0.81 $ (0.27) $ 0.54 $ 1.08
Income from discontinued operations -- 0.27 0.27 0.54
- -----------------------------------------------------------------------------------------------------------------------------
Extraordinary gains on sales of operations 0.67 -- 0.67 1.34
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ 1.48 $ -- $ 1.48 $ 2.96
- -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations before
extraordinary gains $ 0.81 $ (0.27) $ 0.54 $ 1.08
Income from discontinued operations -- 0.27 0.27 0.54
- -----------------------------------------------------------------------------------------------------------------------------
Extraordinary gains on sales of operations 0.67 -- 0.67 1.34
- -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 1.48 $ -- $ 1.48 $ 2.96
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE> 17
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Year Ended December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Pro Forma Effect of
Allegheny Pro Forma Allegheny Reverse
(In millions except per share amounts) Technologies Adjustments Technologies Stock Split
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 3,923.4 $ (1,521.0) $ 2,402.4
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 2,950.2 (1,118.5) 1,831.7
Selling and administrative expenses 507.6 (263.2) 244.4
Transformation, merger and restructuring costs 67.8 -- 67.8
Interest expense, net 19.3 0.1 19.4
- -----------------------------------------------------------------------------------------------------------------------------
3,544.9 (1,381.6) 2,163.3
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before other income 378.5 (139.4) 239.1
Other income 12.7 (2.0) 10.7
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes 391.2 (141.4) 249.8
Provision for income taxes 150.0 (55.2) 94.8
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 241.2 (86.2) 155.0
Income from discontinued operations, net of
income taxes -- 86.2 86.2
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 241.2 $ -- $ 241.2
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations $ 1.23 $ (0.44) $ 0.79 $ 1.58
Income from discontinued operations -- 0.44 0.44 0.88
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ 1.23 $ -- $ 1.23 $ 2.46
- -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations $ 1.23 $ (0.44) $ 0.79 $ 1.58
Income from discontinued operations -- 0.44 0.44 0.88
- -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 1.23 $ -- $ 1.23 $ 2.46
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE> 18
ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Pro Forma Effect of
Allegheny Pro Forma Allegheny Reverse
(In millions except per share amounts) Technologies Adjustments Technologies Stock Split
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 2,948.4 $ (1,122.3) $ 1,826.1
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 2,248.8 (835.0) 1,413.8
Selling and administrative expenses 363.4 (194.7) 168.7
Transformation, merger and restructuring costs 67.8 -- 67.8
Interest expense, net 12.7 0.1 12.8
- -----------------------------------------------------------------------------------------------------------------------------
2,692.7 (1,029.6) 1,663.1
- -----------------------------------------------------------------------------------------------------------------------------
Earnings before other income 255.7 (92.7) 163.0
Other income 15.9 (2.1) 13.8
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes 271.6 (94.8) 176.8
Provision for income taxes 103.7 (37.1) 66.6
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 167.9 (57.7) 110.2
Income from discontinued operations, net of
income taxes -- 57.7 57.7
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 167.9 $ -- $ 167.9
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income from continuing operations $ 0.85 $ (0.29) $ 0.56 $ 1.12
Income from discontinued operations -- 0.29 0.29 0.58
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ 0.85 $ -- $ 0.85 $ 1.70
- -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income from continuing operations $ 0.85 $ (0.29) $ 0.56 $ 1.12
Income from discontinued operations -- 0.29 0.29 0.58
- -----------------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 0.85 $ -- $ 0.85 $ 1.70
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE> 19
The pro forma unaudited consolidated balance sheet was prepared assuming the
spin-offs and reverse stock split occurred on September 30, 1999 and includes
"Pro Forma Adjustments" as follows:
(a) To reclassify the operations sold or to be sold and operations to be
spun-off as discontinued operations.
(b) To record cash proceeds of $134 million from credit facilities
established by Allegheny Teledyne on behalf of Teledyne Technologies
Incorporated and Water Pik Technologies, Inc. The repayment obligations
of $100 million and $34 million under these credit facilities will be
assumed by Teledyne Technologies Incorporated and Water Pik
Technologies, Inc., respectively.
(c) To record the distribution of the spun-off companies to Allegheny
Teledyne stockholders. (d) To reflect the one-for-two reverse stock
split.
The pro forma unaudited consolidated income statements were prepared assuming
the spin-offs and reverse stock split occurred at the beginning of 1998. These
statements include "Pro Forma Adjustments" as follows:
(a) To reclassify the operations sold or to be sold and operations to be
spun-off as discontinued operations.
(b) To reflect the one-for-two reverse stock split.
18
<PAGE> 20
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Allegheny Teledyne Incorporated is a group of technology-based manufacturing
businesses with significant concentration in specialty metals, complemented by
aerospace and electronics, industrial, and consumer products. The Company's
Specialty Metals business segment accounted for 60 percent of the Company's
total sales from continuing operations of $2,503.5 million for the nine months
ended September 30, 1999. Its Aerospace and Electronics, Industrial and Consumer
business segments accounted for 24 percent, 9 percent and 7 percent,
respectively, of total sales from continuing operations. Such percentages were
approximately the same for the first nine months of 1998, where total sales from
continuing operations were $2,584.6 million.
For the 1999 nine months, operating profit was $223.2 million compared to
$317.1 million for the same 1998 period. Sales from continuing operations
declined 3.1 percent to $2,503.5 million for the 1999 nine months compared to
$2,584.6 million for the same 1998 period. The lower results were due mainly to
continuing difficult pricing conditions in stainless steel, nickel alloys,
titanium and tungsten carbide markets, higher raw material costs (primarily
nickel), and reduced demand for high performance metals in the commercial
aerospace and oil and gas markets. Strong cost controls partially offset the
negative market conditions experienced in some businesses.
Net income was $285.5 million, or $1.48 per diluted share, for the 1999 nine
months, compared to $167.9 million, or $0.85 per diluted share, for the same
1998 period. Net income was $167.6 million, or $0.88 per diluted share, for the
1999 third quarter, compared to $65.5 million, or $0.33 per diluted share, for
the same 1998 period. Net income in the third quarter 1999 was impacted by
$129.6 million, or $0.68 per diluted share from extraordinary gains on the sales
of operations and $5.6 million, or $0.03 per diluted share, relating to costs
associated with the previously announced planned spin-offs of certain businesses
of the Aerospace and Electronics and Consumer segments, workforce reductions and
facilities start-up costs.
Sales and operating profit for the Company's four business segments are
discussed below.
Specialty Metals
Third quarter 1999 operating profit declined to $28.4 million from $59.6
million in the same year-ago period and sales increased 2 percent to $495.5
million. For the 1999 nine months, operating profit declined 33 percent to
$139.5 million and sales declined 3 percent to $1,506.7 million.
Allegheny Ludlum
Combined sales and operating profits for Allegheny Ludlum, whose products
consist primarily of flat-rolled products, increased 15 percent and declined 57
percent, respectively, from the 1998 third quarter and increased 7 percent and
declined 18 percent, respectively, from the 1998 nine months. Sales increased
due to higher shipments compared to 1998, as a result of strong
19
<PAGE> 21
demand and the utilization and capability of new strategic assets. Operating
profit declined due primarily to significantly higher nickel costs and
relatively flat prices for commodity stainless steel products.
With rising nickel costs, increased demand and lower imports reflecting the
impact of favorable trade cases, in the 1999 third quarter Allegheny Ludlum
announced two price increases totaling approximately 12 to 14 percent for most
stainless steel sheet, strip and coiled plate products. In addition, Allegheny
Ludlum reduced the surcharge mechanism for nickel to $2.75 per pound from $3.50
per pound effective with shipments beginning October 4, 1999. Due to existing
contracts, the full benefits of the price increases and surcharge change are not
expected to be realized until the first quarter 2000. The ability to maintain
price increases depends on market conditions, including pricing by foreign
producers.
Tons of flat-rolled specialty materials shipped in the third quarter and nine
months of 1999 increased to 168,200 tons and 480,200 tons, respectively,
compared to 130,200 tons and 402,200 tons for the same periods of 1998. The
average prices of flat-rolled specialty materials in the third quarter and nine
months of 1999 declined to $1,940 and $1,993 per ton, respectively, compared to
$2,181 and $2,230 per ton in the same 1998 periods due primarily to product mix,
including an increase in sales of semi-finished stainless steel products. Tight
cost controls and cost reduction efforts continue.
High Performance Metals
Operating profit and sales for high performance metals declined 48 percent
and 17 percent, respectively, over the 1998 third quarter and declined 45
percent and 17 percent, respectively, over the 1998 nine months. The decline in
operating results in 1999 occurred primarily due to lower prices and volume for
nickel alloy and titanium products resulting from continuing weak demand in
aerospace and oil and gas markets. This weakness was partially offset by strong
demand for nickel-based superalloys for large land-based power generation
turbines and medical implant devices. Results for the 1999 third quarter also
include start-up costs associated with Oremet-Wah Chang's new electron beam melt
facility. The results for the 1999 nine months include this item as well as
start-up costs associated with Allvac's new vacuum induction furnace and costs
related to a workforce reduction at Allvac's operation in the United Kingdom.
Aerospace and Electronics Segment
Operating profit increased 8 percent to $23.6 million for the 1999 third
quarter from $21.8 million in the same 1998 period, and sales increased 7
percent to $206.0 million. For the 1999 nine months, operating profit decreased
5 percent to $61.5 million and sales increased 2 percent to $606.3 million.
Product recall costs at Continental Motors and a continuing slow economic
recovery in some Asian markets negatively impacted performance during the 1999
nine-month period.
While sales at Continental Motors improved in the 1999 third quarter and
nine months, operating profit for the 1999 nine months was negatively impacted
by a recall of piston engines produced in 1998. Efforts associated with the
recall resulted in a $3.0 million charge during the 1999 nine months. Sales and
operating results for Continental Motors' turbine engines
20
<PAGE> 22
increased in both the 1999 third quarter and nine months. At Electronic
Technologies, increased demand for business and commuter aircraft systems and
medical devices in both the 1999 third quarter and nine months were more than
offset by lower sales for microelectronics for the 1999 third quarter and lower
sales for contract manufacturing services and precision electronic devices for
the 1999 nine months. These results were also impacted by costs related to
workforce reductions at Electronic Technologies. At Brown Engineering, increased
1999 third quarter and nine-month sales in defense energy systems and
environmental programs partially offset lower sales for marine instrumentation
products. The decrease in operating results for marine instrumentation products
was attributable, in large part, to adverse conditions in the oil industry.
Third quarter 1999 and the 1999 nine months operating results for Teledyne Cast
Parts were adversely affected by reduced demand from commercial aerospace
markets.
Industrial Segment
Operating profit for the 1999 third quarter was $1.8 million compared to $8.0
million for the same quarter of 1998, and sales decreased 17 percent to $67.0
million. For the 1999 nine months, operating profit decreased 67 percent to
$10.2 million while sales decreased 20 percent to $214.0 million.
The decline in sales and operating profit in the 1999 third quarter and nine
months resulted primarily from reduced demand for tungsten, tungsten carbide,
and carbide cutting tools due to weaker global market conditions affecting
Metalworking Products. In addition, the 1999 third quarter and nine months
operating profit includes $2.1 million and $3.6 million, respectively, in costs
related to a workforce reduction at Metalworking Products.
Consumer Segment
Operating profit decreased to $3.9 million in the 1999 third quarter from
$5.7 million in the same 1998 period and sales increased 3 percent to $58.0
million. For the 1999 nine months, operating profit decreased to $12.0 million
from $13.1 million and sales increased 9 percent to $176.5 million from the
comparable 1998 period.
Corporate Items
Corporate expenses increased by 21 percent to $10.8 million for the 1999
third quarter primarily due to one-time costs related to executive management
transition. Corporate expenses increased 2 percent to $27.8 million for the 1999
nine months. Net interest expense decreased $1.5 million from the third quarter
1998 as substantial proceeds received from asset sales completed during the
quarter were used to reduce debt. Net interest expense for the 1999 nine months
increased $7.1 million from the nine months 1998 due to higher levels of debt
resulting from more than $400 million of purchases of businesses and investments
in ventures and increased capital spending during 1998. Excess pension income
increased to $17.4 million in the third quarter 1999 and $49.2 million in the
1999 nine months compared to $10.6 million in the third quarter 1998 and $31.8
million in the 1998 nine months due to higher pension assets as a result of
strong investment performance during 1998.
21
<PAGE> 23
Special and Extraordinary Items
Net income in the 1999 third quarter was reduced by special items of $5.6
million, or $0.03 per diluted share, relating to costs associated with the
previously announced spin-offs of certain businesses of the Aerospace and
Electronics and Consumer segments, workforce reductions at Metalworking
Products, Water Pik and Teledyne Electronic Technologies and facilities start-up
costs at Oremet-Wah Chang and Allegheny Ludlum's joint venture in China.
Also, net income in the third quarter 1999 includes $129.6 million, or $0.68
per diluted share, from extraordinary gains on the sale of several businesses
including Fluid Systems, McCormick Selph Ordnance Unit, Ryan Aeronautical and
Specialty Equipment's construction and mining business.
In addition to the items described above, net income in the 1999 nine months
was reduced by special items of $10.8 million, or $0.05 per diluted share,
relating to costs associated with the previously announced spin-offs of the
Aerospace and Electronics and Consumer segments, facility consolidations in the
Consumer segment, workforce reductions at Allvac's operations in the United
Kingdom, Metalworking Products and Teledyne Electronic Technologies, start-up
costs relating to Oremet-Wah Chang's new electron beam melt facility and
Allegheny Ludlum's joint venture in China and operating losses on certain
businesses sold in the 1999 first quarter.
Non-recurring events resulted in an after-tax charge of $45.8 million, or
$0.23 per diluted share in the 1998 nine months. These events included deal
costs of $10.3 million, or $0.05 per share, related to the acquisition of
OREMET, along with charges of $3.5 million, or $0.02 per share, for a planned
salaried workforce reduction related to integrating the operations of OREMET and
Wah Chang. Also, Allegheny Ludlum recorded a $12.3 million charge, or $0.06 per
share, due to a planned salaried workforce reduction. In addition, charges of
$19.7 million, or $0.10 per share, relating to the Specialty Metals segment were
recorded associated with exiting certain product lines and asset impairments
resulting from capital expenditure programs.
Transformation Initiatives
Following extensive studies and strategic analyses initiated in the
summer of 1998, the Company announced in January 1999 that it would pursue a
significant strategic transformation and reconfiguration of the Company. As part
of this transformation, the Company is spinning off certain businesses of its
Aerospace and Electronics segment as a stand-alone company (which will be called
Teledyne Technologies Incorporated) and its Consumer segment as a stand-alone
company (which will be called Water Pik Technologies, Inc.).
On November 12, 1999, the Company announced that its board of directors had
set November 22, 1999 as the record date and November 29, 1999 as the
distribution date for the spin-offs of the two new companies. Teledyne
Technologies Incorporated will be spun off to Allegheny Teledyne's stockholders
at the ratio of one share of the common stock of Teledyne Technologies for each
seven shares of Allegheny Teledyne common stock. Water Pik Technologies, Inc.
will be spun off to Allegheny Teledyne's stockholders at the ratio of one share
of the common stock of Water Pik Technologies for each 20 shares of Allegheny
Teledyne common stock.
22
<PAGE> 24
At a special meeting held on November 11, 1999, Allegheny Teledyne's
stockholders approved a one-for-two reverse split of the Company's stock. The
reverse split will be effective immediately following the spin-offs of the
Company's Aerospace and Electronics and Consumer segments to Allegheny
Teledyne's stockholders.
At the time of the spin-offs, Allegheny Teledyne will change its name to
Allegheny Technologies Incorporated. After the spin-offs, Allegheny Technologies
common stock will be traded on the New York Stock Exchange under the symbol
"ATI."
Additionally, as part of this strategic transformation, the Company sold
several of its businesses. In the 1999 third quarter, the Company completed the
sale of its unmanned aerial vehicle and its pyrotechnic components and systems
businesses, Ryan Aeronautical and McCormick Selph Ordnance Unit. In addition,
the Company sold its pressure relief valve, vehicle control valve, nitrogen gas
springs, consumer drinkware and its construction and mining equipment
businesses. During the 1999 third quarter, the Company realized more than $340
million in gross proceeds and recognized extraordinary gains of $129.6 million,
net of $79.9 million in taxes in connection with the sales of these businesses.
New Accounting Pronouncements
Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In June 1999, FASB
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities: Deferral of the Effective Date of FASB Statement No. 133" was
issued. This statement delays the effective date of FASB Statement No. 133 to
all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company is presently evaluating the effect of adopting this statement.
Income Taxes
The Company's effective tax rate decreased to 35.8 percent and 35.9 percent,
respectively, for the 1999 third quarter and nine months from 38.8 percent and
38.2 percent, respectively, for the same periods in 1998. The decrease in the
1999 rate reflects the impact of non-deductible merger and restructuring charges
in the first quarter of 1998, favorable adjustments to prior years' tax
liabilities, and favorable effects of tax planning initiatives.
Financial Condition and Liquidity
Working capital decreased to $652.6 million at September 30, 1999, compared
to $742.2 million at December 31, 1998. The current ratio decreased to 2.0 from
2.2 in this same period. The decrease in working capital was primarily due to
lower cash, accounts receivable and inventories balances and higher accounts
payable balances.
23
<PAGE> 25
In the first nine months of 1999, cash generated from operations of $139.5
million, proceeds from the sale of businesses and investments and disposals of
property, plant and equipment of $356.8 million and proceeds from the exercise
of stock options of $6.4 million were used to pay net debt of $198.3 million,
repurchase common stock for $148.3 million, pay dividends of $92.2 million and
to invest $88.0 million in capital equipment and business expansion. Cash
generated from operations of $139.5 million is net of payments of taxes on gains
on sales of businesses of $79.9 million. Excluding these tax payments, cash
generated from operations is $219.4 million. Cash transactions plus cash on hand
at the beginning of the year resulted in a cash position of $49.2 million at
September 30, 1999. Capital expenditures for 1999 are expected to approximate
$115 million, of which $78.6 million were spent during the first nine months.
On October 1, 1998, the Company's Board of Directors authorized a stock
repurchase program to acquire up to 20 million shares of Allegheny Teledyne's
common stock. The shares may be repurchased from time-to-time in the open
market. During the third quarter of 1999, the Company repurchased 2.1 million
shares at a cost of $39.7 million. During the 1999 nine months, the Company
repurchased 7.3 million shares at a cost of $148.3 million. During the month of
October 1999, the Company purchased over 1.7 million shares at a cost of
approximately $28 million. From the inception of the share repurchase program
through November 9, 1999, the Company has repurchased a total of approximately
12.0 million shares at a cost of $232.5 million.
The Company will effect a one-for-two reverse split of its common stock
immediately after the completion of the previously announced spin-offs of
certain businesses of its Aerospace and Electronics and its Consumer segments.
The reverse stock split was approved by Allegheny Teledyne's stockholders at a
special meeting held on November 11, 1999. The spin-offs will be completed on
November 29, 1999.
On November 11, 1999, the Board of Directors declared a regular quarterly
dividend of $0.16 per share of common stock. The dividend is payable on December
14, 1999 to stockholders of record at the close of business on November 22,
1999. The Board of Directors has preliminarily approved setting the regular
quarterly dividend at $0.10 per share of common stock, or $0.20 per share after
giving effect to the reverse split. It is anticipated that this new dividend
rate will be implemented with the regular quarterly dividend payable in March
2000.
The Company believes that internally generated funds, current cash on hand
and borrowing from existing credit lines will be adequate to meet foreseeable
needs. The Company may choose, however, to issue additional debt depending on
market conditions.
Other Matters
Environmental
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund, and comparable
state laws. The Company is currently involved in the
24
<PAGE> 26
investigation and remediation of a number of sites under these laws. The
Company's reserves for environmental investigation and remediation totaled
approximately $44.0 million at September 30, 1999. Based on currently available
information, management does not believe future environmental costs at sites
with which the Company has been identified in excess of those accrued are likely
to have a material adverse effect on the Company's financial condition or
liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
With respect to proceedings brought under the federal Superfund laws, or
similar state statutes, the Company has been identified as a potentially
responsible party at approximately 36 such sites, excluding those at which it
believes it has no future liability. The Company's involvement is very limited
or de minimus at approximately 14 of these sites, and the potential loss
exposure with respect to any of these 36 sites is not considered to be material.
For additional discussion of environmental matters, see Note 8 to the
consolidated financial statements of the Company.
25
<PAGE> 27
Government Contracts
A number of the Company's subsidiaries perform work on contracts with the
U.S. government. Many of these contracts include price redetermination clauses,
and most are terminable at the convenience of the government. Certain of these
contracts are fixed-price or fixed-price incentive development contracts which
involve a risk that costs may exceed those expected when the contracts were
negotiated. Absent modification of these contracts, any costs incurred in excess
of the fixed or ceiling prices must be borne by the Company. In addition,
virtually all defense programs are subject to curtailment or cancellation due to
the year-to-year nature of the government appropriations and allocations
process. A material reduction in U.S. Government appropriations may have an
adverse effect on the Company's business, depending upon the specific programs
affected by any such reduction. Since certain contracts extend over a long
period of time, all revisions in cost and funding estimates during the progress
of work have the effect of adjusting the current period earnings on a cumulative
catch-up basis. When the current contract estimate indicates a loss, provision
is made for the total anticipated loss. The Company obtains many U.S. Government
contracts through the process of competitive bidding. There can be no assurance
that the Company will continue to be successful in having its bids accepted.
Various claims (whether based on U.S. Government or Company audits and
investigations or otherwise) have been or may be asserted against the Company
related to its U.S. Government contract work, including claims based on 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 8 to the
consolidated financial statements of the Company.
26
<PAGE> 28
Impact of the Introduction of the Euro
The Company has continued to evaluate effects of the January 1, 1999
conversion and related transition by 11 member states of the European Union to a
common currency, the "Euro". The United Kingdom, where a significant portion of
the Company's European operations is located, is not currently a participating
country. Based on its evaluation, the Company currently does not expect the euro
conversion to have a material impact on the Company's results of operation or
financial condition. Like other companies with European sales and operations,
the Company anticipates that it will face wage and product pricing transparency
issues in participating countries; however, the Company does not expect the
resolution of these issues to have a material adverse effect on the Company.
Additionally, while the Company expects to encounter some technical challenges
to adapt information technology and other systems to accommodate
Euro-denominated transactions, associated costs to date have not been material.
Mostly due to evolving business needs and continuing technological advances, the
Company has been modifying and replacing its computer software and hardware at
its European operations. The Company believes that the euro conversion will not
have a material adverse effect on its foreign currency activities described
below.
Year 2000 Readiness Disclosure
Over the past several years, the Company has put in place management task
forces at its operating companies to identify whether its computer systems,
which include business computers, mill equipment and process control computers
and other devices using a microprocessor, as well as telecommunication and
payroll and employee benefit processing systems, would function properly with
respect to dates in the Year 2000 and thereafter. These task forces report to
the Executive Resource Information Committee, a senior management committee
charged with reviewing and establishing priorities for information
technology-related matters, including Year 2000 issues, and which reports to the
Audit and Finance Committee of the Company's Board of Directors. Through these
efforts, Year 2000 identification, solution development, testing and
implementation initiatives and contingency planning initiatives have proceeded
at Allegheny Teledyne and each of the operating companies.
In part as a result of its Year 2000 initiatives, but mostly due to evolving
business needs and continuing technological advancements, the Company has been
modifying and replacing portions of its computer software and hardware systems.
The Company estimates, based on dollars expended, that installation of solutions
to identified Year 2000 issues relating to its information technology systems is
nearly 100 percent complete. While the Company estimates that based on dollars
expended, nearly 100 percent of solutions have been implemented for its
non-information technology systems, the Company continues to work to resolve
various manufacturing-related Year 2000 issues. The Company believes that a
substantial portion of its internal solutions relating to Year 2000
functionality of its computer systems have been completed and implemented.
Confirmatory testing of implemented solutions is ongoing.
We have provided many customers and suppliers who we believe to be material to
our business with Year 2000 questionnaires. None of the responding customers and
suppliers have identified for the Company any material Year
27
<PAGE> 29
2000 issues. Efforts continue to be made to identify and resolve customer- and
supplier-based Year 2000 issues that could affect the Company and its operating
and support systems. The Company believes that it has identified substantially
all material customer- and supplier-based Year 2000 issues. Efforts also
continue to identify whether products produced and sold by Allegheny Teledyne's
operating companies have Year 2000 issues. The Company believes that it has
identified substantially all products that have Year 2000 issues, primarily a
limited number of products of Teledyne Electronic Technologies and Teledyne
Brown Engineering, and is working to resolve such issues. The Company believes
that there are no significant product-related Year 2000 issues. The Company has
not conducted any extensive review of products manufactured and sold by
discontinued businesses or businesses that it has sold.
Excluding expenditures necessitated by ordinary business needs and continuing
technological advancements in the computer industry, the Company spent
approximately $11 million in 1998 and anticipates spending another estimated $7
million in 1999 to address Year 2000 issues. These expenditures do not include
expenditures relating to Year 2000 issues associated with the products
identified above. Substantially all costs related to the Company's Year 2000
initiatives are expensed as incurred and funded through operating cash flows.
Although we currently do not have any plans for additional expenditures,
additional amounts may be spent in subsequent years.
Based upon internal assessments, formal communications with suppliers and
customers with which the Company exchanges electronic data, and work completed
to date, the Company believes that Year 2000 issues should not pose significant
operational problems or have a material impact on the Company's consolidated
financial position, results of operations or cash flow. A failure of third party
vendors or customers to be Year 2000 ready, however, could adversely affect
these beliefs and is not quantifiable. Such failure could have a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flow in a given period, but probably not over the long-term.
The most reasonably likely worse case scenario of failure by the Company or its
suppliers or customers to resolve Year 2000 problems would be a temporary
slowdown or cessation of manufacturing operations at one or more of the
Company's facilities and a temporary inability on the part of the Company to
timely process orders and to deliver finished products to customers. Delays in
meeting customers' orders would affect the timing of billings to and payments
received from customers in respect to orders and could result in other
liabilities. Customers' Year 2000 problems could also delay the timing of
payments to the Company for orders.
The Company has been working to establish contingency plans with respect to
our critical business and operating systems should unplanned situations arise on
or after January 1, 2000, and expect such contingency plans to be in place prior
to December 31, 1999. Most of the Company's current contingency plans
contemplate the use of current personnel to make certain manual adjustments to
systems or to perform various tasks manually. Vacations for information
technology professionals and other relevant personnel are expected to be limited
toward the end of December 1999 and the early part of 2000 in order to have
employees on hand to assist in avoiding and responding to adverse scenarios. The
Company is also considering establishing additional inventories and back-up
procedures in the event suppliers are unable to deliver raw materials and
services in a timely manner.
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<PAGE> 30
While the Company has been conducting a comprehensive Year 2000 review of its
computer systems, there may be Year 2000-related matters that have not been
identified. Actual dollar amounts spent by the Company to address Year 2000
issues could materially differ from the estimates for a number of reasons,
including changes in the availability or costs of personnel trained in this
area, changes made to the Company's remediation plans, the ability of the
Company's significant suppliers, customers and others with which it conducts
business, including governmental agencies, to identify and resolve their own
Year 2000 issues or identification of other Year 2000-related matters.
Forward-Looking Statements
From time to time the Company has made and may continue to make
forward-looking statements. Certain forward-looking statements are contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 8 to the consolidated financial statements of the Company,
including statements concerning the transformation of the Company, pricing, cost
savings, raw material costs, market conditions, capital spending plans, the
amount of dividends to be paid to the Company's stockholders, the adequacy of
available funds to meet foreseeable needs, anticipated effects of the Euro
conversion, anticipated expenditures to address Year 2000-computer-systems
issues, the impact of Year 2000-computer-systems issues, the Company's use of
derivative instruments, the outcome of any government inquiries, litigation or
other future proceedings related to government contract or other matters and
environmental costs. These statements are based on current expectations that
involve a number of risks and uncertainties, including those described above
under the captions "Other Matters - Environmental" and "Other Matters -
Government Contracts" and elsewhere herein. Completion of the previously
announced spin-offs and public offerings by the new companies being formed in
the spin-offs and achieving anticipated results involve inherent uncertainties,
including those related to whether legal, tax, financial and other
considerations can be successfully resolved. Realization of the anticipated
benefits described in the forward-looking statements could take longer than
expected and implementation difficulties, market factors and further
deterioration in domestic or global economic conditions could alter the
anticipated benefits. Actual results may differ materially from the results
anticipated in the forward-looking statements. Additional risk factors are
described from time to time in the Company's filings with the Securities and
Exchange Commission, including its Report on Form 10-K for the year ended
December 31, 1998. The Company assumes no duty to update its forward-looking
statements.
29
<PAGE> 31
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company uses derivative financial instruments from time to time to hedge
ordinary business risks regarding foreign currencies on product sales and to
partially hedge against volatile raw material cost fluctuations in the Specialty
Metals segment.
Foreign currency exchange contracts are used to limit transactional exposure
to changes in currency exchange rates. The Company sometimes purchases foreign
currency forward contracts that effectively permit it to sell specified amounts
of foreign currencies expected to be received from its export sales for
pre-established U.S. dollar amounts at specified dates. The forward contracts
are denominated in the same foreign currencies in which export sales are
denominated. These contracts, which are not financially material, are designated
as hedges of export sales transactions in which settlement will occur in future
periods, which otherwise would expose the Company, on the basis of its aggregate
net cash flows in respective currencies, to foreign currency risk.
A portion of the Company's operations consists of investments in foreign
subsidiaries. As a result, the Company's financial results could be affected by
changes in foreign currency exchange rates. To mitigate this foreign currency
translation risk, the Company has a practice of recapitalizing operations using
local foreign currency debt to replace direct equity investment. The average
interest rate to service this foreign debt is favorable to current U.S. interest
rates.
As part of its risk management strategy, the Company purchases exchange-traded
futures contracts to manage exposure to changes in nickel prices, a component of
raw material cost for some of the specialty metals companies. The nickel futures
contracts obligate the Company to make or receive a payment equal to the net
change in value of the contract at its maturity. These contracts can also be
designated as hedges of the Company' firm sales commitments, are short-term in
nature to correspond to the commitment period, and are effective in hedging the
Company's exposure to changes in nickel prices during the cycle. The gains and
losses on these contracts are deferred and recognized in earnings when realized
as an adjustment to cost of goods sold. Historically, the Company has not closed
any significant contracts prior to the execution of the underlying sale
transaction, nor has any of the underlying sales transactions failed to occur
which resulted in a material adverse effect on the Company.
The Company guarantees the outstanding Allegheny Ludlum fixed rate 6.95%
debentures due in 2025. In a period of declining interest rates, the Company
faces the risk of required interest payments exceeding those based on the
current market rate. To mitigate interest rate risk, the Company attempts to
maintain a reasonable balance between fixed and variable rate debt to keep
financing costs as low as possible.
The Company believes that adequate controls are in place to monitor these
activities, which are not financially material. However, many factors, including
those beyond the control of the Company such as changes in domestic and foreign
political and economic conditions, as well as the magnitude and timing of
interest rate changes, could adversely affect these activities.
30
<PAGE> 32
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
10(a) Employment Agreement made August 17, 1999 between Allegheny
Teledyne and Thomas A. Corcoran
10(b) Restricted Stock Agreement made September 16, 1999 between
Allegheny Teledyne Incorporated and Thomas A. Corcoran
10(c) Supplemental Pension Plan Agreement made September 16, 1999
between Allegheny Teledyne Incorporated and Thomas A. Corcoran
27 Financial Data Schedule for Nine Months Ended September 30,
1999.
(b) The Registrant did not file any Current Reports on Form 8-K during the
quarter for which this report is filed.
31
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLEGHENY TELEDYNE INCORPORATED
(Registrant)
Date: November 15, 1999 By /s/ James L. Murdy
--------------------------------------
James L. Murdy
Executive Vice President, Finance and
Administration and Chief Financial
Officer
(Duly Authorized Officer)
Date: November 15, 1999 By /s/ Dale G. Reid
--------------------------------------
Dale G. Reid
Vice President - Controller and Chief
Accounting Officer
(Principal Accounting Officer)
32
<PAGE> 34
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10(a) Employment Agreement made August 17, 1999 between Allegheny
Teledyne and Thomas A. Corcoran
10(b) Restricted Stock Agreement made September 16, 1999 between
Allegheny Teledyne Incorporated and Thomas A. Corcoran
10(c) Supplemental Pension Plan Agreement made September 16, 1999
between Allegheny Teledyne Incorporated and Thomas A. Corcoran
27 Financial Data Schedule for Nine Months Ended September 30, 1999.
33
<PAGE> 1
Exhibit 10(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is executed this 17 day of
August, 1999, by and between ALLEGHENY TELEDYNE INCORPORATED, a Delaware
corporation with its principal place of business at 10th Floor, Six PPG Place,
Pittsburgh, PA 15222 (with all of its direct and indirect subsidiaries, "ATI" or
the "Employer"), and THOMAS A. CORCORAN, an individual residing in the State of
Maryland (the "Executive").
In consideration of the premises, mutual covenants and agreements of
the parties contained herein, and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, and intending to be
legally bound, the Employer and the Executive hereby agree as follows:
1. Employment. The Executive represents and warrants that he is not a
party to any existing agreement or obligation that would prevent him from
entering into an employment relationship with the Employer and performing his
obligations and duties thereunder. The Executive further represents and warrants
that he is not a party to any existing agreement or obligation that would cause
the Employer to be in violation of any third party's rights. Commencing on
September 16, 1999 (the "Effective Date"), the Employer, in reliance on such
representations, shall employ the Executive and the Executive shall accept
employment by the Employer upon the terms and conditions set forth in this
Agreement.
2. Term. The term of employment (the "Term") shall begin on the
Effective Date and, except as otherwise provided in Sections 6, 7, 8, 9, 10 and
11 below, shall end on July 16, 2004. The Term shall be automatically extended
for one additional month commencing on July 16, 2003 and, if initially extended,
on the last day of each calendar month thereafter (each, an "Extension Date")
unless one party gives written notice to the other on or before an Extension
Date. As of the last day of the month in which a notice not to renew is
delivered, the Term of this Agreement shall be twelve months and shall not be
further extended. The last day of the calendar month in which the Term hereof,
as extended from time to time, is then due to expire is hereinafter referred to
as the "Expiration Date."
3. Duties. The Executive will serve as President and Chief Executive
Officer ("CEO") of ATI. As President and CEO of ATI, the Executive shall have
the primary responsibility to manage and direct the day-to-day business of ATI,
including the generation of income and control of expenses and principal
responsibility for strategic planning and direction. The Executive shall perform
such duties as are consistent with the role of President and CEO of ATI and such
other duties as may be reasonably assigned to him from time-to-time by ATI's
Board of Directors (the "Board"). With the written consent of the Board, the
Executive may (i) devote a reasonable amount of time and effort to charitable,
industry or community organizations and (ii) subject to the provisions of
Section 6 hereof, the Executive may serve as a director of other companies. As
of the Board meeting next following the Effective Date, the Chairman of the
Board of Directors shall nominate the Executive for a seat on the Board and
shall recommend to the Board that they each and all vote in favor of such
nomination.
<PAGE> 2
4. Compensation. During the Term, the Executive shall be compensated as
follows:
(a) Salary. The Executive shall be paid an annual salary of
not less than $800,000 (the "Annual Base Salary"), to be distributed in equal
periodic installments according to the Employer's customary payroll practices.
The Annual Base Salary will be reviewed annually by the Personnel and
Compensation Committee of the Board (the "Committee") and increased (but not
decreased) if the Committee, in its discretion, determines an increase to be
appropriate, based on the types of factors the Committee usually takes into
account in reviewing executive level salaries, including, but not limited to,
cost-of-living factors, ATI's financial performance, and the Executive's
performance. Nothing contained herein shall be construed to prevent the Employer
from increasing the Executive's Annual Base Salary more often than annually.
(b) Bonuses. The bonus arrangements applicable to the
Executive shall be as follows:
(i) Signing Bonus. Promptly following the Effective
Date, the Executive shall receive a one-time signing bonus of $2
million in cash.
(ii) Special Bonuses. The Executive shall receive (A)
a special bonus of $600,000 in cash on February 1, 2000, (B) a special
bonus of $375,000 in cash on January 31, 2001 and a special bonus of
$375,000 in cash on January 31, 2002. In general, for purposes of the
foregoing, the Executive must be an employee of ATI on the applicable
date in order to be entitled to receive the bonus payable on that date;
provided, however, that Section 10 contains special provisions
concerning the payment of these bonuses in the event that the
Executive's employment is terminated by ATI without Cause (as defined
in Section 9(b)).
(iii) AIP Participation. Effective January 1, 2000,
the Executive shall be eligible to participate in ATI's Annual
Incentive Plan (the "AIP"). Under the AIP, the Executive's annual bonus
(the "Performance Bonus") will depend upon the extent to which
individual and corporate performance goals (the "Goals") are achieved.
If 100% of the Goals is achieved, the Executive shall earn a
Performance Bonus equal to 80% of the Annual Base Salary. A sliding
scale shall determine the Performance Bonus if achievement of the Goals
is less than or greater than 100%. If 120% of the Goals is achieved,
the Executive may earn a Performance Bonus of up to 160% of the Annual
Base Salary. Achievement of 75% of the Goals shall be the minimum
required to earn a threshold Performance Bonus of 20% of the Annual
Base Salary. The Board, in its sole discretion, reserves the right to
modify or eliminate these thresholds.
(c) Performance Share Plan. Effective January 1, 2000, the
Executive shall be eligible to participate in ATI's Performance Share Plan (the
"PSP"). Under the PSP, the Executive may earn an award of cash or the common
stock of ATI ("ATI Common Stock" or the "Common Stock of ATI") (denominated at
the grant date) or a combination of both, with an aggregate value up to 150% of
the Annual Base Salary at the grant date. Payment of the award shall be based
upon the extent to which three-year performance goals are achieved by ATI and
shall be made in three installments over a period of three years.
2
<PAGE> 3
(d) Retirement Savings Plan. Effective on the earliest date
permitted under the Retirement Savings Plan, the Executive shall participate in
the Retirement Savings Plan. ATI has a tax-qualified defined contribution plan
under which (i) ATI contributes 6.5% of the Executive's base salary, up to
applicable Internal Revenue Service ("IRS") limits and (ii) the Executive may
defer a maximum of 5% to 8% of his compensation (the actual limit depending on
seniority), with ATI matching such deferrals at 50%. All such contributions are
subject to the applicable IRS limits.
(e) Supplemental Pension Plan. The Executive shall participate
in ATI's Supplemental Pension Plan in accordance with its terms except to the
extent such terms are modified with respect to the Executive in this subsection.
Under ATI's Supplemental Pension Plan, the Executive's accrued benefit will
equal 50% of his base salary at termination of employment. This benefit will be
payable beginning at age 62 or, if later, upon actual retirement, and will
continue for 120 months or, if less, for a number of months equal to 12 times
the Executive's years of employment with ATI. Notwithstanding any contrary
provision in the Supplemental Pension Plan, (i) if the Executive resigns from
employment with ATI at any time prior to attaining age 58 and does not accept
employment with a third party, ATI shall pay to or with respect to him an amount
equal to 50% of the amount earned from his date of hire to his resignation in
equal monthly installments over the period equal to his period of employment
commencing at the Executive's 62nd birthday and ATI shall pay each such
installment so long as the Executive is not then in the employ of a for-profit
corporation, (ii) if the Executive resigns at any time after attaining age 58,
ATI shall pay him a benefit equal to the benefit he would have accrued if he was
then employed by ATI for the greater of five (5) years or the number of years of
actual employment in equal monthly installments over the period equal to the
applicable of five (5) years or the number of years of actual employment (but
not greater than ten (10) commencing at his age 62 and ATI shall pay each such
installment so long as the Executive is not then in the employ of a for profit
corporation and (iii) the Executive shall forfeit his right to this supplemental
pension if before the Executive attains age 62 his employment is terminated by
the Employer for Cause (as set forth in Section 9 hereof).
(f) Stock Acquisition and Retention Plan. The Executive shall
be eligible to elect to participate in the Stock Acquisition and Retention Plan
("SARP") for the 2000 plan year and for each year thereafter during his
employment by ATI in accordance with the terms and conditions of the SARP. Under
the SARP, one share of restricted stock is awarded for each two shares purchased
from ATI or designated by the Executive from previously owned shares (the
Executive may not purchase of designate in any year stock having a value in
excess one year's base salary). The restricted stock will vest if the Executive
remains an employee of ATI and holds the purchased and/or designated stock for
five years after the date of purchase and/or designation.
5. Expense Reimbursement and Other Benefits.
(a) Reimbursement of Expenses. During the Term, the Employer,
upon the submission by the Executive of proper substantiation, including copies
of all relevant invoices, receipts or other evidence reasonably requested by
Employer, shall reimburse the Executive for all reasonable expenses actually
paid or incurred by the Executive in the course of and pursuant
3
<PAGE> 4
to the business of the Employer, including first class or business class air
travel of the Executive and his spouse.
(b) Other Employee Benefits. During the Term, the Executive
will be eligible to participate in ATI's employee benefit, fringe benefit and
executive perquisite plans and programs on a basis no less favorable than is
made available to other senior executives of ATI. Such plans and programs shall
include, but not be limited to, ATI's vacation policy (the Executive will be
entitled to no less than 4 weeks' vacation each year), the Non-Qualified
Deferred Compensation Plan (at the Executive's election, some or substantially
all of the Executive's compensation may be deferred), the Supplemental Savings
Plan, the Employee Stock Purchase Plan, ATI's Health, Accident, Disability
Plans, company-paid car, Duquesne Club and one country club membership,
financial planning assistance (at a cost not to exceed $15,000 in any calendar
year), coverage under ATI's directors and officers liability insurance,
participation in the annual executive physical program, spousal travel for
company business and the use of a company plane with personal use charged back
to the Executive at cost. The Executive shall also be eligible to participate in
the ATI relocation policy applicable to new executive hires
(c) Stock Options. As of the Effective Date, the Executive
shall be granted a non-qualified stock option (the "Option") to purchase 200,000
shares of ATI Common Stock. The exercise price per share of the Option shall
equal the fair market value per share of ATI Common Stock on the Effective Date.
The Option will vest and become exercisable in three equal installments on the
first, second and third anniversaries of the Effective Date. All terms and
conditions of the Option will be governed by ATI's Incentive Plan and a written
stock option agreement containing the terms and conditions customarily used by
ATI in connection with its executive stock option program. The Executive shall
be eligible for additional option grants in future years to the extent such
grants are approved by the Personnel & Compensation Committee of the Board.
(d) Restricted Stock. As of the Effective Date, ATI shall
award to the Executive 150,000 shares of ATI Common Stock (the "Restricted
Stock") subject to restrictions which shall provide that the Executive shall not
transfer such shares during the restriction period and shall forfeit such shares
if during the restriction period his employment with ATI terminates for any
reason other than death. The restriction period shall lapse as to all of such
shares on July 16, 2004, or if earlier, on the date of the Executive's death.
The certificates evidencing such restricted shares of Restricted Stock shall be
held in custody by the Secretary of the Employer until the restriction period
with respect thereto shall have lapsed, and the Executive shall deliver to the
Employer a stock power endorsed in blank relating to such shares. The Executive
shall be entitled to receive any dividends payable with respect to such shares
of Restricted Stock beginning on the date of award of such shares. Such stock
award shall be evidenced by a written agreement between ATI and the Executive in
form and substance reasonably satisfactory to the Employer and the Executive,
which agreement shall set forth the terms and conditions of such stock award
consistent with this Agreement.
(e) Terms of Participation in Benefit Plans and Programs. The
Executive's participation in ATI's employee and executive benefit plans,
programs and arrangements, as provided in this Agreement, shall be subject in
each case to the applicable terms and conditions
4
<PAGE> 5
of such plans, programs and arrangements. All such plans, programs and
arrangements are subject to amendment or termination by ATI at any time.
6. Restrictions.
(a) Non-competition. During the Term and for a one year period
after the termination of the Term for any reason, the Executive shall not,
directly or indirectly, engage in or have any interest in any sole
proprietorship, partnership, corporation or business or any other person or
entity (whether as an executive, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity) engages in competition with ATI (for this
purpose, any business that engages in the manufacture or distribution of
products similar to those products manufactured or distributed by ATI at the
time of termination of the Agreement shall be deemed to be in competition with
ATI); provided that such provision shall not apply to the Executive's ownership
of Common Stock of ATI or the acquisition by the Executive, solely as an
investment, of securities of any issuer that is registered under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act"), and that are listed or admitted for trading on any United States
national securities exchange or that are quoted on the National Association of
Securities Dealers Automated Quotation System, or any similar system or
automated dissemination of quotations of securities prices in common use, so
long as the Executive does not control, acquire a controlling interest in or
become a member of a group which exercises direct or indirect control or, more
than five percent of any class of capital stock of such corporation.
(b) Nondisclosure. During the Term and at all times after the
termination of the Term for any reason, the Executive shall not at any time
divulge, communicate, use to the detriment of ATI or for the benefit of any
other person or persons, or misuse in any way, any Confidential Information (as
hereinafter defined) pertaining to the business of ATI. Any Confidential
Information or data now or hereafter acquired by the Executive with respect to
the business of ATI (which shall include, but not be limited to, information
concerning ATI's financial condition, prospects, technology, customers,
suppliers, sources of leads and methods of doing business) shall be deemed a
valuable, special and unique asset of ATI that is received by the Executive in
confidence and as a fiduciary, and Executive shall remain a fiduciary to ATI
with respect to all of such information. For purposes of this Agreement,
"Confidential Information" means information disclosed to the Executive or known
by the Executive as a consequence of or through his employment by ATI (including
information conceived, originated, discovered or developed by the Executive)
prior to or after the date hereof, and not generally known, about ATI or its
respective businesses. Notwithstanding the foregoing, nothing herein shall be
deemed to restrict the Executive from disclosing Confidential Information to the
extent required by law. None of the foregoing obligations and restrictions apply
to any Confidential Information that the Executive demonstrates was or became
generally available to the public other than as a result of disclosure by the
Executive.
(c) Nonsolicitation of Employees and Clients. During the Term
and for a one year period after the termination of the Term for any reason, the
Executive shall not, directly or indirectly, for himself or for any other
person, firm, corporation, partnership, association or other entity, other than
in connection with the performance of Executive's duties under this Agreement,
(i) employ or attempt to employ or enter into any contractual arrangement with
any employee or
5
<PAGE> 6
former employee of the Employer, unless such employee or former employee has not
been employed by the Employer for a period in excess of six months, (ii) call on
or solicit any of the actual or targeted prospective clients of the Employer on
behalf of any person or entity in connection with any business competitive with
the business of the Employer, and/or (iii) make known the names and addresses of
such clients or any information relating in any manner to the Employer's trade
or business relationships with such customers (unless the Executive can
demonstrate that such information was or became generally available to the
public other than as a result of a disclosure by the Executive).
(d) Ownership of Developments. All copyrights, patents, trade
secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by the Executive during the course of performing work for the Employer
or its customers (collectively, the "Work Product") shall belong exclusively to
the Employer and shall, to the extent possible, be considered a work made by the
Executive for hire for the Employer within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Employer, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Employer, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
(e) Books and Records. All books, records, and accounts
relating in any manner to the customers of the Employer, whether prepared by the
Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Employer and shall be returned immediately to the
Employer on termination of the Executive's employment hereunder or on the
Employer's request at any time.
(f) Definition of ATI. Solely for purposes of this Section 6,
the terms "ATI" and the "Employer" shall include all current direct and indirect
subsidiaries of ATI, any future subsidiaries of ATI that are operating during
the time periods described herein and any other entities that directly or
indirectly, through one or more intermediaries, control, are controlled by or
are under common control with ATI during the periods described herein.
(g) Acknowledgment by Executive. The Executive acknowledges
and confirms that (i) the restrictive covenants contained in this Section 6 are
reasonably necessary to protect the legitimate business interest of the Employer
including the legitimate interests of ATI, and (ii) the restrictions contained
in this Section 6 (including without limitation the length of the term of the
provisions of this Section 6) are not overbroad, over long, or unfair and are
not the result of overreaching, duress or coercion of any kind. The Executive
further acknowledges and confirms that his full, uninhibited and faithful
observance of each of the covenants contained in this Section 6 will not cause
him any undue hardship, financial, or otherwise, and that enforcement of each of
the covenants contained herein will not impair his ability to obtain employment
commensurate with his abilities and on terms fully acceptable to him or
otherwise to obtain income required for the comfortable support of him and his
family and the satisfaction of the needs of his creditors. The Executive
acknowledges and confirms that his special knowledge of the business of ATI is
such as would cause the Employer serious injury or loss if
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<PAGE> 7
he were to use such ability and knowledge to the benefit of a competitor or were
to compete with ATI in violation of the terms of this Section 6. The Executive
further acknowledges that the restrictions contained in this Section 6 are
intended to be, and shall be, for the benefit of and shall be enforceable by,
the Employer's successors and assigns.
(h) Reformation by Court. In the event that a court of
competent jurisdiction shall determine that any provision of this Section 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Section 6 within the
jurisdiction of such court, such provision shall be interpreted and enforced as
if it provided for the maximum restriction permitted under such governing law.
(i) Extension of Time. If the Executive shall be in violation
of any provision of this Section 6 then each time limitation set forth in this
Section 6 shall be extended for a period of time equal to the period of time
during which such violation or violations occur. If the Employer seeks
injunctive relief from such violation in any court, then the covenants set forth
in this Section 6 shall be extended for a period of time equal to the pendency
of such proceeding including all appeals by the Executive.
(j) Survival. The provisions of this Section 6 shall survive
the termination of this Agreement, as applicable.
7. Death. The Term shall terminate upon the death of the Executive and
be of no further force or effect. Upon such termination, (i) the Employer will
pay the Executive's estate a lump sum equal to the sum of the following
(referred to herein as the "Accrued Obligations"): (A) the Executive's base
salary through the date of termination but not previously paid, (B) the amount
of any bonus, incentive compensation, deferred compensation and other cash
compensation earned by the Executive as of the date of termination under the
terms of the applicable compensation arrangement but not previously paid and (C)
any vacation pay, expense reimbursements and other cash entitlements accrued by
the Executive as of the date of termination but not previously paid, (ii) the
Executive's beneficiary, heirs or estate shall be entitled to receive all
benefits accrued by him as of the date of termination under all qualified and
nonqualified retirement, pension, profit sharing and similar plans and welfare
benefits plans of the Employer to such extent, in such manner and at such time
as are provided under the terms of such plans and arrangements (referred to
herein as the "Accrued Benefits") and (iii) all other obligations of ATI
hereunder shall cease forthwith.
8. Disability. If during the Term Executive is unable to perform his
services, by reason of illness or incapacity, for a period of 180 consecutive
days or more, the Employer may, at its option, upon written notice to the
Executive, terminate the Term and his employment hereunder. Upon such
termination, the Employer will pay the Accrued Obligations to the Executive in a
lump sum, the Executive shall be entitled to the Accrued Benefits, and all other
obligations of ATI hereunder shall cease forthwith.
9. Termination for Cause.
(a) The Employer shall have the right to terminate the Term
and the Executive's employment hereunder for Cause (as defined below). Upon such
termination, the
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<PAGE> 8
Employer will pay the Accrued Obligations to the Executive in a lump sum, the
Executive shall be entitled to the Accrued Benefits, and all other obligations
of ATI hereunder shall cease forthwith.
(b) For purposes hereof, the term "Cause" shall mean the
Executive's conviction of a felony, personal dishonesty directly affecting ATI,
willful misconduct, breach of a fiduciary duty involving personal profit to the
Executive or intentional failure to perform stated duties provided, however, an
intentional failure to perform stated duties shall not constitute Cause until
the Board provides the Executive with written notice setting forth the specific
duties that, in the Board's view, the Executive has failed to perform and the
Executive is provided a period of thirty (30) days to cure such specific
failure(s) to the satisfaction of the Board.
10. Termination Without Cause. At any time the Employer shall have the
right to terminate the Term and the Executive's employment hereunder by written
notice to the Executive. Upon any termination pursuant to this Section 10 (that
is not a termination under any of Sections 7, 8, 9 or 11), the Employer shall
pay to the Executive a lump sum equal to the sum of (A) the Annual Base Salary
at the date of termination multiplied by the greater of (i) the number of years
remaining in the Term or (ii) two, (B) the product of the Executive's bonus for
the prior year (not including the bonuses described in Section 4(b)(i) and (ii))
multiplied by the greater of (i) the number of years remaining in the Term or
(ii) two and (C) the amount of any of the special bonuses under Section 4(b)(ii)
that remains unpaid as of the date of termination. The Employer shall also, for
the greater of (i) the remainder of the Term or (ii) two years, continue to pay
its share of the cost of participation by the Executive and his dependents in
health, life and long-term disability benefits that are the same as or
substantially similar to those applicable to the Executive and his dependents at
the date of termination. ATI shall have no further liability hereunder (other
than for reimbursement for reasonable business expenses incurred prior to the
date of termination, subject, however, to the provisions of Section 5(a)). The
Executive shall be entitled to receive all severance payments and benefits
hereunder regardless of any future employment undertaken by the Executive as
long as he is in full compliance with the terms of this Agreement.
11. Termination by the Executive.
(a) The Executive shall at all times have the right, upon 60
days written notice to the Employer, to terminate the Term and his employment
hereunder.
(b) Upon any termination pursuant to this Section 11 by the
Executive without Good Reason (as defined below), the Employer will pay the
Accrued Obligations to the Executive in a lump sum, the Executive shall be
entitled to the Accrued Benefits, and all other obligations of ATI hereunder
shall cease forthwith.
(c) Upon any termination pursuant to this Section 11 by the
Executive for Good Reason, the Employer shall pay to the Executive the same
amounts that would have been payable by the Employer to the Executive under
Section 10 of this Agreement if the Executive's employment had been terminated
by the Employer without Cause. The Employer shall have no further liability
hereunder (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 5(a)).
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<PAGE> 9
The Executive shall be entitled to receive all severance payments and benefits
hereunder regardless of any future employment undertaken by the Executive as
long as he is in full compliance with the terms of this Agreement.
(d) For purposes of this Agreement, "Good Reason" shall mean
(i) the assignment to the Executive of any duties inconsistent in any material
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 3 of this Agreement, or any other action by the Employer which
results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Employer
promptly after receipt of notice thereof given by the Executive; or (ii) any
failure by the Employer to comply with any of the material provisions of Section
4 or Section 5 of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Employer promptly after receipt of notice thereof given by the Executive.
12. Waivers. It is understood that either party may waive the strict
performance of any covenant or agreement made herein; however, any waiver made
by a party hereto must be duly made in writing in order to be considered a
waiver, and the waiver of one covenant or agreement shall not be considered a
waiver of any other covenant or agreement unless specifically in writing as
aforementioned.
13. Savings Provisions. The invalidity, in whole or in part, of any
covenant or restriction, or any section, subsection, sentence, clause, phrase or
word, or other provisions of this Agreement, as the same may be amended from
time to time shall not affect the validity of the remaining portions thereof.
14. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the Commonwealth of Pennsylvania without giving
effect to its choice of law provision.
15. Notices. If either party desires to give notice to the other in
connection with any of the terms and provisions of this Agreement, said notice
must be in writing and shall be deemed given when (a) delivered by hand (with
written confirmation of receipt), (b) sent by facsimile (with written
confirmation of receipt), provided that a copy is mailed by registered mail,
return receipt requested, or (c) when received by the addressee, if sent by a
nationally recognized overnight delivery service (receipt requested), in each
case addressed to the party for whom it is intended as follows (or such other
addresses as either party may designate by notice to the other party):
If to the Employer Allegheny Teledyne Incorporated
10th Floor, Six PPG Place
Pittsburgh, PA 15222
Attn: Chairman of the Board
9
<PAGE> 10
with a copy to: Jon D. Walton
Senior Vice President, General Counsel
and Secretary
Allegheny Teledyne Incorporated
10th Floor, Six PPG Place
Pittsburgh, PA 15222
If to the Executive: At the most recent home address of the
Executive on the official records of the
Employer
16. Default. In the event either party defaults in the performance of
its obligations under this Agreement, the non-defaulting party may, after giving
30 days notice to the defaulting party to provide a reasonable opportunity to
cure such default, proceed to protect its rights by suit in equity, action at
law, or, where specifically provided for herein, by arbitration, to enforce
performance under this Agreement or to recover damages for breach thereof,
including all costs and attorneys' fees, whether settled out of court,
arbitrated, or tried (at both trial and appellate levels).
17. The Executive's Legal Counsel; Reimbursement of Attorneys Fees.
Executive has been advised by legal counsel in connection with the negotiation,
preparation and execution of this Agreement. Promptly upon the Executive's
demand (accompanied by reasonable documentation), Employer shall reimburse the
Executive his reasonable attorney's fees and costs relating to the negotiation,
preparation and execution of this Agreement and the consummation of the
transactions contemplated thereby.
18. No Third Party Beneficiary. Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
other than the Employer, the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and assigns, any rights or
remedies under or by reason of this Agreement.
19. Successors.
(a) This Agreement shall inure to the benefit of and be
binding upon the Executive and the Executive's assigns, heirs, representatives
or estate.
(b) This Agreement shall inure to the benefit of and be
binding upon ATI (including each direct and indirect subsidiary) and its
successors and assigns.
20. Liability for Taxes. The Employer shall have no liability for any
tax liability of Executive attributable to any payment made under this Agreement
except for customary employer liability for federal and state employee taxes
(e.g., social security, Medicare, etc.). The Employer may withhold from any such
payment such amounts as may be required by applicable provisions of the Internal
Revenue Code, other tax laws, and the rules and regulations of the Internal
Revenue Service and other tax agencies in effect at the time of any such
payment.
21. Prior Understandings. This Agreement embodies the entire
understanding of the parties hereof, and supersedes all other oral or written
agreements or understandings between them regarding the subject matter hereof.
No change, alteration or modification hereof may be made except in a writing,
signed by each of the parties hereto. The headings in this Agreement
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<PAGE> 11
are for convenience and reference only and shall not be construed as part of
this Agreement or to limit or otherwise affect the meaning hereof.
[The remainder of this page has been left blank intentionally.]
11
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IN WITNESS WHEREOF, ATI, by its appropriate officer, signed this
Agreement and Executive signed this Agreement, as of the day and year first
above written.
WITNESS ALLEGHENY TELEDYNE INCORPORATED
/s/ Judd R. Cool By: /s/ Jon D. Walton
- -------------------------- -------------------------------------
Title: Senior Vice President, General
------------------------------
Counsel and Secretary
EXECUTIVE
/s/ Claudia Ann Corcoran /s/ Thomas A. Corcoran
- -------------------------- -------------------------------------
Thomas A. Corcoran
12
<PAGE> 1
Exhibit 10(b)
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is made and executed
as of the 16th day of September, 1999, by and between ALLEGHENY TELEDYNE
INCORPORATED, a Delaware corporation with its principal place of business at
10th Floor, Six PPG Place, Pittsburgh, PA 15222 (with all of its direct and
indirect subsidiaries, "ATI") and THOMAS A. CORCORAN, an individual residing in
the State of Maryland (the "Executive").
WHEREAS, as of the date hereof, the Executive is beginning employment
with ATI under an Employment Agreement effective as of September 16, 1999
between the parties (the "Employment Agreement") and, effective October 1, 1999,
will become President and Chief Executive Officer of ATI and a member of its
Board of Directors;
WHEREAS, pursuant to Section 5(d) of the Employment Agreement, ATI has
agreed to award to the Executive 150,000 shares of common stock, $0.10 par value
per share ("ATI Stock") subject to certain restrictions and forfeiture
provisions; and
WHEREAS, the parties intend for this Agreement to evidence the award of
restricted shares and set forth the terms and conditions thereof.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Award and Issuance of the Shares.
(a) In addition to any other compensation the Executive may be
entitled under the Employment Agreement or otherwise in connection with his
service as an employee of ATI, ATI hereby awards to the Executive 150,000 shares
of ATI Stock (the "Shares"). As soon as practicable following the execution and
delivery of this Agreement, ATI shall issue in the Executive's name and deliver
to the Executive a stock certificate or stock certificates representing the
Shares. The Shares shall be subject to the transferability restrictions set
forth in Section 2 of this Agreement (the "Restrictions") for the period set
forth in Section 3(a) of this Agreement and shall be subject to forfeiture as
set forth in Section 3(b) of this Agreement.
<PAGE> 2
(b) In order to reflect the restrictions on disposition of the
Shares, the stock certificate(s) for the Shares may be endorsed with restrictive
legends, including one or both of the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL TO
THE STOCKHOLDER, WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF WHICH
OPINION ARE, SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS
OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS."
"THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED
HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN AGREEMENT ENTERED INTO
BETWEEN ALLEGHENY TELEDYNE INCORPORATED AND THOMAS A. CORCORAN DATED AS OF
SEPTEMBER 16, 1999 WHICH PROVIDES, GENERALLY, THAT THE SHARES CANNOT BE
TRANSFERRED, PLEDGED OR HYPOTHECATED FOR ANY REASON PRIOR TO JULY 16, 2004 OR,
IF EARLIER, THE DEATH OF THOMAS A. CORCORAN WHILE THEN AN EMPLOYEE OF ALLEGHENY
TELEDYNE INCORPORATED. COPIES OF SUCH AGREEMENT ARE ON FILE IN THE OFFICES OF
ALLEGHENY TELEDYNE INCORPORATED, 10th FLOOR, SIX PPG PLACE, PITTSBURGH, PA
15222."
(c) If required by the authorities of any state in connection
with the issuance of the Shares, the legend or legends required by such state
authorities shall also be endorsed on all such certificates.
(d) Simultaneously with the execution and delivery of this
Agreement, the Executive shall deliver to ATI one or more stock powers endorsed
in blank relating to the Shares. In the event of forfeiture of the Shares under
Section 3(b) of this Agreement, the certificate or certificates representing the
forfeited Shares shall be canceled.
2. Restrictions on the Shares. Except as provided in this Section 2,
the Executive shall have all rights and privileges of a stockholder as to
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<PAGE> 3
the Shares, including, without limitation, voting rights and the right to
receive, without restriction on disposition or forfeiture conditions, cash
dividends and the contemplated distribution of shares of stock to ATI
shareholders of Teledyne Technologies Incorporated and Water Pik Technologies,
Inc. The following Restrictions shall apply to the Shares unless and until such
Restrictions expire as to all or any portion of the Shares in accordance with
Section 3 of this Agreement:
(i) any distribution with respect to the Shares made in the
form of stock, including, other than the contemplated distribution of shares of
stock to ATI shareholders of Teledyne Technologies Incorporated and Water Pik
Technologies, Inc., shall be and become subject to the Restrictions;
(ii) none of the Shares may be sold, transferred, assigned,
pledged, hypothecated or otherwise encumbered or disposed of; and
(iii) all of the Shares shall be subject to forfeiture as set
forth in Section 3(b) of this Agreement.
Any attempt to dispose of Shares in a manner contrary to the foregoing
restrictions set forth in this Agreement shall be null, void and ineffective and
shall result in the forfeiture of the Shares.
3. Expiration of the Restrictions; Forfeiture of the Shares.
(a) The Restrictions shall expire with respect to the Shares
upon the earlier to occur of (i) July 16, 2004; (ii) the date of the Executive's
death if he is an employee of ATI on the date of his death; or (iii) termination
of his employment by ATI without Cause, as Cause is defined in Section 9(b) of
that certain Employment Agreement dated the 17th day of August, 1999, between
ATI and the Executive (whether or not the Employment Agreement is in effect on
the date of such termination). Such Employment Agreement is hereby incorporated
herein as if set forth at length.
(b) If, before the Restrictions expire in accordance with
Section 3(a), either (i) the Executive's employment with ATI shall terminate for
any reason other than his death or as specified in Section 3(a)(iii), or (ii)
the Executive breaches any of his material obligations under the Employment
Agreement, all rights of the Executive to the Shares shall forthwith terminate
and be forfeited in their entirety. In the event of any
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<PAGE> 4
such forfeiture, the certificate or certificates representing the forfeited
Shares shall be canceled.
4. Restricted Securities. The Executive hereby confirms that he has
been informed that the Shares are restricted securities under the Securities Act
of 1933, as amended (the "Securities Act") and may not be resold or transferred
unless the Shares are first registered under the federal securities laws or
unless an exemption from such registration is available. Accordingly, the
Executive hereby acknowledges that he is prepared to hold the Shares for an
indefinite period, including such period as may be necessary after the
Restrictions expire, and that he is aware that Rule 144 of the Securities and
Exchange Commission (the "Commission") issued under the Securities Act is not
presently available to exempt the sale of the Shares from the registration
requirements of the Securities Act. The Executive is aware of the adoption of
Rule 144 by the Commission, promulgated under the Securities Act, which permits
limited public resales of securities acquired in a nonpublic offering, subject
to the satisfaction of certain conditions. The Executive understands that under
Rule 144, the conditions include, among other things: the availability of
certain current public information about the issuer, the resale occurring not
fewer than one year after the party has acquired the securities to be sold, the
sale being through a broker is an unsolicited "broker's transaction" and the
amount of securities being sold during any three-month period not exceeding
specified limitations. The Executive acknowledges and understands that ATI may
not be satisfying the current public information requirement of Rule 144 at the
time he wishes to sell the Shares or other conditions under Rule 144 which are
required of ATI. If so, he understands that he will be precluded from selling
the securities under Rule 144 even if the one-year holding period of said Rule
has been satisfied. Prior to his acquisition of the Shares, the Executive
acquired sufficient information about ATI to reach an informed knowledgeable
decision to acquire the Shares. The Executive has such knowledge and experience
in financial and business matters as to make him capable of utilizing said
information to evaluate the risks of the prospective investment and to make an
informed investment decision. The Executive is able to bear the economic risk of
his investment in the Shares.
5. Disposition of Shares. Prior to the expiration of the Restrictions,
the plenary transfer restriction set forth in of Section 2 of this Agreement
shall apply to the Shares. The Executive hereby agrees that following the
expiration of the Restrictions he shall make no disposition of the Shares except
in a transaction which counsel to ATI has determined
4
<PAGE> 5
complies with the various then applicable securities laws of the United State
and any state with jurisdiction.
6. Tax Payments; Withholding. ATI may withhold from the Shares or any
cash amount payable with respect to the Shares from ATI to the Executive all
taxes which ATI is required or otherwise authorized to withhold under applicable
law as determined by ATI in good faith.
7. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
5
<PAGE> 6
To ATI:
Allegheny Teledyne Incorporated
10th Floor
Six PPG Place
Pittsburgh, PA 15222
Attention: Senior Vice President, General Counsel
and Secretary
To the Executive:
Thomas A. Corcoran
_______________________
_______________________
or such other address as one party may supply to the other in writing from time
to time. Any such notice or communication shall be sent certified or registered
mail, return receipt requested, postage prepaid, addressed as above (or to such
other address as such party may designate in writing from time to time), and the
actual date of receipt, as shown by the receipt therefor, shall determine the
time at which notice was given.
8. Assignment; Agreement. This Agreement shall be binding upon and
inure to the benefit of the respective heirs and representatives of the
Executive and the assigns and successors of ATI, but neither this Agreement nor
any rights hereunder shall be assignable or otherwise subject to hypothecation
by the Executive.
9. Entire Agreement; Amendment or Termination. This Agreement
represents the entire agreement of the parties with respect to the subject
matter hereof. The Agreement may be amended or terminated at any time by written
agreement of the parties hereto.
10. Governing Law. This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the Commonwealth
of Pennsylvania other than the conflict of laws provisions of such laws.
11. Severability. If, for any reason, any provision of this Agreement
is held invalid, such invalidity shall not affect any other provision of this
Agreement not held so invalid, and each such other provision shall to the full
extent consistent with law continue in full force
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<PAGE> 7
and effect. If any provision of this Agreement shall be held invalid in part,
such invalidity shall in no way affect the rest of such provision not held so
invalid, and the rest of such provision, together with all other provisions of
this Agreement, shall to the full extent consistent with law continue in full
force and effect.
12. Certain References. References to "the Executive" in any provision
of this Agreement under circumstances where the provision should logically be
construed to apply to the Executive's executors or the administrators, or the
person or persons to whom all or any portion of the Shares may be transferred by
will or the laws of descent and distribution, such references to the Executive
shall be deemed to include such person or persons.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14. Satisfaction of Section 5(d) of Employment Agreement. The Executive
acknowledges that, upon the execution and delivery of this Agreement by the
parties hereto, ATI's obligation under Section 5(d) of the Employment Agreement
has been satisfied.
7
<PAGE> 8
IN WITNESS WHEREOF, ATI has caused this Agreement to be duly executed
and the Executive has set his hand, as of the day and year first above written.
ALLEGHENY TELEDYNE INCORPORATED
By: /s/ Richard P. Simmons
----------------------
Richard P. Simmons
Chairman
THE EXECUTIVE
/s/ Thomas A. Corcoran
---------------------
Thomas A. Corcoran
8
<PAGE> 1
Exhibit 10(c)
SUPPLEMENTAL PENSION PLAN AGREEMENT
MADE as of this 16th day of September, 1999, between ALLEGHENY
TELEDYNE INCORPORATED, a Delaware corporation (hereinafter called "Allegheny
Teledyne"), and THOMAS A. CORCORAN of Pittsburgh, Pennsylvania (hereinafter
called the "Executive"),
WITNESSETH:
WHEREAS, the Executive commenced employment with Allegheny
Teledyne or a subsidiary or a division of a subsidiary of Allegheny Teledyne
(hereinafter called the "Corporation") on September 16, 1999:
WHEREAS, the Executive has been designated as a participant in
Allegheny Teledyne's Supplemental Pension Plan on the terms and conditions
described herein;
WHEREAS, the Executive and Allegheny Teledyne desire to enter
into an agreement to reflect the Executive's participation in Allegheny
Teledyne's Supplemental Pension Plan;
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Subject to the terms and conditions of the Executive's
present employment arrangement with the Corporation, or as such terms and
conditions may be modified and amended from time to time, Executive shall remain
in the service of the Corporation until the Executive's normal retirement age of
65 and shall fully and faithfully perform such duties as an employee of the
Corporation, as may properly be assigned to the Executive or,
2. The Executive (or in the event of the Executive's death,
the Executive's designated beneficiary) shall be entitled to receive
supplemental pension payments under this
<PAGE> 2
Agreement if (i) the Executive retires on or after Normal Retirement Age within
the meaning of the part of the Corporation's pension plan for salaried employees
applicable to the Executive (the "Pension Plan") or on or after age 58 under
conditions whereby the Executive is entitled to receive an immediate pension
under the Pension Plan or if the Executive would be entitled to receive such a
pension but for the fact that the Executive 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 income plan or (iii) dies
while actively employed by the Corporation or after becoming totally disabled
and while still receiving disability payments for such disability or during the
initial waiting period before the long-term disability income payments commence.
Nothing contained in this Agreement shall affect the right of the Corporation to
terminate the Executive's services, responsibilities, duties and authority to
represent the Corporation at any time or for any reason whatsoever.
3. The payments under this Agreement shall be made as
supplemental pension income for a number of months equal to twelve times the
Executive's years of service as an employee of the Corporation, up to a maximum
payment period of 120 months (the "Payment Period") following the retirement of
the Executive after attainment of age 62. If the Executive suffers a total
disability while employed by the Corporation, the Executive may, by notice to
Allegheny Teledyne during the initial 6 months' waiting period before the
Executive's disability payments begin under the Corporation's long-term
disability income plan, elect to receive supplemental pension payments monthly
in the amount described in Paragraph 4 hereof. Any payments made to the
Executive under the previous sentence while disabled shall reduce dollar for
dollar the payments that may otherwise be payable under the Agreement to the
Executive following retirement or to the Executive's designated beneficiary
following the Executive's death. If the Executive dies following retirement
during the Executive's Payment Period the balance of the payments will be made
or continued to the Executive's surviving spouse and/or the Executive's estate
or designated beneficiary for the remainder of such period, or, if the Executive
dies after retirement but before payments have commenced or after becoming
totally disabled or during the period of such disability but before expiration
of the Payment Period, the balance of the payments will be made or continued to
the Executive's surviving spouse and/or the Executive's estate or designated
beneficiary for the remainder of such Payment Period. If the
2
<PAGE> 3
Executive dies before retirement and while an active employee of the
Corporation, monthly payments in the amount described in Paragraph 4 hereof will
be paid to the Executive's surviving spouse and/or the Executive's estate or
designated beneficiary for a period of twelve months for each year of service as
an employee of the Corporation, up to a maximum payment period of 120 months
following the Executive's death.
4. The monthly payments under this Agreement shall be equal to
50% of the Executive's monthly base salary in effect at the time of the
Executive's retirement, death or total disability, whichever shall be relevant
under Paragraph 2 hereof.
5. During the Payment Period the Executive shall refrain from
entering the employ of or rendering any services to any competitor of Allegheny
Teledyne or any of its subsidiaries (which for purposes of this Agreement shall
include 50% owned corporations) without the prior written consent of Allegheny
Teledyne. In addition, the Executive shall at all times refrain from taking any
action that may, in the reasonable judgment of the Board, be considered to be
contrary to the best interest of the Corporation.
6. If the regular employment of the Executive is terminated by
discharge for Cause by the Corporation (as defined in Section 9(b) of that
certain Employment Agreement dated the 17th day of August, 1999 between the
Executive and Allegheny Teledyne, which is hereinafter referred to as the
"Employment Agreement"), or the Executive voluntarily quits employment prior to
age 58 and he accepts employment with a third party, all liability of Allegheny
Teledyne under this Agreement shall thereby be terminated. Notwithstanding any
contrary provision in the Supplemental Pension Plan, (i) if the Executive
resigns from employment with the Corporation at any time prior to attaining age
58 and does not accept employment with a third party, the Corporation shall pay
to or with respect to him an amount equal to 50% of the amount earned from his
date of hire to his resignation in equal monthly installments over the period of
employment commencing at the Executive's 62nd birthday and the Corporation shall
pay each installment so long as the Executive is not then in the employ for a
for-profit corporation, (ii) if the Executive resigns at any time after
attaining age 58, the Corporation shall pay him a benefit equal to the benefit
he would have accrued if he was then
3
<PAGE> 4
employed by Corporation for the greater of five (5) years or the number of years
of actual employment in equal monthly installments over the period equal to the
applicable of five (5) years or the number of years of actual employment (but
not greater than ten (10) commencing at his age 62 and the Corporation shall pay
such installment so long as the Executive is not then in the employ of a
for-profit corporation and (iii) the Executive shall forfeit his right to this
supplemental pension if before the Executive attains age 62 his employment is
terminated by the Employer for Cause (as set forth in Section 9(b) of the
Employment Agreement). If the Executive fails to perform the Executive's
obligation under Paragraph 5, the obligation of Allegheny Teledyne to make any
further payments under this Agreement shall thereby be terminated.
7. Any benefits payable after the death of the Executive shall
be paid to the person or persons named by the Executive in a written instrument
filed with Allegheny Teledyne.
8. Nothing herein contained shall affect the right of the
Executive to participate in and receive benefits under and in accordance with
the then current provisions of any retirement income, profit sharing, pension,
additional year-end or periodic remuneration or bonus, incentive compensation,
insurance or any other employee welfare plan or program of the Corporation.
9. This Agreement and the payments provided for in Paragraph 4
are not assignable by the Executive or any beneficiary, and no payments to be
made can be assigned, anticipated, alienated, sold, transferred, pledged or
encumbered in any manner.
10. Any decision by Allegheny Teledyne's Board of Directors
made pursuant to this agreement shall be made solely in the Board's discretion
and the Board shall have no obligation to treat similarly situated individuals
in the same manner.
4
<PAGE> 5
IN WITNESS WHEREOF, Allegheny Teledyne Incorporated has caused
these presents to be executed by its officers thereunto duly authorized and the
Executive has hereunto set the Executive's hand and seal the day and year first
above written.
Attest: ALLEGHENY TELEDYNE INCORPORATED
/s/ Mary W. Snyder By /s/ Jon D. Walton
- ----------------------------------- ----------------------------
Witness: EXECUTIVE
/s/ Tracy L. Paxinos /s/ Thomas A. Corcoran
- ----------------------------------- -------------------------------
Name: Thomas A. Corcoran
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999 AND CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001018963
<NAME> ALLEGHENY TELEDYNE INCORPORATED
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 49
<SECURITIES> 0
<RECEIVABLES> 516
<ALLOWANCES> 15
<INVENTORY> 648
<CURRENT-ASSETS> 1,290
<PP&E> 2,013
<DEPRECIATION> 1,019
<TOTAL-ASSETS> 3,141
<CURRENT-LIABILITIES> 637
<BONDS> 257
0
0
<COMMON> 20
<OTHER-SE> 1,398
<TOTAL-LIABILITY-AND-EQUITY> 3,141
<SALES> 2,708
<TOTAL-REVENUES> 2,708
<CGS> 2,094
<TOTAL-COSTS> 2,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> 243
<INCOME-TAX> 87
<INCOME-CONTINUING> 156
<DISCONTINUED> 0
<EXTRAORDINARY> 130
<CHANGES> 0
<NET-INCOME> 286
<EPS-BASIC> 1.48
<EPS-DILUTED> 1.48
</TABLE>
