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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] 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 incorporation (I.R.S. Employer
or organization) Identification Number)
1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 394-2800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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Title of each class Name of each exchange on which
registered
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Common Stock, $0.10 Par Value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At March 15, 1999, the Registrant had outstanding 193,696,608 shares of
its Common Stock. The aggregate market value of the Registrant's voting stock
held by non-affiliates at this date was approximately $3.4 billion, based on the
closing price per share of Common Stock on this date of $20.00 as reported on
the New York Stock Exchange. Shares of Common Stock known by the Registrant to
be beneficially owned by directors of the Registrant and officers of the
Registrant subject to the reporting and other requirements of Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), are not
included in the computation. The Registrant, however, has made no determination
that such persons are "affiliates" within the meaning of Rule 12b-2 under the
Securities Exchange Act of 1934.
Documents Incorporated By Reference
Selected portions of the 1998 Annual Report to Stockholders - Part I, Part II
and Part IV of this Report.
Selected portions of the Proxy Statement for 1999 Annual Meeting of Stockholders
- - Part III of this Report. The information included in the Proxy Statement as
required by paragraphs (k) and (l) of Item 402 of Regulation S-K is not
incorporated by reference in this Form 10-K.
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INDEX
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PAGE
NUMBER
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PART I 3
Item 1. Business 3
Item 2. Properties 25
Item 3. Legal Proceedings 29
Item 4. Submission of Matters to a Vote of Security Holders 29
PART II 30
Item 5. Market for Registrant's Common Equity and Related 30
Stockholder Matters
Item 6. Selected Financial Data 30
Item 7. Management's Discussion and Analysis of Financial 30
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures 30
about Market Risk
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on 30
Accounting and Financial Disclosure
PART III 30
Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners and 31
Management
Item 13. Certain Relationships and Related Transactions 31
PART IV 31
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 31
SIGNATURES 32
EXHIBIT INDEX 33
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PART I
ITEM 1. BUSINESS
THE COMPANY
Allegheny Teledyne Incorporated is a diversified manufacturing company
serving global markets with specialty metals, aerospace, electronic, industrial
and consumer products. The Company operates in the following four business
segments, which accounted for the following percentages of total revenues from
continuing operations of $3.8 billion for each of the three years ended
December 31, 1998:
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1998 1997 1996
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Specialty Metals 53.7% 56.0% 55.2%
Aerospace and Electronics 26.3% 24.1% 25.6%
Industrial 13.5% 13.3% 13.2%
Consumer 6.5% 6.6% 6.0%
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Certain business segment information presented for 1997 and 1996 has been
reclassified to conform with the 1998 presentation. Additional financial
information with respect to the Company's business segments, including their
contributions to operating profit and their identifiable assets, for the three
years ended December 31, 1998, is presented under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations" on pages 21 through 23 of the 1998 Annual Report to
Stockholders (the "1998 Annual Report") and in Note 12 of Notes to Consolidated
Financial Statements on pages 45 through 46 of the 1998 Annual Report and is
incorporated herein by reference.
Allegheny Teledyne Incorporated is a Delaware corporation with its
principal executive offices located at 1000 Six PPG Place, Pittsburgh,
Pennsylvania 15222-5479, telephone number (412) 394-2800. Allegheny Teledyne was
formed on August 15, 1996 by the combination of Allegheny Ludlum Corporation
("Allegheny Ludlum") and Teledyne, Inc. ("Teledyne"), which became wholly owned
subsidiaries of Allegheny Teledyne. References to "Allegheny Teledyne," the
"Company" or the "Registrant" mean Allegheny Teledyne Incorporated and its
subsidiaries, unless the context otherwise requires.
STRATEGIC TRANSFORMATION
Following extensive studies and strategic analyses initiated in the
summer of 1998, the Company announced in January 1999 that it intends to pursue
a course of action that would result in a significant transformation and
reconfiguration of the Company during 1999. Assuming legal, tax, financial and
other considerations can be resolved successfully, the anticipated
transformation would include a tax-free spin-off of a new public company and a
public offering of the new company's stock. The new company would be comprised
of four former Teledyne companies in the Aerospace and Electronics Segment. The
four businesses are:
o Electronic Technologies headquartered in Los Angeles,
California;
o Brown Engineering headquartered in Huntsville, Alabama;
o Continental Motors headquartered in Mobile, Alabama; and
o Cast Parts located in southern California.
Combined 1998 revenues of the businesses of the proposed new company were
approximately $800 million. The new company is expected to be headquartered in
Los Angeles, California.
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The Company is proceeding simultaneously with the consideration of a
spin-off and public offering of the Consumer Segment into a free-standing public
company, as announced in the 1998 second quarter. The new company is expected to
be headquartered in the Los Angeles area. Annual revenues of the Consumer
Segment were approximately $250 million in 1998.
The Company plans to submit a request for a private letter ruling to
the Internal Revenue Service with respect to the tax-free nature of the proposed
spin-offs by the end of the 1999 first quarter.
Names for the new companies have not yet been selected.
After the spin-offs, Allegheny Teledyne, headquartered in Pittsburgh,
Pennsylvania, will be focused as one of the largest and most diversified
specialty metals companies in the world with annual revenues of approximately
$2.5 billion in 1998. It would consist of:
o Allegheny Ludlum/Rodney - a major flat-rolled producer of
stainless steel, specialty metals and titanium;
o Allvac and Allvac-SMP - major producers of nickel-based
superalloys, titanium alloys and specialty steels in ingot,
billet, bar, rod, wire and coil forms;
o Oremet-Wah Chang - a diversified producer of zirconium,
titanium and other specialty metals including niobium,
tantalum and hafnium;
o Titanium Industries - a titanium distribution company;
o Rome Metals - a processor of titanium and other specialty
metals;
o Metalworking Products - a major producer of tungsten mill
products, tungsten carbide materials and tungsten carbide
cutting tools;
o Casting Service - a foundry specializing in large grey and
ductile iron castings; and o Portland Forge - a custom
impression die forging company.
In addition, the Company is exploring the sale of Ryan Aeronautical, a
producer of unmanned aerial vehicles and target drones, which is located in San
Diego, California. The Company intends to sell two additional businesses:
o Fluid Systems - a manufacturer of nitrogen gas springs,
pressure relief valves and vehicle control valves
headquartered in Brecksville, Ohio; and
o Specialty Equipment - consisting of two divisions, one of
which is located in Canada and is an assembler of hydraulic
attachments for mining and construction equipment and the
other of which is a manufacturer of transportable forklifts in
the United States and the Netherlands.
Combined revenues of the three businesses were nearly $400 million in 1998.
ACQUISITIONS
Aerospace Division of Sheffield Forgemasters Limited. In February 1998,
the Company acquired the assets of the aerospace division of Sheffield
Forgemasters Limited, a private company in the United Kingdom, for approximately
$110 million in an all-cash transaction.
The acquisition of Sheffield Forgemasters' aerospace division, now
known as Allvac-SMP, provides significant support to the Company's high
performance metals businesses, primarily Allvac, and has enhanced service to
customers by improving the sales and distribution network for the Company's
nickel-based and titanium alloys and specialty steels in Europe. The acquisition
provides additional vacuum melting, vacuum consumable remelting, electroslag
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remelting and forging capacity, which complements Allvac's facilities.
Allvac-SMP's rotary forging machine is one of the largest in the world.
Oregon Metallurgical Corporation. In October 1997, the Company
announced that it had entered into a definitive merger agreement to acquire the
stock of Oregon Metallurgical Corporation ("OREMET"). Under the terms of the
merger, which was completed in March 1998, OREMET shareholders received 1.296
shares of Allegheny Teledyne common stock in a tax-free exchange for each share
of OREMET common stock. A total of 21.6 million shares of Allegheny Teledyne
stock was issued in connection with the merger. The merger was accounted for
under the pooling of interests accounting method.
OREMET is an integrated producer and distributor of titanium sponge,
ingot, mill products and castings for use in the aerospace, industrial,
recreational and military markets. It operates manufacturing and finishing
facilities in Oregon, Washington and Pennsylvania and has nine service centers
in the United States with additional service centers in the United Kingdom,
Germany, Singapore and Canada.
Agreements with Bethlehem Steel Corporation. In January 1998, Bethlehem
Steel Corporation ("Bethlehem") and the Company jointly announced that they had
entered into three agreements that would become effective after Bethlehem
completed its previously announced acquisition of Lukens Inc. ("Lukens").
Bethlehem completed its acquisition of Lukens on May 29, 1998. On November 20,
1998, the asset sale agreement previously signed by both companies was closed
and the related conversion services and hot band supply agreements began to be
implemented.
Under the asset sale agreement, Allegheny Ludlum acquired certain
assets that Bethlehem had acquired from Lukens. These assets include the melting
and hot rolling facilities located at the Houston, Pennsylvania plant and the
wide anneal and pickle line at the Massillon, Ohio plant.
Under the conversion services agreement, Bethlehem agreed, for a
20-year period, to provide Allegheny Ludlum exclusive access to the Lukens'
Coatesville, Pennsylvania melt shop and caster for the production of stainless
steel slabs, and to the Lukens' Conshohocken, Pennsylvania, 110-inch Steckel
mill for the rolling of stainless steel slabs and stainless precipitation
hardening grades, maraging grades, and nickel and nickel-based alloys.
After jointly conducting due diligence, Allegheny Ludlum and Bethlehem
agreed that improvements to the 110-inch Steckel mill would enhance performance
for the benefit of both parties, and they would share in the cost of certain of
these improvements. Using independent consultants, Allegheny Ludlum and
Bethlehem concluded that improvements to the computer control system, increasing
the power of the roughing mill and undertaking other projects to improve the
mill's capability will enhance performance of the mill for carbon, alloy and
stainless steel. Two 8,000 horsepower roughing mill motors will be installed,
and Allegheny Ludlum will share in the ownership of the motors up to a maximum
investment of $9 million. The total cost of all improvements to the 110-inch
Steckel mill is currently estimated to be about $25 million.
At the closing of the asset sale and conversion services agreement,
Allegheny Ludlum paid Bethlehem $105 million in cash of the previously announced
$175 million asset purchase price, and issued a non-interest bearing promissory
note for the remaining $70 million. The note
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will be paid after the improvements to the 110-inch Steckel mill are completed
and the mill returns to a regularly scheduled operating basis.
In addition, under the hot band supply agreement, Allegheny Ludlum
agreed to supply Bethlehem with up to 150,000 tons annually of stainless steel
bands for further processing at Lukens' cold finishing facilities at its
Washington, Pennsylvania and Massillon, Ohio plants until Bethlehem sells these
facilities. Bethlehem has announced that it plans to cease operations at these
two facilities, but that it continues to pursue the sale of the facilities.
Additional Information. Additional information about recent
acquisitions is included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Acquisitions and Divestitures" on page 20
of the 1998 Annual Report and in Notes 3 and 11 to the Notes to Consolidated
Financial Statements on pages 36, 44 and 45 of the 1998 Annual Report, which
information is incorporated herein by reference. Also see "Forward Looking and
Other Statements - Uncertainties Relating to Synergies" herein.
SPECIALTY METALS SEGMENT
Through the Specialty Metals Segment, the Company is one of the largest
and most diversified specialty metals companies in the world. The products of
the Specialty Metals Segment are representative of the practical application of
metallurgical science and technology as it is known and practiced throughout the
world. Their unique characteristics are derived from the nature of the metals
produced, the particular properties of the alloys melted, and the various
processes, methods, forms, shapes and end products manufactured.
Companies in the Specialty Metals Segment include:
o Allegheny Ludlum
o Rodney Metals
o Allvac
o Allvac-SMP
o Oremet-Wah Chang
o Titanium Industries
o Rome Metals
o ALstrip
Specialty Metals. The term "specialty steel" refers to stainless
steels, high speed and tool steels, high temperature alloys (superalloys),
electronic and thermostatic alloys, and electrical steels. As compared with
carbon steel, stainless steel alloys contain elements such as chromium, nickel
and molybdenum to make them corrosion- and heat-resistant; tool steel alloys,
which contain more carbon than stainless steel, include tungsten, molybdenum and
other metals to make them both hard and malleable; and electrical steel contains
silicon to minimize energy loss. Most high temperature alloys, electronic alloys
and thermostatic alloys are not steel by definition and are more properly
referred to as specialty metals.
Unlike high-volume carbon steel producers, makers of specialty metals
produce smaller quantities with special equipment. Because of the need to meet
more exacting technical and metallurgical requirements, stainless and other
specialty metals are made with special processing techniques and generally
utilize different alloying elements such as nickel, chromium, molybdenum,
niobium, titanium and cobalt.
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Specialty metals are produced in a variety of forms (sheet, strip,
foil, plate, wire, ingot, billet, rod, bar, tubing, and shapes) and are selected
for use in environments that demand materials having exceptional hardness,
toughness, strength, resistance to heat, corrosion or abrasion or a combination
of these characteristics. Common end uses of specialty metals include
automobiles, appliances, communications and electronics equipment, marine
equipment, electric power generating and distribution equipment, environmental
equipment, home utensils and cutlery, construction products, tools and dies,
food and chemical processing equipment, medical and health equipment, aircraft
structures, jet engines and defense equipment.
High-purity and high-performance superalloys, other alloys, and
specialty steels are refined, partially finished, and then sold to a wide
variety of customers worldwide for many different applications in diverse
industries, including aerospace, biomedical, marine, oil and gas, chemical
processing, nuclear, and transportation industries.
Flat-Rolled Products. Allegheny Ludlum is a world leader in the
production of sheet, strip and plate specialty materials including stainless
steel, nickel-based alloys and titanium. The company also produces
grain-oriented silicon electrical steel and tool steel plate. It produces a
broad selection of grades, sizes and finishes designed to meet international
specifications.
Stainless steel sheet is used in a wide variety of consumer and
industrial applications that require cleaning, fabricability and corrosion
resistance. Approximately 60% of the company's stainless steel sheet is sold to
service centers, which have slitting, cutting or other processing facilities.
Stainless steel strip is used in a variety of consumer products and a
wide range of automotive components. Allegheny Ludlum/Rodney's Precision Rolled
Strip(R) products range in thinness from 0.015 inch to less than 0.0015 inch.
Precision Rolled Strip product materials include stainless steel, nickel-based
alloys and titanium alloys. Customers use this thin-rolled metal to fabricate a
variety of different products ranging from automobile components to
photographic, personal computer, and consumer products. Approximately 50% of the
Company's stainless steel strip is sold directly to end-use customers, with the
remainder sold to service centers, including the Company's own distributors for
stainless steel strip, which are known as the Allegheny Rodney Strip Service
Center Division of Allegheny Ludlum.
Allegheny Ludlum processes and distributes stainless steel and nickel
alloy plate (at least 0.1875 inch thick and 10 inches wide) products in a wide
variety of grades and gauges. Finishing capabilities include plasma arc cutting,
shearing, abrasive cutting, sawing and machining. Stainless steel heads, rolled
and welded rings, formed channels and angles are available. Stainless steel
plate is primarily used in industrial equipment that requires cleanliness or
corrosion-resistant capabilities such as pollution control scrubbers, food
processing equipment, pulp and paper equipment, chemical processing equipment
and power generation equipment. Approximately 80% of Allegheny Ludlum's plate
products is sold to service centers.
With the acquisition of OREMET, Allegheny Ludlum also produces
flat-rolled titanium sheet and plate.
Allegheny Ludlum's grain-oriented silicon electrical steel products are
used generally in applications in which electrical conductivity and magnetic
properties are important. These products are sold directly to end-use customers,
including manufacturers of transformers and communications equipment.
High Performance Metals. The Company's High Performance Metals Group
consists of Allvac, Allvac-SMP and Oremet-Wah Chang. The companies in this group
are able to produce a
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wide range of premium grade, nickel-based, cobalt-based, and titanium alloys and
superalloys that are designed to meet the high performance requirements of the
airframe, jet engine, gas turbine, nuclear energy, oil and gas, and chemical
processing industries. These products, in various forms, are engineered to
retain exceptional strength and corrosion resistance at temperatures through
2,000 degrees Fahrenheit and are used in critical, high-stress applications.
High-purity metals that exhibit unique properties (including titanium,
zirconium, hafnium, vanadium, and niobium) are melted, refined, partially
finished, then sold to domestic and foreign customers primarily in the nuclear
energy, chemical processing, biomedical, and aerospace industries.
Allvac and Allvac-SMP manufacture nickel-, iron-, cobalt- and
titanium-based alloys for use in critical environments in the aerospace, oil and
gas, chemical processing, transportation, power generation, biomedical, marine
and nuclear industries. Product forms include ingot, billet, bar, rod, wire and
coil.
Oremet-Wah Chang is one of two fully integrated U.S. producers of
titanium. Titanium and titanium alloys are high performance metals with a
variety of uses, including commercial and military aerospace,
corrosion-resistant and industrial applications and recreational uses.
Oremet-Wah Chang is also a leading U.S. producer of zirconium, a highly
corrosion-resistant metal that is transparent to neutrons. It is used for fuel
tubes and structural parts in nuclear power reactors and for corrosion-resistant
chemical industry applications. Other users of zirconium include the jewelry and
personal hygiene industries. Hafnium, derived as a by-product of zirconium, is
used for control rods in nuclear reactors due to its ability to absorb neutrons.
Oremet-Wah Chang produces niobium, also known as columbium, in various
forms and alloys. Niobium, a high-technology metal, is used as an alloying
element in the manufacture of many steels. The higher quality grades produced by
Oremet-Wah Chang are used in superalloys for jet engines and special alloys for
aerospace applications such as rocket nozzles. When alloyed with titanium,
niobium is used in applications requiring superconducting characteristics for
high-strength magnets. This area includes medical devices for body-scanning,
accelerators for high-energy physics, and fusion energy projects for future
generation of electricity.
Oremet-Wah Chang produces tantalum, one of the most corrosion-resistant
metals, for medical implants, chemical process equipment, and aerospace engine
components.
Titanium Industries distributes titanium and zirconium products for
industrial, aerospace, orthopedic and specialty markets. Products include sheet,
plate, billet, bar, rod, wire, pipe, tubing, fittings and fasteners.
Rome Metals provides finishing services to titanium, zirconium,
nickel-based alloys and other high-end specialty metals producers.
Expanding Capabilities. See "Acquisitions" for a description of the
1998 acquisitions made to enhance the capabilities and products offered by the
Specialty Metals Segment.
The acquisitions of OREMET and the assets of the aerospace division of
Sheffield Forgemasters Limited, now known as Allvac-SMP, have enhanced the
Company's titanium production capabilities and high performance metals
businesses. In addition, two major capital investments were completed in the
1998 fourth quarter to increase the production capabilities of
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the Company's high performance metals businesses. At Allvac, a new vacuum
induction furnace capable of producing 50,000 pound heats began production. This
state-of-the-art furnace is intended to provide capacity to meet the growing
demands for nickel-based superalloys from several markets, including large
land-based turbines for power generation. At Oremet-Wah Chang, a new electron
beam melt facility began producing titanium slabs. This new facility contains
one of the largest and most advanced electron beam melt furnaces in the world
and is expected to enhance the Company's position as a low cost producer of high
quality titanium ingots and slabs.
The agreements with Bethlehem are geared toward increasing the
Company's melting and hot-rolling capacity and enabling the Company to roll
wider stainless steel and alloy plate. As 1998 concluded, Allegheny Ludlum began
initial operation of a new 60-inch Sendzimir mill. This mill, together with a
modified anneal line and temper mill scheduled to be completed in the second
quarter of 1999, will enable Allegheny Ludlum to participate in a growing market
for wide stainless steel sheet. A strategic goal of Allegheny Ludlum's Chinese
joint venture, described under "Export Sales and Foreign Operations," is to
expand the Company's Precision Rolled Strip product offerings in the Asian
market and globally.
AEROSPACE AND ELECTRONICS SEGMENT
Companies in the Aerospace and Electronics Segment include:
o Teledyne Electronic Technologies
o Teledyne Brown Engineering
o Teledyne Continental Motors
o Teledyne Cast Parts
o Ryan Aeronautical
The companies in the Aerospace and Electronics Segment offer a variety
of products and services including:
Data Acquisition and Communications Systems. Teledyne Electronic
Technologies is a leading supplier of total aircraft information management
solutions designed to increase the safety and efficiency of airline
transportation throughout the world. The company's data acquisition and
communications systems perform aircraft performance monitoring, engine condition
monitoring and flight operations quality assurance functions. Teledyne
Electronic Technologies has broadened its product line to extend information
services to business and commuter aircraft with air to ground telephony,
facsimile and data transmission. Customers include the U.S. Federal Aviation
Administration, domestic and foreign airlines, commercial aircraft original
equipment manufacturers ("OEMs"), and a broad base of companies in different
industrial sectors.
Teledyne Electronic Technologies also produces power amplifiers used in
the L, C and Ku band satellite uplink transmitters. These products encompass
both solid state monolithic microwave integrated circuits and high power helix
traveling wave tubes. The company provides similar power amplifiers for
transmitters for radar, electronic countermeasure systems and electromagnetic
compatibility test equipment. Other components of the company used in both
wireless and satellite infrastructure equipment include coaxial microwave
switches and light weight, low cost cavity filters produced with a patented
injection molding technique.
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Precision Electronic Devices. Teledyne Electronic Technologies' hybrid
microcircuits are used in applications such as aerospace, medical and
instrumentation systems where small size, high performance and reliability are
of paramount importance. These compact and complex electronic building blocks
combine multiple transistors and integrated circuits in multi-chip modules
("MCMs"). MCMs, including fiber optic, power management and digital signal
processors, provide dense packaging for satellites, the multinational Space
Station, and various military and instrumentation systems. The company's
miniature electromechanical relays are used where maintenance of signal fidelity
is essential. Examples of applications include switching of high-speed digital
and microwave signals in semiconductor and microwave test equipment, wireless
systems and communications satellites.
Teledyne Electronic Technologies has applied its MCM technology to the
manufacture of life sustaining and life enhancing implanted medical devices,
including cardiac pacemakers and defibrillators, neural stimulators and cochlear
implant hearing aids.
The company's sensor and instrumentation technology also extends to
process applications in semiconductor and petrochemical manufacturing with a
broad line of analyzers for oxygen and other gases, vacuum gauges, and mass flow
meters and controllers.
Teledyne Electronic Technologies' products are distributed principally
through an internal sales force.
Electronic Contract Manufacturing Services. Teledyne Electronic
Technologies operates turnkey manufacturing facilities in Tennessee, Mexico and
Scotland for low-to-moderate volume high technology products used in the
aerospace, medical and communications industries. Products manufactured range
from individual printed circuit board assemblies to complete electronic systems.
The company's REGAL(R) rigid-flex technology combines rigid and flexible printed
circuits into one assembly that eliminates board-to-board connectors. These
boards are used in military and commercial aerospace and medical applications.
Software and Engineering Services. Teledyne Brown Engineering offers a
wide range of engineering services to government defense and aerospace customers
as well as commercial customers. These services include payload integration for
the space shuttle and systems engineering for ballistic missile defense. In
addition, comprehensive computer software has been developed by Teledyne Brown
Engineering for simulations and hardware performance evaluations. Teledyne Brown
Engineering also serves the environmental market. As the prime contractor for
the U.S. Army's Stockpile Chemical Materiel Demilitarization program, the
company has been designing, fabricating and operating equipment to destroy
chemical munitions.
Aviation Propulsion Systems. Teledyne Continental Motors designs,
manufactures and sells aviation propulsion systems, including piston engines and
small gas turbine engines, domestically and internationally, for general
aviation and defense-related purposes. The piston engine products are used by
several general aviation aircraft OEMs and in the after-market. Continental
Motors' piston engines have been powering airplanes for over 70 years, and today
about half of the general aviation piston engines in use in the U.S. were built
by Continental Motors. In 1998, four new composite aircraft, ranging from a
training aircraft to a six-seat business aircraft, received certification for
production. Each of these aircraft was certified with a Teledyne Continental
Motors engine. Small gas turbine engines are used primarily in aerial targets
and missiles.
Teledyne Continental Motors also produces deep-cycle lead acid
batteries for the general aviation industry.
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Aerosance, Inc., a majority owned start-up company acquired in 1997, is
engaged in the design and development for production of advanced electronic
engine controls and engine management systems for piston aircraft engines,
including Teledyne Continental Motors' piston engines.
Cast Parts. Teledyne Cast Parts produces a wide range of aluminum and
magnesium castings and nickel-based superalloy and stainless steel investment
castings for the aerospace and defense industries.
Unmanned Aerial Vehicles and Targets. Ryan Aeronautical designs,
manufactures and sells unmanned aerial vehicles ("UAVs") and targets for
defense-related purposes to the U. S. Government and to international military
customers. Ryan Aeronautical's UAVs are generally recoverable and reusable
vehicles used for sophisticated military missions, such as reconnaissance, with
the operators safely flying them from remote control centers. Ryan Aeronautical
heads the team developing the Global Hawk UAV for the U.S. Air Force. As
mentioned under "Strategic Transformation", the Company is exploring the
possible sale of Ryan Aeronautical.
Controlled Explosive Devices. Controlled explosive devices are
designed, manufactured, and sold by Ryan Aeronautical's McCormick Selph Ordnance
Unit for defense-related, aerospace and commercial purposes. These devices are
used in a wide range of pilot ejection systems, aircraft separation, and other
similar aerospace-related systems. Commercially, the devices are used in vehicle
airbags and petroleum industry drilling systems, among other uses. The Company
continues to pursue the sale of the McCormick Selph Ordnance Unit.
INDUSTRIAL SEGMENT
Companies in Allegheny Teledyne's Industrial Segment include:
o Metalworking Products
o Casting Service
o Portland Forge
o Fluid Systems
o Specialty Equipment
The Industrial Segment's companies offer a variety of products
including the following:
Cutting Tools and Tungsten Products. For the metalworking, mining and
other industries requiring tools with extra hardness, Metalworking Products
produces a line of sintered tungsten carbide products, made under heat, to
produce a material that approaches diamond hardness. Cemented carbide products,
which may be coated or uncoated, are used as super-hard cutters in the
high-speed machining and cutting of steel and other applications where hardness
and wear resistance are important. Technical developments related to ceramics,
coatings, and other disciplines are incorporated in these products. In December
1995, the Company acquired the Stellram Group, manufacturers of high precision
threading, milling, boring, and drilling systems for the European market.
Metalworking Products is a producer of tungsten for the worldwide
market, starting with numerous and varied tungsten-bearing raw materials and
resulting in tungsten and tungsten carbide powders and mill products. Previously
used cemented carbide parts are also recycled into tungsten carbide powder.
Wrought or ductile tungsten products are used in diverse
11
<PAGE> 12
applications including light bulb filaments, inert gas welding electrodes,
electrical contacts, x-ray shielding, and aircraft counterweights.
Molybdenum, a sister metal to tungsten, which also has a very high
melting point, is produced by Metalworking Products in powder form and then
shaped into solid forms through powder metallurgy techniques. It is an important
alloying element for steels and is used for plasma arc spraying of piston rings,
for electrodes in glass melting, and for structural parts in high temperature
furnaces.
Forgings and Castings. Portland Forge processes metals by forging
metals into finished forms that are used in a diverse number of industries. With
the latest screw-type forging presses, Portland Forge is a major U.S. producer
of carbon and alloy steel forgings in sizes ranging from one pound to more than
200 pounds. In addition to supplying the transportation, construction, and other
basic industries, Portland Forge has the ability to forge the more difficult
alloys, which are used in aerospace, medical implants, and other critical
applications.
Casting Service casts a variety of metals in sizes ranging from 1,000
pounds to 160,000 pounds and forms ranging from diesel locomotive engine blocks
to housings and parts for power generation equipment, tools, and automobiles.
Nitrogen Gas Systems, Valves, Pumps and Boosters. The Company's Fluid
Systems business designs, manufactures and sells worldwide nitrogen gas springs
and manifold systems for the automotive, appliance and other metal forming
industries. Nitrogen gas springs and manifold systems are designed to overcome
manufacturing difficulties encountered in high-speed metal forming operations.
Fluid Systems also designs, manufactures and sells spring loaded and pilot
operated pressure relief valves domestically and internationally for use in
processing industries such as refineries, petrochemical/chemical industries and
pharmaceutical manufacturing. In addition, Fluid Systems provides specialty
hydraulic and pneumatic valves and air-driven pumps and gas boosters that are
used in general industrial applications. As mentioned under "Strategic
Transformation", the Company intends to sell its Fluid Systems business.
Transportable Material Handlers; and Mining and Construction Equipment.
The domestic and foreign operations of Specialty Equipment design and
manufacture a series of specialty forklifts that ride as outriggers on delivery
trucks. Specialty Equipment also designs and manufactures rugged,
high-performance mining and construction equipment such as hydraulic breakers,
boom systems and underground mobile equipment for the construction, quarry, and
mining industries. As mentioned under "Strategic Transformation", the Company
intends to sell its Specialty Equipment business.
CONSUMER SEGMENT
Companies in Allegheny Teledyne's Consumer Segment include:
o Water Pik
o Laars
These companies manufacture a number of products including:
Oral Health Products. A wide range of consumer and professional oral
health products and devices are designed, manufactured, and sold primarily
through retail and professional dental networks. Oral health products include a
high-speed sonic plaque control toothbrush, a mechanical toothbrush model, and
oral irrigation devices that are sold under the brand name of
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<PAGE> 13
Teledyne Water Pik. Water Pik also produces products used in professional dental
practices, which are marketed under the DENAR(R) brand, Getz(R) brand and
HANAU(TM) brand.
Professional dental products and select consumer products may now also
be purchased on-line at www.waterpik.com.
Shower Heads. Also marketed under the Teledyne Water Pik brand name are
pulsating shower heads in a wide range of models including the Flexible Shower
Massage(TM) product. Water Pik designs, manufactures and sells these products
through domestic and foreign mass merchandise and specialty retail outlets.
Residential Water Filtration. A wide range of residential water
filtration devices are designed, manufactured and sold by Water Pik to domestic
and foreign consumers primarily through mass merchandise and specialty retail
outlets. The Instapure(R) line includes faucet-mounted, under-the-counter, and
whole-house water filters for improving the quality of water used in the home.
Water Pik's water filtration product line can be adapted for many water delivery
systems throughout the world.
Pool Equipment. Laars manufactures an extensive line of swimming pool
and spa heaters. Laars offers oil, natural gas and propane fired residential and
commercial pool heaters in both standard efficiency (82%) and high efficiency
(95%) models. In 1996, Laars acquired Jandy Industries, Inc., a United States
producer of electronic control systems, automatic valves, automatic cleaners and
water features for the swimming pool and spa industries. In 1998, the company
first offered fiber optic lighting to the pool and spa industries under an
exclusive agreement with Lumenyte International Corporation.
Boilers; Water Heaters. Laars also produces a comprehensive line of
water heating equipment that provides hot water and hydronic heating for
commercial, residential, and industrial applications. In August 1998, the
company acquired Trianco Heatmaker, Inc., a manufacturer of high efficiency gas-
and oil-fired boiler and water heating products based in Randolph,
Massachusetts.
COMPETITION
Markets for the Company's products and services in each of its
principal business segments are highly competitive. The Company competes with
many manufacturers which, depending on the product involved, range from large
diversified enterprises to smaller companies specializing in particular
products. Factors that affect the Company's competitive posture are the quality
of its products, services and delivery capabilities, its research and
development efforts, its marketing strategies, and price. Technological
capabilities are an increasingly important competitive factor for companies in
the Aerospace and Electronics Segment.
Through its Specialty Metals Segment, the Company is a leading producer
of specialty metals. Companies in this Segment face competition from domestic
and foreign competitors, a number of which are government subsidized. Sales and
operating profit for Allegheny Ludlum/Rodney Metals, which consist primarily of
flat-rolled products, declined 8% and 10%, respectively, in 1998. Sales declined
primarily due to the impact on pricing of imports of commodity stainless steel
products into the U.S. market from Europe and Asia. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Results of
Operations Specialty Metals - 1998 Compared to 1997" on page 21 of the 1998
Annual Report, which section includes a discussion of antidumping and
countervailing duty
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<PAGE> 14
cases filed by Allegheny Ludlum and other domestic producers of flat-rolled
stainless steel sheet and strip products and several unions.
Companies in Allegheny Teledyne's Aerospace and Electronics Segment
obtain many U.S. Government contracts through the process of competitive
bidding. There can be no assurance that the Company will continue to be
successful in having its bids accepted.
RAW MATERIALS AND SUPPLIES
Substantially all parts and materials required in the manufacture of
the Company's products are available from more than one supplier and the sources
and availability of raw materials essential to its businesses are adequate.
The principal materials used by the Company in the production of its
specialty metals are scrap (including nickel-, chromium-, titanium- and
molybdenum-bearing scrap), nickel and titanium sponge, zirconium, ferrochromium,
ferrosilicon, molybdenum and molybdenum alloys, manganese and manganese alloys,
cobalt, niobium and other alloying materials. Certain of these raw materials,
such as nickel, cobalt and ferrochromium, can be acquired by the Company and its
specialty metals industry competitors, in large part, only from foreign sources.
The Company purchases its nickel requirements principally from producers in
Australia, Canada, Norway, the Commonwealth of Independent States, the Dominican
Republic and the U.S. Zirconium sponge is purchased from a source in France,
while zircon sand is purchased from both U.S. and Australian sources. Cobalt is
purchased primarily from producers in Canada. Ferrochromium is purchased
primarily from producers in South Africa, Zimbabwe, Turkey, and the Commonwealth
of Independent States. Some of these foreign sources are located in countries
that may be subject to unstable political and economic conditions, which might
disrupt supplies or affect the price of these materials. More than 80% of the
world's reserves of ferrochromium are located in South Africa, Zimbabwe,
Albania, and Kazakhstan. Titanium tetrachloride, the principal raw material
required for the production of titanium sponge, is supplied to the Company under
a long-term contract with an U.S. source. The Specialty Metals Segment also uses
large amounts of electricity and natural gas in the manufacture of its products.
See "Forward Looking and Other Statements--Unavailability of Raw Materials for
Specialty Metals."
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<PAGE> 15
GOVERNMENT CONTRACTS
For the year ended December 31, 1998, approximately 13% of the
Company's continuing revenues were attributable to continuing sales under
contracts with the U.S. Government. Continuing sales to the Department of
Defense accounted for approximately 10% of total continuing sales in 1998. Sales
by the Company's business segments to the U.S. Government for each of the three
years ended December 31, 1998 were:
<TABLE>
<CAPTION>
(In millions)
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Specialty Metals $ 46.1 $ 50.1 $ 69.5
Aerospace and Electronics 458.5 428.1 543.1
Industrial and Consumer 1.5 2.1 2.3
</TABLE>
Many of the Company's contracts with the U.S. Government include price
redetermination clauses, and most are terminable at the convenience of the
government.
See the discussion of related matters under the caption "Forward
Looking and Other Statements - Risks Associated with Government Contracts" and
in Item 3. Legal Proceedings. Additional related information is presented under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Other Matters - Government Contracts" on pages 26 to 27
of the 1998 Annual Report and in Notes 12 and 15 of Notes to Consolidated
Financial Statements on pages 45 and 49 to 50 of the 1998 Annual Report.
EXPORT SALES AND FOREIGN OPERATIONS
Continuing foreign sales represented approximately 20% of the Company's
total continuing sales in 1998 and 18% of the Company's total continuing sales
in each of 1997 and 1996. These figures include continuing export sales by U.S.
operations to customers in foreign countries, which accounted for approximately
13% of the Company's total continuing sales in each of 1998 and 1997 and 12%
of the Company's total continuing sales in 1996. See "Forward Looking and Other
Statements - Risks of Export Sales." The Company's overseas sales, marketing and
distribution efforts are aided by international marketing offices in Europe,
Asia, South America, and the Middle East.
During 1997 and 1996, the Company did not engage in material
manufacturing operations in foreign countries. In 1998, the Company expanded its
presence internationally and expects to continue such expansion. In February
1998, Allegheny Teledyne acquired United Kingdom manufacturing capability
through its acquisition of the aerospace division of Sheffield Forgemasters
Limited. This acquisition has enhanced service to customers by improving the
sales and distribution network for the Company's nickel-based alloys and
titanium in Europe.
In February 1996, Allegheny Ludlum established a joint venture company
in the People's Republic of China with Shanghai No. 10 Steel Limited Company for
the production and sale of precision rolled stainless steel strip. The joint
venture, 60% of which is owned by Allegheny Ludlum, is known as Shanghai STAL
Precision Stainless Steel Limited Company. In early 1999, the joint venture's
facility located in Shanghai began limited production. The new plant is a fully
integrated finishing facility equipped with two Sendzimir mills, a bright anneal
line, slitters, a
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<PAGE> 16
tension leveler and roll grinders. It is expected to produce and sell up to
15,000 metric tonnes of Precision Rolled Strip(R) products. This venture should
enable both Allegheny Ludlum and Rodney Metals to participate more effectively
in the Asian market and other highly competitive global markets.
BACKLOG, SEASONALITY AND CYCLICALITY
The Company's backlog of confirmed orders was approximately $1.2
billion at December 31, 1998 and $1.4 billion at December 31, 1997. During the
year ending December 31, 1999, it is anticipated that approximately 95% of
confirmed orders on hand at December 31, 1998 will be filled. Backlog of
confirmed orders of the Specialty Metals Segment was $618.7 million at December
31, 1998 and $760.4 million at December 31, 1997. During the year ending
December 31, 1999, it is anticipated that approximately 92% of the confirmed
orders on hand at December 31, 1998 for this Segment will be filled. Backlog of
confirmed orders of the Aerospace and Electronics Segment was $504.4 million at
December 31, 1998 and $523.8 million at December 31, 1997. During the year
ending December 31, 1999, it is anticipated that approximately 97% of the
confirmed orders on hand at December 31, 1998 for this Segment will be filled.
Generally, sales and operations of the Company's business segments are
not seasonal. However, demand for products of the Company's Specialty Metals
Segment is cyclical over longer periods because specialty metals customers
operate in cyclical industries and are subject to changes in general economic
conditions. See "Forward Looking and Other Statements--Cyclical Demand for
Specialty Metals."
RESEARCH, DEVELOPMENT AND TECHNICAL SERVICES
Management of the Company believes that the Company's research and
development capabilities give it an edge in developing new products with
profitable growth potential on a long-term basis. The Company conducts research
and development at its various operating locations both for its own account and
for customers on a contract basis. Estimates of the components of research and
development, including bid and proposal costs, for the years ended December 31,
1998, 1997, and 1996 included the following:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Customer-Sponsored:
Specialty Metals Segment $ 0.7 $ 2.5 $ 3.8
Aerospace and Electronics Segment 185.9 183.9 295.4
Other -- -- 3.9
------ ------ ------
186.6 186.4 303.1
------ ------ ------
Company-Sponsored:
Specialty Metals Segment 15.7 17.5 18.7
Aerospace and Electronics Segment 28.6 31.0 35.4
Other 13.2 14.6 14.0
------ ------ ------
57.5 63.1 68.1
------ ------ ------
Total Research and Development $244.1 $249.5 $371.2
====== ====== ======
</TABLE>
Ongoing research and development efforts in the Aerospace and
Electronics Segment include the following: Teledyne Electronic Technologies'
pursuit of the development of
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<PAGE> 17
advanced electronic components for the next generation broad band, high-speed
satellite and communication systems; Teledyne Continental Motors' development of
an advanced Jet-A fuel engine design (which is co-sponsored by NASA); and
Aerosance, Inc.'s. development of digital electronic controls for piston
engines. Ryan Aeronautical continues to develop for the U.S. Air Force the
Global Hawk UAV and a low-cost miniature air launched decoy.
With respect to the Specialty Metals Segment, the Company's research,
development and technical service activities are closely interrelated and are
directed toward cost reduction, process improvement, process control, quality
assurance and control, system development, the development of new manufacturing
methods, the improvement of existing manufacturing methods, the improvement of
existing products, and the development of new products.
The Company owns over 500 United States patents, many of which are also
filed under the patent laws of other nations. Although these patents, as well as
the Company's numerous trademarks, technical information license agreements, and
other intellectual property, have been and are expected to be of value,
management believes that the loss of any single such item or technically related
group of such items would not materially affect the conduct of its business.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
The Company and the industries in which it competes are subject to
environmental laws and regulations concerning emissions to the air, discharges
to waterways, and the generation, handling, storage, transportation, treatment
and disposal of waste materials, and is also subject to other federal and state
laws and regulations regarding health and safety matters. Each of the Company's
production facilities has permits and licenses allowing and regulating air
emissions and water discharges. The Company believes its businesses are being
operated in compliance in all material respects with applicable environmental
laws and regulations.
The Company is currently involved in the investigation and remediation
of a number of sites under the environmental laws, including approximately 37
sites at which the Company has been identified as a potentially responsible
party under the Comprehensive Environmental Response, Compensation and Liability
Act, commonly known as Superfund, or similar state statutes. The Company's
involvement is very limited or de minimis at approximately 17 of these sites,
and the potential loss exposure with respect to the remaining 20 individual
sites is not considered to be material.
During 1999, the Company expects to spend approximately $11 million for
additional or upgraded environmental control equipment and facilities. The
Company, like other manufacturers, may be required to expend significant
additional funds to meet stringent air emission limits as a result of the U.S.
Environmental Protection Agency's revisions to the National Ambient Air Quality
Standards for Ozone and Particulate Matter adopted in July 1997. The Company
believes that the revised standards could increase the cost and the difficulty
of obtaining operating permits for new operations and major modifications to
existing operations.
See the discussion of related matters herein under the caption "Forward
Looking and Other Statements--Risks Associated with Environmental Matters" and
in Item 3. Legal Proceedings. Additional related information is presented under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Other Matters--Environmental" on page 26 of the 1998
Annual Report and in Notes 1 and 15 of Notes to Consolidated Financial
Statements on pages 35 and 49 of the 1998 Annual Report.
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<PAGE> 18
EMPLOYEES
The Company and its subsidiaries employ approximately 21,500 persons,
9,400 of whom are employed at companies in the Specialty Metals Segment.
Approximately 32% of the Company's workforce is covered by various collective
bargaining agreements, principally with the United Steel Workers of America
("USWA"), certain of which are listed below.
o Approximately 400 OREMET employees are covered by a collective
bargaining agreement with the USWA, which is effective through
July 31, 2000.
o Approximately 700 Wah Chang employees are covered by a
collective bargaining agreement with the USWA, which is
effective through October 1, 2000.
o Approximately 400 employees of Teledyne Continental Motors are
covered by a collective bargaining agreement with the United
Automobile, Aerospace and Agricultural Implement Workers of
America, which is effective through December 16, 2000.
o Approximately 400 employees at Allegheny Ludlum's Washington,
Pennsylvania plant are covered by a collective bargaining
agreement with the USWA, which is effective through September
30, 1999.
o Substantially all of Allegheny Ludlum's 3,600 other production
and maintenance employees are covered by collective bargaining
agreements between Allegheny Ludlum and the USWA, which are
effective through June 30, 2001.
In 1994, following the expiration of a prior collective bargaining
agreement between Allegheny Ludlum and the USWA, the USWA authorized a strike by
its members that lasted 10 weeks and materially adversely affected Allegheny
Ludlum's operating results. There can be no assurance that the Company will
succeed in concluding collective bargaining agreements with the USWA or other
unions to replace those that expire.
PRINCIPAL OFFICERS OF THE REGISTRANT
Principal officers of the Company as of March 15, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
Richard P. Simmons 67 Chairman, President and Chief Executive Officer*
Robert Mehrabian 57 Executive Vice President and Segment Executive,
Aerospace and Electronics and Industrial*
James L. Murdy 60 Executive Vice President, Finance and Administration and
Chief Financial Officer*
Judd R. Cool 63 Senior Vice President, Human Relations
Jon D. Walton 56 Senior Vice President, General Counsel & Secretary*
Richard J. Harshman 42 Vice President, Investor Relations and Corporate
Communications
Robert S. Park 54 Vice President, Treasurer
Dale G. Reid 43 Vice President, Controller and Chief Accounting Officer*
</TABLE>
Set forth below are descriptions of the business background for the
past five years of the principal officers of the Company.
Richard P. Simmons has been Chairman of the Board of the Company since
August 1996 and President and Chief Executive Officer since February 1997.
Previously, he was Chairman of
- --------
*Such officers are subject to the reporting and other requirements of Section 16
of the Securities Exchange Act of 1934, as amended.
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<PAGE> 19
the Board of Allegheny Ludlum, having begun his service on that Board in 1980.
He also served as Chief Executive Officer of Allegheny Ludlum until 1990.
Robert Mehrabian was Senior Vice President of the Company from August
1997 until his appointment as Executive Vice President of the Company in May
1998. Dr. Mehrabian has been the Segment Executive for the Company's Aerospace
and Electronics Segment since August 1997 and for the Company's Industrial
Segment since April 1998. From April 1998 to October 1998, he also had
responsibility for the Consumer Segment. Dr. Mehrabian serves as a director of
the Company. Prior to joining the Company, Dr. Mehrabian served as the President
of Carnegie Mellon University from 1990 to July 1997.
James L. Murdy has been Chief Financial Officer and a Senior Vice
President of the Company since August 1996 and Executive Vice President, Finance
and Administration since December 1996. Mr. Murdy previously served as the
Senior Vice President-Finance and Chief Financial Officer of Allegheny Ludlum.
Mr. Murdy also serves as a director of the Company.
Judd R. Cool has been Senior Vice President, Human Resources since
September 1997. Prior to joining the Company, Mr. Cool served as Vice President
for Human Resources for Inland Steel Industries.
Jon D. Walton has been Senior Vice President, General Counsel and
Secretary of the Company since August 1997 and served as Vice President, General
Counsel and Secretary of the Company from August 1996 to August 1997, having
previously served in the same capacity as an officer of Allegheny Ludlum.
Richard J. Harshman has served as Vice President, Investor Relations
and Corporate Communications since July 1998. He had been Senior Vice President,
Finance and Administration, at Allvac since 1995. Prior thereto, he served in a
number of financial and management corporate and operating positions with
Teledyne.
Robert S. Park has served as Vice President, Treasurer of the Company
since August 1996. From May 1994 to August 1996, Mr. Park served as Vice
President, Treasurer of Allegheny Ludlum. Previously, he served as Treasurer of
Allegheny Ludlum.
Dale G. Reid has served as a Vice President of the Company since May
1997 and Controller since August 1996. Mr. Reid previously served as Chief
Accounting Officer and Controller of Teledyne.
Messrs. Murdy and Walton have employment agreements with the Company
which were entered into in connection with the combination of Allegheny Ludlum
and Teledyne in 1996. Copies of the employment agreements are filed as Exhibits
10.19 and 10.20 to this Form 10-K.
FORWARD LOOKING AND OTHER STATEMENTS
From time to time, the Company has made and may continue to make
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. This Report on Form 10-K and the 1998 Annual
Report contain many forward-looking statements. These statements, which
represent the Company's expectations or beliefs concerning various future
events, include but are not limited to statements concerning the following:
o anticipated effects of the proposed strategic transformation
and dispositions by the Company;
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<PAGE> 20
o anticipated effects of the acquisitions of OREMET and
Allvac-SMP and the agreements with Bethlehem on earnings, cost
savings and operations of the Company; cash flow;
o aviation and aerospace industry trends;
o cost reductions;
o certain expected capital expenditures;
o computer software modification or replacement;
o anticipated expenditures to address the impact of Year 2000
issues;
o anticipated effects of the euro currency conversion;
o the outcome of any government inquiries, litigation or other
proceedings related to government contracts or other matters;
and
o future environmental costs.
Actual results may differ materially from results anticipated in forward looking
statements. The Company assumes no obligation to update its forward looking
statements.
Forwardlooking statements are based on current expectations that
involve a number of risks and uncertainties, including the following:
Uncertainties Relating to Proposed Strategic Transformation. The
Company has identified anticipated benefits expected to result from the
transformation and dispositions described under the caption "Strategic
Transformation" above. Completing the transactions and achieving the anticipated
results involves inherent uncertainties, including those relating to:
o whether legal, tax, financial and other considerations
applicable to the spin-offs and the public offerings can be
successfully resolved;
o whether the contemplated dispositions can be accomplished on
terms acceptable to the Company; and
o business and other risks affecting the business of the
Company, the two new companies expected to result from the
transformation and the businesses the Company intends to sell.
Consummation of the transactions and realization of the anticipated results
could take longer than expected and implementation difficulties and market
factors could change the anticipated results. Accordingly, there can be no
assurance that the Company will be able to realize, or do so within any
particular time frame, the expected benefits anticipated to be achieved as a
result of the proposed transformation and dispositions.
Cyclical Demand for Specialty Metals. The Company's Specialty Metals
Segment accounted for a significant portion of the Company's 1998 total sales
and its 1998 total income. Demand for products of these businesses is cyclical
because the industries in which customers of such businesses operate are
cyclical. Various changes in general economic conditions affect these
industries, including decreases in the rate of consumption or use of their
products due to economic recessions.
Significant downturns in the domestic economy are believed to have
adversely affected the results of operations of Allegheny Ludlum, Teledyne and
OREMET from time to time during their respective histories. Other factors
causing fluctuation in market demand and volatile
20
<PAGE> 21
pricing include national and international overcapacity, currency fluctuations,
lower-priced imports and increase in use or decrease in prices of substitute
materials.
The current trend of price deflation for many commodity products may
also adversely affect prices for commodity grades of specialty metals. As a
result of these factors, the Company's operating results could be subject to
significant fluctuation. For example, an adverse pricing environment for
commodity grades of stainless steel in 1998 and 1997 and an adverse pricing
environment for titanium products in 1998 negatively affected sales and
operating profit of the Company's specialty metals businesses.
Unavailability of Raw Materials for Specialty Metals. Certain important
raw materials used to produce specialty metals must be acquired in large part
only from foreign sources. Some of these sources operate in countries that may
be subject to unstable political and economic conditions. These conditions may
disrupt supplies or affect the prices of these materials. Purchase prices of
certain critical raw materials are volatile. As a result, the Company's
operating results could be subject to significant fluctuation. The Company
enters into raw material futures contracts from time to time to hedge its
exposure to price fluctuations. The Company believes that adequate controls are
in place to monitor such activities, which are not financially material.
Risks Associated with Environmental Matters. The Company is subject to
various domestic and international environmental laws and regulations. These
laws have changed in recent years, and the Company expects to face increasingly
stringent environmental standards in the future.
The Company believes that it operates its businesses in compliance in
all material respects with applicable environmental laws and regulations.
However, the Company is a party to lawsuits and other proceedings involving
alleged violations of environmental laws. When the Company's liability is
probable and it can reasonably estimate its costs, the Company records
environmental liabilities on its financial statements. However, some of these
environmental investigations are not at a stage where the Company has been able
to determine liability, or if liability is probable, to reasonably estimate the
loss or range of loss. Estimates of the Company's liability remain subject to
additional uncertainties regarding:
o the nature and extent of site contamination;
o the range of remediation alternatives available;
o evolving remediation standards;
o imprecise engineering evaluations and estimates of appropriate
cleanup technology, methodology and cost;
o the extent of corrective actions that may be required; and
o the number and financial condition of other potentially
responsible parties, as well as the extent of their
responsibility for the remediation.
Accordingly, as investigation and remediation of these sites proceed and the
Company receives new information, the Company expects that it will adjust its
accruals to reflect new information. Future adjustments could have a material
adverse effect on the Company's results of operations in a given period, but the
Company cannot reliably predict the amounts of such future adjustments.
21
<PAGE> 22
Based on currently available information, the Company's management does
not believe that future environmental costs, in excess of those already accrued,
will materially adversely affect the Company's financial condition or results of
operations. However, the Company cannot provide any 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.
Risks Associated with Government Contracts. A number of the Company's
subsidiaries perform work on contracts with the U.S. Government. For the year
ended December 31, 1998, the Company's total continuing sales under government
contracts were approximately 13% of the Company's total continuing sales, of
which about 10% of total continuing sales were under contracts with the
Department of Defense. The government may terminate most of these contracts at
its convenience. Many of these contracts also include clauses which allow the
price to be redetermined at the request of the government.
Some of the Company's government contracts have fixed prices, which
involve a risk that current costs may exceed the costs that were expected when
the contract was negotiated. In such a situation, the Company must bear the
excess costs, unless the contract is modified.
Revisions in the cost and funding estimates for some of the Company's
long-term government contracts require the Company to adjust current earnings on
a cumulative basis. If the current contract estimates indicate a loss, the
Company makes a provision for the total anticipated loss.
Additionally, virtually all defense programs are subject to curtailment
or cancellation due to the annual government appropriations and allocations
process. A material reduction in U.S. Government appropriations may adversely
affect the Company's business, depending upon the specific programs affected by
the reduction.
Various claims have been or may be asserted against the Company related
to government contracts, including claims based on business practices and cost
classifications and actions under the False Claims Act. Under the False Claims
Act, a person may assert the rights of the U.S. Government by initiating a suit
under seal against a contractor. For the claim to be successful, that person
must have information that the contractor falsely submitted a claim to the U.S.
Government for payment. The U.S. Government may choose to intervene and assume
control of the case.
Detailed fact-finding and negotiation generally resolve government
contracting claims. When they are not resolved in this way, civil or criminal
legal or administrative proceedings may be brought. Depending on the
circumstances and the outcome, these proceedings could result in fines,
penalties, compensatory and punitive damages or the cancellation or suspension
of payments under one or more 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.
Suspension or inability to enter into government contracts could
materially adversely affect the Company's future operating results and
consolidated financial condition. However, although the Company cannot predict
the outcome of these matters with certainty, the
22
<PAGE> 23
Company's management is not aware of any pending matter that is likely to result
in such action, or that is otherwise likely to have a material adverse effect on
the Company's financial condition or liquidity. 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.
Risks of Export Sales. The Company anticipates that export sales will
continue to account for a significant percentage of the Company's sales. Risks
associated with export sales include:
o political and economic instability, including the current
prevailing weak condition in several of the world's economies;
o accounts receivable collection;
o export controls;
o changes in legal and regulatory requirements;
o policy changes affecting the markets for the Company's
products;
o changes in tax laws and tariffs;
o euro currency conversion; and
o exchange rate fluctuations (which may affect sales to
international customers and the value of and profits earned on
exports sales when converted into U.S. dollars).
Any of these factors could materially adverse affect the Company's results of
operations.
Risks Associated with Acquisition and Disposition Strategy. The Company
intends to continue to strategically position its businesses in order to improve
its ability to compete. The Company plans to do this by seeking specialty
niches, expanding its global presence, acquiring businesses complementary to
existing strengths and continually evaluating the performance and strategic fit
of existing businesses. The Company regularly considers acquisition and business
combination opportunities as well as possible business dispositions. Its
management from time to time holds discussions with management of other
companies to explore such opportunities and possible dispositions. As a result,
the relative makeup of the businesses comprising the Company are subject to
change.
Acquisitions involve various inherent risks, such as:
o assessing accurately the value, strengths, weaknesses,
contingent and other liabilities and potential profitability
of acquisition candidates;
o the potential loss of key personnel of an acquired business;
o the Company's ability to achieve identified financial and
operating synergies anticipated to result from an acquisition;
and
o unanticipated changes in business and economic conditions
affecting an acquired business.
International acquisitions could be affected by:
o export controls;
o exchange rate fluctuations;
o the euro currency conversion;
o domestic and foreign political conditions; and
23
<PAGE> 24
o further deterioration in domestic and foreign economic
conditions.
Uncertainties Relating to Synergies. There can be no assurance that the
Company will be able to realize, or do so within any particular time frame, the
cost reductions, cash flow increases or other synergies expected to result from
the acquisitions and other transactions the Company has made or may make or
generate additional revenue to offset any unanticipated inability to realize
such expected synergies. Realization of the anticipated benefits of acquisitions
and other transactions, including the OREMET and Allvac-SMP acquisitions and the
agreements with Bethlehem, could take longer than expected and implementation
difficulties, market factors and further deterioration in domestic or global
economic conditions could alter the anticipated benefits.
YEAR 2000 READINESS DISCLOSURE
Year 2000 Task Forces. 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, are in
process at Allegheny Teledyne and each of the operating companies and are
included in the Company's integration plans for OREMET and Allvac-SMP.
Targeted Completion of Internal Solutions. 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 approximately 90%
complete. While the Company estimates that based on dollars expended, about 95%
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 continues to target having substantially all internal
solutions relating to Year 2000 functionality of its computer systems developed
and implemented by June 1999. This targeted completion date depends, however, on
numerous assumptions, including continued availability of trained personnel in
this area.
Other Year 2000 Areas of Focus. 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 be made 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 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 review of products manufactured and sold by discontinued
businesses or businesses that it has sold.
24
<PAGE> 25
Year 2000 Expenditures. 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 that may be required to address Year
2000 issues associated with some products. Substantially all costs related to
the Company's Year 2000 initiatives are expensed as incurred and funded through
operating cash flows. Additional amounts may be spent in subsequent years.
Overall Assessment; Worst Case Scenario. 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 worst 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 with 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. Efforts are underway to identify contingency plans should
unplanned situations arise on January 1, 2000.
Factors that May Affect Year 2000 Estimates. While the Company has been
conducting a comprehensive Year 2000 review of its computer systems and
products, 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:
o changes in the availability or costs of personnel trained in
this area;
o changes made to the Company's remediation plans;
o 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
o identification of other Year 2000-related matters.
ITEM 2. PROPERTIES
The Company's principal domestic facilities as of December 31, 1998 are
listed below by segment. Of those facilities listed below which are owned, three
are subject to mortgages or similar encumbrances securing borrowings under
certain industrial development authority financings. See Note 5 of the Notes to
Consolidated Financial Statements beginning on page 37 of the 1998 Annual
Report. Although the facilities vary in terms of age and condition, the
Company's management believes that these facilities have generally been
well-maintained.
25
<PAGE> 26
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FOOTAGE
FACILITY LOCATION PRINCIPAL USE (OWNED/LEASED)
- ----------------- ------------- --------------
SPECIALTY METALS
<S> <C> <C>
Allegheny Ludlum
Brackenridge Works Manufacturing of stainless steel and specialty 2,443,000 (owned)
Brackenridge and Natrona, PA metals strip, sheet, and plate, silicon electrical
steel strip and sheet, and other specialty steel
strip and sheet.
West Leechburg Works Manufacturing of stainless steel and specialty 1,415,000 (owned)
West Leechburg and metals strip and sheet, silicon electrical steel
Bagdad, PA strip and sheet, and other specialty steel strip
and sheet.
Vandergrift Plant Manufacturing of stainless steel strip and sheet. 966,000 (owned)
Vandergrift, PA
Washington Plant Manufacturing of stainless steel and tool steel 615,000 (owned)
Washington, PA plate products.
Wallingford Plant Manufacturing of stainless steel and specialty 591,000 (owned)
Wallingford and metals strip and sheet and other specialty strip
Waterbury, CT and sheet.
Houston Plant Manufacturing of stainless steel and other 298,000 (owned)
Houston, PA specialty metals products.
Lockport Plant Manufacturing of stainless steel and other 282,000 (owned)
Lockport, NY specialty metals products.
New Castle Plant Manufacturing of stainless steel sheet. 178,000 (owned)
New Castle, IN
Massillon Plant 96-inch wide anneal and pickle line for 165,000 (owned)
Massillon, OH manufacture of stainless steel and other specialty
metals plate.
Allvac
Monroe Plant Production of nickel and titanium products and 640,000 (owned)
Monroe, NC other specialty steel long products.
Latrobe, PA Production of nickel and titanium products, tool 468,000 (owned)
and high speed steel, and other specialty steel
long products.
Richburg, SC Production of nickel and titanium products, tool 221,000 (leased)
and high speed steel, and other specialty steel
long products.
Bakers Plant Production of titanium ingot. 60,000 (owned)
Monroe, NC
Rodney Metals
New Bedford, MA Manufacturing of stainless steel precision rolled 250,000 (leased)
and coated thin sheet strip and foil, custom
roll-formed and stretch-formed shapes.
Oremet-Wah Chang
Albany, OR Production of zirconium, halfnium, niobium, 1,215,000 (owned)
titanium, and tantalum.
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C> <C>
Albany, OR Production of titanium sponge, ingot, mill 461,000 (owned)
products and castings.
Richland, WA Production of titanium ingots, slabs and 103,000 (owned)
electrodes.
AEROSPACE & ELECTRONICS
Brown Engineering
Huntsville, AL Provision of engineered services and products, 475,000 (owned)
including systems engineering, optical 123,000 (leased)
engineering, software and hardware engineering,
and instrumentation technology.
Grove Hill, AL Provision of engineered services and products, 208,000 (owned)
including systems engineering, optical
engineering, software and hardware engineering,
and instrumentation technology.
Continental Motors
Mobile, AL Design, development, and production of new and 993,000 (leased)
rebuilt piston engines, ignition systems, and 536,000 (leased)
spare parts for general aviation market.
Redlands, CA Manufacturing of batteries for the general 91,000 (owned)
aviation market.
Toledo, OH Design, development and production of small 351,000 (leased)
turbine engines for aerospace and automotive
markets.
Electronic Technologies
Los Angeles, CA Development and production of electronic 141,000 (leased)
components and subsystems. 83,000 (owned)
Los Angeles, CA Production of digital data acquisition systems for 154,000 (leased)
monitoring commercial aircraft and engines.
Lewisburg, TN Development and production of electronic 153,000 (owned)
components and subsystems.
Mt. View, CA Production of ferrite components, switching 100,000 (owned)
devices, filters, and monolithic microwave
integrated circuits.
Ryan Aeronautical
San Diego, CA Production of unmanned aerial vehicles and aerial 1,100,000 (leased)
target systems.
Hollister, CA Manufacturing of controlled explosive devices. 221,000 (owned)
Cast Parts
Pomona, CA Manufacturing of aluminum and magnesium castings 231,000 (owned)
for air frames, turbine engines and missiles.
INDUSTRIAL
Metalworking Products
Waynesboro, PA Production of thread-cutting and roll forming 386,000 (owned)
equipment and perishable tools.
Huntsville, AL Production of molybdenum, tungsten, and tungsten 293,000 (owned)
carbide powders and milled products.
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
<S> <C> <C>
Huntsville, AL Production of tungsten and molybdenum products. 183,000 (leased)
Grant, AL Production of primary tungsten sintered parts. 88,000 (leased)
Nashville, TN Production of tungsten carbide and cutting tools. 134,000 (owned)
Teledyne Fluid Systems
Brecksville, OH Manufacturing of nitrogen cylinder systems and 125,000 (owned)
industrial and pressure release valves.
Teledyne Specialty Equipment
Canal Winchester, OH Manufacturing of transportable material handlers. 41,000 (owned)
Casting Service
La Porte, IN Manufacturing of large ductile and grey iron 453,000 (owned)
castings for diesel engines, automotive dies,
machine tools and power generation.
Portland Forge
Portland, IN Manufacturing of carbon and alloy steel forgings 215,000 (owned)
as transmissions, pistons, and other power train
components.
Lebanon, KY Manufacturing of carbon and alloy steel forgings. 100,000 (owned)
CONSUMER
Laars
Moorpark, CA Manufacturing of pool heaters, pool filtration, 200,000 (owned)
and spa control equipment.
Rochester, NH Manufacturing of heating elements. 80,000 (owned)
Randolph, MA Manufacturing of boiler and water heating products. 63,600 (leased)
Water Pik
Fort Collins, CO Manufacturing of shower heads, water filtration 243,000 (owned)
products, and oral health products.
Loveland, CO Manufacturing of showerheads, water filtration 134,000 (owned)
products, and oral health products.
</TABLE>
The Company also owns or leases facilities in a number of foreign
countries, including Canada, the United Kingdom, Germany, France, The
Netherlands, Switzerland, Sweden, Costa Rica, Mexico and Taiwan. In connection
with the Company's February 1998 acquisition of the aerospace division of
Sheffield Forgemasters, the Company acquired 625,000 square foot facilities for
melt and remelt, machining and bar mill operations, laboratories and offices
located on a 25-acre site in Sheffield, England. The related acquisition of
Jessop Saville Limited includes a 40,000 square foot leased facility for
computer numerically controlled milling and machine operations.
The Company's executive offices, located at PPG Place in Pittsburgh,
Pennsylvania, and its West Coast Regional offices, located at Century Park in
Los Angeles, California, are leased from third parties. These facilities are
modern and sufficient for the Company to carry on its current activities.
28
<PAGE> 29
ITEM 3. LEGAL PROCEEDINGS
The Company becomes involved from time to time in various lawsuits,
claims and proceedings relating to the conduct of its business, including those
pertaining to environmental, government contracting, product liability, patent
infringement, commercial, employment, employee benefits, and stockholder
matters.
In June 1995, the U.S. Department of Justice commenced an action
against Allegheny Ludlum in the United States District Court for the Western
District of Pennsylvania, alleging multiple violations of the federal Clean
Water Act. The complaint seeks injunctive relief and assessment of penalties of
up to $25,000 per day of violation. In this proceeding, the Company is currently
participating in Court-ordered non-binding mediation and, if unsuccessful,
discovery will resume.
In January 1997, the U.S. EPA filed suit in the United States District
Court for the Western District of Pennsylvania against Allegheny Ludlum alleging
failure to comply with a unilateral administrative order ("UAO") issued in May
1996. The complaint seeks an assessment of penalties of up to $25,000 per day of
violation. The UAO seeks physical control of a portion of Allegheny Ludlum's
Natrona plant for at least 30 years for a treatment facility to be built by
another company in conjunction with that company's remediation of a nearby
Superfund site. The Company has been challenging the UAO and has filed a
declaratory judgment action to protect its rights. The District Court ordered a
trial date of March 22, 1999. While continuing to deny liability, but in an
effort to avoid protracted litigation, the Company agreed to settle this matter
with the EPA with payment by the Company of $150,000.
While the outcome of litigation, including the matters specified above,
cannot be predicted with certainty, and some lawsuits, claims or proceedings may
be determined adversely to the Company, management does not believe that the
disposition of any such pending matters is likely to have a material adverse
effect on the Company's financial condition or liquidity, although the
resolution in any reporting period of one or more of these matters could have a
material adverse effect on the Company's results of operations for that period.
See the discussion of related matters in Item 1 of Part I of this Form
10-K under the captions "Environmental, Health and Safety Matters" and
"Government Contracts."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders in
the fourth quarter of 1999.
29
<PAGE> 30
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this item is incorporated by reference to Note
8 of the Notes to Consolidated Financial Statements on pages 39 to 40 of the
1998 Annual Report and to "Common Stock Price" on page 52 of the 1998 Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is incorporated by reference to
"Selected Financial Data" on pages 54 and 55 of the 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 19 through 29 of the 1998 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is incorporated by reference to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Other Matters - Impact of the Introduction of the Eurodollar" and
"-- Hedging" on pages 25 to 26 of the 1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes to Consolidated
Financial Statements listed in Item 14(a)(1) are incorporated by reference to
pages 30 through 51 of the 1998 Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the information set forth under the caption "Principal
Officers of the Registrant" in Part I of this report, the information concerning
the directors of the Company required by this item is incorporated by reference
to "Election of Directors" as set forth in the 1999 Proxy Statement filed by the
Registrant pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to
"Directors Compensation", "Executive Compensation" and "Compensation Committee
Interlocks and Insider Participation" as set forth in the 1999 Proxy Statement
filed by the Registrant pursuant to
30
<PAGE> 31
Regulation 14A. The Registrant does not incorporate by reference in this Form
10-K either the "Report on Executive Compensation" or the "Cumulative Total
Stockholder Return" section of the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to
"Stock Ownership Information" as set forth in the 1999 Proxy Statement filed by
the Registrant pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to
"Certain Transactions" as set forth in the 1999 Proxy Statement filed by the
Registrant pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements included on pages 30
through 51 of the 1998 Annual Report are incorporated by reference:
Consolidated Statements of Income - Years Ended December 31, 1998, 1997
and 1996
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Stockholders' Equity - Years Ended December
31, 1998, 1997 and 1996
Report of Ernst & Young LLP, Independent Auditors
Notes to Consolidated Financial Statements
The report of Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers LLP)
relating to its audits of the consolidated financial statements of OREMET as of
December 31, 1997 and 1996 and for the years then ended is filed herewith as
Exhibit 99.1.
(2) FINANCIAL STATEMENT SCHEDULES
All schedules set forth in the applicable accounting regulations of the
Commission either are not required under the related instructions or are not
applicable and, therefore, have been omitted.
(3) EXHIBITS
A list of exhibits included in this Report or incorporated by reference
is found in the Exhibit Index beginning on page 33 of this Report and
incorporated by reference.
(b) REPORTS ON FORM 8-K FILED IN THE FOURTH QUARTER OF 1998:
None.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLEGHENY TELEDYNE INCORPORATED
Date: March 18, 1999 By /s/ Richard P. Simmons
-------------------------------------
Richard P. Simmons
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and as of the 18th day of March 1999.
<TABLE>
<CAPTION>
<S> <C>
/s/ Richard P. Simmons /s/ James L. Murdy
- -------------------------------------------------- ------------------------------------------------------
Richard P. Simmons James L. Murdy
Chairman of the Board, President and Chief Executive Vice President, Finance and Administration
Executive Officer and Director (Principal and Chief Financial Officer and Director (Principal
Executive Officer) Financial Officer)
/s/ Robert P. Bozzone /s/ Dale G. Reid
- -------------------------------------------------- ------------------------------------------------------
Robert P. Bozzone Dale G. Reid
Vice Chairman of the Board and Director Vice President-Controller and
Chief Accounting Officer
(Principal Accounting Officer)
/s/ Paul S. Brentlinger /s/ Frank V. Cahouet
- -------------------------------------------------- ------------------------------------------------------
Paul S. Brentlinger Frank V. Cahouet
Director Director
/s/ Diane C. Creel /s/ C. Fred Fetterolf
- -------------------------------------------------- ------------------------------------------------------
Diane C. Creel C. Fred Fetterolf
Director Director
/s/ Ray J. Groves /s/ Frank J. Lucchino
- -------------------------------------------------- ------------------------------------------------------
Ray J. Groves Frank J. Lucchino
Director Director
/s/ W. Craig McClelland /s/ Robert Mehrabian
- -------------------------------------------------- ------------------------------------------------------
W. Craig McClelland Robert Mehrabian
Director Director
/s/ William G. Ouchi /s/ Charles J. Queenan, Jr.
- -------------------------------------------------- ------------------------------------------------------
William G. Ouchi Charles J. Queenan, Jr.
Director Director
/s/ James E. Rohr
- --------------------------------------------------
James E. Rohr
Director
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation of Allegheny Teledyne
Incorporated (incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-4 (No. 333-8235),
appears as Annex A to Appendix A of the Joint Proxy
Statement/Prospectus forming part of the Registration
Statement).
3.2 Amended and Restated Bylaws of Allegheny Teledyne Incorporated
(filed herewith).
4.1 Credit Agreement dated as of August 30, 1996 (incorporated by
reference to Exhibit 10 to the Registrant's Form 10-Q for the
quarter ended September 30, 1996 (File No. 1-12001)),
Assignment and Assumption Agreements dated as of August 22,
1997 and First Amendment to Credit Agreement dated as of
August 31, 1996 (incorporated by reference to Exhibit 4 to
Registrant's Form 10-Q for the quarter ended September 30,
1997 (File No. 1-12001)), and Second Amendment to Credit
Agreement dated as of March 24, 1998 to certain Credit
Agreement dated as of August 30, 1996, as amended by First
Amendment to Credit Agreement dated as of August 31, 1997
(incorporated by reference to Exhibit 4 to the Registrant's
Form 10-K for the quarter ended March 31, 1998 (File No.
1-12001)).
4.2 Indenture dated as of December 15, 1995 between Allegheny
Ludlum Corporation and The Chase Manhattan Bank (National
Association), as trustee (relating to Allegheny Ludlum
Corporation's 6.95% Debentures due 2025) (incorporated by
reference to Exhibit 4(a) to Allegheny Ludlum Corporation's
Form 10-K for the year ended December 31, 1995 (File No.
1-9498)), and First Supplemental Indenture by and among
Allegheny Teledyne Incorporated, Allegheny Ludlum Corporation
and The Chase Manhattan Bank (National Association), as
Trustee, dated as of August 15, 1996 (incorporated by
reference to Exhibit 4.1 to Registrant's Current Report on
Form 8-K dated August 15, 1996 (File No. 1-12001)).
4.3 Rights Agreement dated March 12, 1998, including Certificate
of Designation for Series A Junior Participating Preferred
Stock as filed with the State of Delaware on March 13, 1998
(incorporated by reference to Exhibit 1 to the Registrant's
Current Report on Form 8-K dated March 12, 1998 (File No.
1-12001)).
10.1 Allegheny Teledyne Incorporated 1996 Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Registrant's
Form 10-K for the year ended December 31, 1997 (File No.
1-12001)).*
10.2 Allegheny Teledyne Incorporated Stock Acquisition and
Retention Plan effective January 1, 1997 (incorporated by
reference to Exhibit 10.2 to the Registrant's Form 10-K for
the year ended December 31, 1996 (File No. 1-12001)).*
10.3 Allegheny Teledyne Incorporated Stock Acquisition and
Retention Program effective January 1, 1998, as amended and
restated (filed herewith).*
33
<PAGE> 34
10.4 Allegheny Teledyne Incorporated 1996 Non-Employee Director
Stock Compensation Plan, as amended December 17, 1998
(filed herewith).*
10.5 Allegheny Teledyne Incorporated Fee Continuation Plan for
Non-Employee Directors (incorporated by reference to Exhibit
10.4 to the Company's Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-12001)).*
10.6 Supplemental Pension Plan for Certain Key Employees of
Allegheny Teledyne Incorporated and its subsidiaries (formerly
known as the Allegheny Ludlum Corporation Key Man Salary
Continuation Plan) (incorporated by reference to Exhibit 10.7
to the Company's Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-12001)).*
10.7 Allegheny Ludlum Corporation Additional Compensation Plan
(presently known as the Performance Management System Plan)
(incorporated by reference to Exhibit 10(c) to Allegheny
Ludlum Corporation's Registration Statement on Form S-1 (No.
33-12940)).*
10.8 Allegheny Teledyne Incorporated Benefit Restoration Plan
(filed herewith).*
10.9 Allegheny Ludlum Corporation 1987 Stock Option Incentive Plan
(as amended and restated) (incorporated by reference to
Exhibit 10(f) to Allegheny Ludlum Corporation's Form 10-K for
the year ended December 31, 1995 (File No. 1-9498)).*
10.10 Allegheny Ludlum Corporation Performance Share Plan (as
amended and restated) (incorporated by reference to the
Registration Statement on Form S-4 (No. 333-8235) of Allegheny
Teledyne Incorporated, appears as Appendix F to the Joint
Proxy Statement/Prospectus forming part of the Registration
Statement).*
10.11 Allegheny Ludlum Corporation Stock Acquisition and Retention
Plan, as restated effective as of August 15, 1996
(incorporated by reference to Exhibit 10.10 to the Company's
Report on Form 10-K for the year ended December 31, 1997 (File
No. 1-12001)).*
10.12 Teledyne, Inc. 1990 Stock Option Plan (incorporated by
reference to Exhibit 10 to Teledyne, Inc.'s Form 10-K for the
year ended December 31, 1990 (File No. 1-5212)).*
10.13 Teledyne, Inc. 1994 Long-Term Incentive Plan (incorporated by
reference to Exhibit A to Teledyne, Inc.'s 1994 proxy
statement (File No. 1-5212)).*
10.14 Teledyne, Inc. 1995 Non-Employee Director Stock Option Plan
(incorporated by reference to Exhibit A to Teledyne, Inc.'s
1995 proxy statement (File No. 1-5212)).*
10.15 Teledyne, Inc. Senior Executive Performance Plan (incorporated
by reference to the Registration Statement on Form S-4 (No.
333-8235) of Allegheny Teledyne Incorporated, appears as
Appendix G to the Joint Proxy Statement/Prospectus forming
part of the Registration Statement).*
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<PAGE> 35
10.16 Summary of Teledyne, Inc. Executive Deferred Compensation
Plan, as restated effective September 1, 1994 (incorporated by
reference to Exhibit 10.2 to Teledyne, Inc.'s Form 10-K for
the year ended December 31, 1994 (File No. 1-5212)).*
10.17 First Amendment dated as of August 14, 1995 and Second
Amendment dated as of December 4, 1995 to the Summary of
Teledyne, Inc. Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10.2 to Teledyne, Inc.'s
Form 10-K for the year ended December 31, 1995 (File No.
1-5212)).*
10.18 Employment Agreement dated July 15, 1996 between Allegheny
Teledyne Incorporated and Arthur H. Aronson (incorporated by
reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-4 (No. 333-8235)).*
10.19 Employment Agreement dated July 15, 1996 between Allegheny
Teledyne Incorporated and James L. Murdy (incorporated by
reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-4 (No. 333-8235)).*
10.20 Employment Agreement dated July 15, 1996 between Allegheny
Teledyne Incorporated and Jon D. Walton (incorporated by
reference to Exhibit 10.5 to the Company's Registration
Statement on Form S-4 (No. 333-8235)).*
10.21 Allegheny Teledyne Incorporated Executive Deferred
Compensation Plan (filed herewith).*
10.22 Allegheny Teledyne Incorporated Performance Share Program
(filed herewith).*
10.23 Allegheny Teledyne Incorporated Annual Incentive Plan (filed
herewith).*
13.1 Pages 19 through 55 inclusive of the Annual Report of
Allegheny Teledyne Incorporated for the year ended December
31, 1998 (filed herewith).
21.1 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Ernst & Young LLP (filed herewith).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
27.1 Financial Data Schedule (filed herewith).
99.1 Report of Coopers & Lybrand L.L.P. (now PricewaterhouseCoopers
LLP)(filed herewith).
* Management contract or compensatory plan or arrangement required to be filed
as an Exhibit to this Report.
Certain instruments defining the rights of holders of long-term debt of the
Company and its subsidiaries have been omitted from the Exhibits in accordance
with Item 601(b)(4)(iii) of Regulation S-K. A copy of any omitted document will
be furnished to the Commission upon request.
35
<PAGE> 1
Exhibit 3.2
-----------------------------------------------------
ALLEGHENY TELEDYNE INCORPORATED
AMENDED AND RESTATED BYLAWS
(including amendments adopted through March 11, 1999)
-----------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I OFFICES ..............................................................1
Section 1. Registered Office..............................1
Section 2. Corporate Headquarters.........................1
Section 3. Other Offices..................................1
ARTICLE II MEETINGS OF STOCKHOLDERS.............................................1
Section 1. Place of Meetings..............................1
Section 2. Annual Meeting.................................1
Section 3. Special Meetings...............................1
Section 4. Notice of Meetings.............................2
Section 5. Quorum; Adjournment............................2
Section 6. Proxies and Voting.............................2
Section 7. Stock List.....................................3
ARTICLE III BOARD OF DIRECTORS .................................................3
Section 1. Duties and Powers..............................3
Section 2. Number of Term of Office.......................3
Section 3. Vacancies......................................4
Section 4. Meetings.......................................4
Section 5. Quorum.........................................5
Section 6. Actions of Board Without a Meeting.............5
Section 7. Meetings by Means of Conference
Telephone......................................5
Section 8. Committees.....................................5
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
Section 9. Compensation...................................6
Section 10. Removal........................................6
ARTICLE IV OFFICERS ............................................................6
Section 1. General........................................6
Section 2. Election; Term of Office.......................6
Section 3 Chairman of the Board..........................6
Section 4. Chief Executive Officer........................7
Section 5. President......................................7
Section 6. Vice President.................................7
Section 7. Secretary......................................7
Section 8. Assistant Secretaries..........................8
Section 9. Treasurer......................................8
Section 10. Assistant Treasurers...........................8
Section 11. Other Officers.................................8
ARTICLE V STOCK ................................................................9
Section 1. Form of Certificates...........................9
Section 2. Signatures.....................................9
Section 3. Lost Certificates..............................9
Section 4. Transfers......................................9
Section 5. Record Date....................................9
Section 6. Beneficial Owners..............................10
Section 7. Voting Securities Owned by the Corporation.....10
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE VI NOTICES..............................................................10
Section 1. Notices........................................10
Section 2. Waiver of Notice...............................11
ARTICLE VII GENERAL PROVISIONS..................................................11
Section 1. Dividends......................................11
Section 2. Disbursements..................................11
Section 3. Corporation Seal...............................11
ARTICLE VIII AMENDMENTS ........................................................11
</TABLE>
<PAGE> 5
AMENDED AND RESTATED BYLAWS
OF
ALLEGHENY TELEDYNE INCORPORATED
--------------------------------------
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Corporate Headquarters. The corporate headquarters of the
Corporation shall be in the City of Pittsburgh, Pennsylvania.
Section 3. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors or the officer of the Corporation
calling the meeting as authorized by the Corporation's Certificate of
Incorporation and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meeting. Each Annual Meeting of Stockholders shall
be held on such date and at such time as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders,
other than those required by statute, may be called only as provided, and for
the purposes specified, in the Corporation's Certificate of Incorporation.
<PAGE> 6
Section 4. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation. The notice of a special
meeting shall also state the purpose or purposes for which the meeting is
called.
Section 5. Quorum; Adjournment. At any meeting of the stockholders,
the holders of a majority of all of the shares of the stock entitled to vote at
the meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or the Certificate of Incorporation. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date, or time without notice
other than announcement at the meeting, until a quorum shall be present or
represented.
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 6. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or in such manner as may be prescribed by the General
Corporation Law of the State of Delaware filed in accordance with the procedure
established for the meeting.
Each stockholder shall have one vote for every share of stock
entitled to vote which is registered in his name on the record date for the
meeting, except as otherwise provided herein or required by law or the
Certificate of Incorporation.
All voting, including on the election of directors but excepting
where otherwise provided herein or required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy, or at
the discretion of the chairperson of the meeting, a stock vote shall be taken.
Every stock vote shall be taken by ballots, each of which shall state the name
of the stockholder or proxy voting and such other information as may be required
under the
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<PAGE> 7
procedure established for the meeting. Every vote taken by ballots shall be
counted by an inspector or inspectors appointed by the Board of Directors or the
chairperson of the meeting.
All elections shall be determined by a plurality of the votes cast,
and except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 7. Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in such stockholder's name, shall be open to the
examination of any such stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Duties and Powers. The business of the Corporation shall
be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
consist of one (1) or more members. The number of directors shall be fixed and
may be changed from time to time by resolution duly adopted by a majority of the
directors then in office, except as otherwise provided by law or the Certificate
of Incorporation. Except as provided in Section 3 of this Article, directors
shall be elected by the holders of record of a plurality of the votes cast at
Annual Meetings of Stockholders. Any director may resign at any time upon
written notice to the Corporation. Directors need not be stockholders.
The directors, other than those who may be elected by the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes: Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
of the whole number of the Board of Directors. The terms of office of the
initial classes of directors shall be as follows: the Class I Directors shall be
elected to hold office for a term to expire at the first annual meeting of
stockholders thereafter, or until his or her earlier resignation or removal; the
Class II Directors shall be elected to hold office for a
3
<PAGE> 8
term to expire at the second annual meeting of stockholders thereafter, or until
his or her earlier resignation or removal; and the Class III Directors shall be
elected to hold office for a term to expire at the third annual meeting of
stockholders thereafter, or until his or her earlier resignation or removal, and
in the case of each class, until their respective successors are duly elected
and qualified. At each annual meeting of stockholders the directors elected to
succeed those whose terms have expired shall be identified as being of the same
class as the directors they succeed and shall be elected to hold office for a
term to expire at the third annual meeting of stockholders after their election,
or until his or her earlier resignation or removal, and until their respective
successors are duly elected and qualified. This paragraph of Article III,
Section 2 is also contained in Article TEN, Section (A) of the Corporation's
Certificate of Incorporation, and accordingly, may be altered, amended or
repealed only to the extent and at the time the comparable Certificate Article
is altered, amended or repealed.
Section 3. Vacancies. Except as otherwise fixed pursuant to the
provisions of Article FOUR of the Corporation's Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors:
(a) In case of any increase in the number of directors, the
additional director or directors, and in case of any vacancy in the Board of
Directors due to death, resignation, removal, disqualification or any other
reason, the successors to fill the vacancies, shall be elected by a majority of
the directors then in office, even though less than a quorum, or by a sole
remaining director, and the director or directors so chosen shall hold office
until the next Annual Meeting or special meeting of stockholders duly called for
that purpose and until their successors are duly elected and qualified, or until
their earlier resignation or removal.
(b) Directors appointed in the manner provided in paragraph (a) to
newly created directorships resulting from any increase in the authorized number
of directors or any vacancies on the Board of Directors resulting from death,
resignation, removal, disqualification or any other cause shall hold office for
a term expiring at the next annual meeting of stockholders at which the term of
the class to which they have been elected expires.
(c) No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
This Article III, Section 3 is also contained in Article TEN, Section
(B) of the Corporation's Certificate of Incorporation, and accordingly, may be
altered, amended or repealed only to the extent and at the time the comparable
Certificate Article is altered, amended or repealed.
Section 4. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly-elected Board of Directors shall be
held immediately following the Annual Meeting of Stockholders and no notice of
such meeting shall be necessary to be given the newly-elected directors in order
legally to constitute the meeting, provided a quorum shall be present. Regular
meetings of the Board of Directors may be held without notice at such time and
at
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<PAGE> 9
such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman of the
Board, the President or a majority of the directors then in office. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone, telegram or facsimile transmission on twenty-four
(24) hours' notice, or on such shorter notice as the person or persons calling
such meeting may deem necessary or appropriate in the circumstances. Meetings
may be held at any time without notice if all the directors are present or if
all those not present waive such notice in accordance with Section 2 of Article
VI of these Bylaws.
Section 5. Quorum. Except as may be otherwise specifically provided
by law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the directors then in office shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions of Board Without a Meeting. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by resolution
passed by a majority of the directors then in office, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any committee, to the extent allowed by
law and provided in the Bylaw or resolution establishing such committee, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
5
<PAGE> 10
the seal of the Corporation to be affixed to all papers which may require it.
Each committee shall keep regular minutes and report to the Board of Directors
when required.
Section 9. Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 10. Removal. Any director or directors may be removed from
office only as provided in the Corporation's Certificate of Incorporation.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
appointed by the Board of Directors and shall consist of a Chairman of the
Board, a Chief Executive Officer, or a President, such number of Vice Presidents
as the Board of Directors shall elect from time to time, a Secretary, a
Treasurer (or a position with the duties and responsibilities of a Treasurer and
such other officers and assistant officers (if any) as the Board of Directors
may from time to time appoint). Any number of offices may be held by the same
person, unless the Certificate of Incorporation or these Bylaws otherwise
provide.
Section 2. Election; Term of Office. The Board of Directors at its
first meeting held after each Annual Meeting of Stockholders shall elect a
Chairman of the Board or a President, or both, a Secretary and a Treasurer (or a
position with the duties and responsibilities of a Treasurer), and may also
elect at that meeting or any other meeting, such other officers and agents as it
shall deem necessary or appropriate. Each officer of the Corporation shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors together with the powers and duties customarily
exercised by such officer; and each officer of the Corporation shall hold office
until such officer's successor is elected and qualified or until such officer's
earlier resignation or removal. Any officer may resign at any time upon written
notice to the Corporation. The Board of Directors may at any time, with or
without cause, by the affirmative vote of a majority of directors then in
office, remove any officer.
Section 3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and the Board of Directors and shall
have such other duties and powers as may be prescribed by the Board of Directors
from time to time. The Board of Directors may also designate one of its members
as Vice Chairman of the Board. The Vice Chairman of the Board shall, during the
absence or inability to act of the Chairman of the Board, have the powers and
perform the duties of the Chairman of the Board, and shall have
6
<PAGE> 11
such other powers and perform such other duties as shall be prescribed from time
to time by the Board of Directors.
Section 4. Chief Executive Officer. The Chief Executive Officer shall
have general charge and control over the affairs of the Corporation, subject to
the Board of Directors, shall see that all orders and resolutions of the Board
of Directors are carried out, shall report thereon to the Board of Directors,
and shall have such other powers and perform such other duties as shall be
prescribed from time to time by the Board of Directors.
Section 5. President. The President shall have general and active
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The President
shall have and exercise such further powers and duties as may be specifically
delegated to or vested in the President from time to time by these Bylaws or the
Board of Directors. In the absence of the Chairman of the Board or the Vice
Chairman of the Board (if any) or in the event of the inability of or refusal to
act by the Chairman of the Board or the Vice Chairman of the Board (if any), or
if the Board has not designated a Chairman or Vice Chairman, the President shall
perform the duties of the Chairman of the Board, and when so acting, shall have
all of the powers and be subject to all of the restrictions upon the Chairman of
the Board.
Section 6. Vice President. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there be more than one vice president, the vice presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The vice presidents shall perform such other duties and have such
other powers as the Board of Directors or the President may from time to time
prescribe.
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or the
President. If the Secretary shall be unable or shall refuse to cause to be given
notice of all meetings of the stockholders and special meetings of the Board of
Directors, and if there be no Assistant Secretary, then either the Board of
Directors or the President may choose another officer to cause such notice to be
given. The Secretary shall have custody of the seal of the Corporation and the
Secretary or any Assistant Secretary, if there be one, shall have authority to
affix the same to any instrument requiring it and when so affixed, it may be
attested by the signature of the Secretary or by the signature of any such
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the Corporation and to attest the affixing by
his or her signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
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<PAGE> 12
Section 8. Assistant Secretaries. Except as may be otherwise provided
in these Bylaws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, or the Secretary, and shall have the
authority to perform all functions of the Secretary, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Secretary.
Section 9. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities, shall keep complete and accurate accounts of all
receipts and disbursements of the Corporation, and shall deposit all monies and
other valuable effects of the Corporation in its name and to its credit in such
banks and other depositories as may be designated from time to time by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation, taking
proper vouchers and receipts for such disbursements. The Treasurer shall, when
and if required by the Board of Directors, give and file with the Corporation a
bond, in such form and amount and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of his or
her duties as Treasurer. The Treasurer shall have such other powers and perform
such other duties as the Board of Directors or the President shall from time to
time prescribe.
Section 10. Assistant Treasurers. Except as may be otherwise provided
in these Bylaws, Assistant Treasurers, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, or the Treasurer, and shall have the
authority to perform all functions of the Treasurer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
Treasurer.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
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<PAGE> 13
ARTICLE V
STOCK
Section 1. Form of Certificates; Uncertificated Shares. The shares of
the Corporation shall be represented by certificates; provided that the Board of
Directors may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares in accordance
with the General Corporation Law of the State of Delaware. Any such resolution
shall not apply to shares represented by a certificate until such certificate is
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock in the Corporation
represented by a certificate, and upon request every holder of uncertificated
shares of stock in the Corporation, shall be entitled to have a certificate
signed, in the name of the Corporation (i) by the Chairman of the Board or the
President or a Vice President and (ii) by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by such holder in the Corporation.
Section 2. Signatures. Any or all the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or such owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
in the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be cancelled before a new
certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in
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<PAGE> 14
advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting, nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
Section 7. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board, the President,
any Vice President or the Secretary and any such officer may, in the name of and
on behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile transmission, telex or cable and
such notice shall be deemed to be given at the time of receipt thereof if given
personally or at the time of transmission thereof if given by telegram,
facsimile transmission, telex or cable.
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Section 2. Waiver of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws to be given to any director,
member or a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
or by any Committee of the Board of Directors having such authority at any
meeting thereof, and may be paid in cash, in property, in shares of the capital
stock or in any combination thereof. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
Section 2. Disbursements. All notes, checks, drafts and orders for
the payment of money issued by the Corporation shall be signed in the name of
the Corporation by such officers or such other persons as the Board of Directors
may from time to time designate.
Section 3. Corporation Seal. The corporate seal, if the Corporation
shall have a corporate seal, shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Except as otherwise specifically stated within an Article to be
altered, amended or repealed, these Bylaws may be altered, amended or repealed
and new Bylaws may be adopted at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting.
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<PAGE> 1
Exhibit 10.3
ALLEGHENY TELEDYNE INCORPORATED
1996 INCENTIVE PLAN
ADMINISTRATIVE RULES FOR THE
ALLEGHENY TELEDYNE INCORPORATED
STOCK ACQUISITION AND RETENTION PROGRAM
EFFECTIVE AS OF JANUARY 1, 1998
(as amended and restated)
ARTICLE I. ADOPTION AND PURPOSE OF THE PROGRAM
1.01 ADOPTION. These rules are adopted by the Personnel and
Compensation Committee and the Stock Incentive Award Subcommittee of
the Board of Directors pursuant to the authority reserved in Section
3.01 of the Allegheny Teledyne Incorporated 1996 Incentive Plan (the
"Plan"). Capitalized terms used but not defined in these rules shall
have the same meanings as in the Plan.
1.02 PURPOSE. The purpose of the Allegheny Teledyne
Incorporated Stock Acquisition and Retention Program (the "SARP") is to
assist the Corporation and its subsidiaries in retaining and motivating
selected key management employees who will contribute to the success of
the Corporation and its subsidiaries. The SARP encourages eligible
employees to hold a proprietary interest in the Corporation by offering
them an opportunity to receive grants of restricted shares of Stock
which, in accordance with the terms and conditions set forth below,
will vest only if the employees retain, for a specified period of time,
ownership of (i) shares of Stock purchased pursuant to the SARP or (ii)
already-owned shares of Stock which such employees identify as being
subject to the SARP. Awards under the SARP will act as an incentive to
participating employees to achieve long-term objectives which will
inure to the benefit of all stockholders of the Corporation.
ARTICLE II. DEFINITIONS
For purposes of these rules, the capitalized terms set forth below
shall have the following meanings:
2.01 AWARD AGREEMENT means a written agreement between the
Corporation and a Participant or a written acknowledgment from the
Corporation specifically setting forth the terms and conditions of an
award of Restricted Stock granted to a Participant pursuant to Article
VII of these rules.
2.02 BOARD means the Board of Directors of the Corporation.
2.03 BUSINESS DAY means any day on which the New York Stock
Exchange shall be open for trading.
2.04 CAUSE means a determination by the Committee that a
Participant has engaged in conduct that is dishonest or illegal,
involves moral turpitude or jeopardizes the Corporation's right to
operate its business in the manner in which it is now operated.
<PAGE> 2
2.05 CHANGE IN CONTROL means any of the events set forth
below:
(a) The acquisition in one or more transactions,
other than from the Corporation, by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of a number
of Corporation Voting Securities in excess of 30% of the
Corporation Voting Securities unless such acquisition has been
approved by the Board; or
(b) Any election has occurred of persons to the Board
that causes two-thirds of the Board to consist of persons
other than (i) persons who were members of the Board on
January 1, 1998 and (ii) persons who were nominated for
election as members of the Board at a time when two-thirds of
the Board consisted of persons who were members of the Board
on January 1, 1998; provided, however, that any person
nominated for election by the Board at a time when at least
two-thirds of the members of the Board were persons described
in clauses (i) and/or (ii) or by persons who were themselves
nominated by such Board shall, for this purpose, be deemed to
have been nominated by a Board composed of persons described
in clause (i); or
(c) Approval by the stockholders of the Corporation
of a reorganization, merger or consolidation, unless,
following such reorganization, merger or consolidation, all or
substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Stock and
Corporation Voting Securities immediately prior to such
reorganization, merger or consolidation, following such
reorganization, merger or consolidation beneficially own,
directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors or
trustees, as the case may be, of the entity resulting from
such reorganization, merger or consolidation in substantially
the same proportion as their ownership of the Outstanding
Stock and Corporation Voting Securities immediately prior to
such reorganization, merger or consolidation, as the case may
be; or
(d) Approval by the stockholders of the Corporation
of (i) a complete liquidation or dissolution of the
Corporation or (ii) a sale or other disposition of all or
substantially all the assets of the Corporation.
2.06 COMMITTEE means the Stock Incentive Award Subcommittee of
the Board, in the case of individuals who are "officers" of the
Corporation as defined in Rule 16a-1(f) as promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, as such Rule may be amended from time to time, and
the Personnel and Compensation Committee of the Board, in the case of
individuals who are not such officers of the Corporation.
2.07 CORPORATION means Allegheny Teledyne Incorporated, a
Delaware corporation, and its successors.
2.08 CORPORATION VOTING SECURITIES means the combined voting
power of all outstanding voting securities of the Corporation entitled
to vote generally in the election of the Board.
2.09 DATE OF GRANT means the date as of which an award of
Restricted Stock is granted in accordance with Article VII of these
rules.
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<PAGE> 3
2.10 DESIGNATED STOCK means shares of Stock already owned by a
Participant that the Participant identifies as being subject to the
SARP, thereby triggering the grant of Restricted Stock to such
Participant pursuant to Article VII of these rules.
2.11 DESIGNATION NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant designates
previously-acquired shares of Stock as Designated Stock.
2.12 DISABILITY means any physical or mental injury or disease
of a permanent nature which renders a Participant incapable of meeting
the requirements of the employment performed by such Participant
immediately prior to the commencement of such disability. The
determination of whether a Participant is disabled shall be made by the
Committee in its sole and absolute discretion. Notwithstanding the
foregoing, if a Participant's employment by the Corporation or an
applicable subsidiary terminates by reason of a disability, as defined
in an Employment Agreement between such Participant and the Corporation
or an applicable subsidiary, such Participant shall be deemed to be
disabled for purposes of the SARP.
2.13 EFFECTIVE DATE means January 1, 1998.
2.14 EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended.
2.15 FAIR MARKET VALUE means, as of any given date, the
average of the high and low trading prices of the Stock on such date as
reported on the New York Stock Exchange or, if the Stock is not then
traded on the New York Stock Exchange, on such other national
securities exchange on which the Stock is admitted to trade, or, if
none, on the National Association of Securities Dealers Automated
Quotation System if the Stock is admitted for quotation thereon;
provided, however, if there were no sales reported as of such date,
Fair Market Value shall be computed as of the last date preceding such
date on which a sale was reported; provided, further, that if any such
exchange or quotation system is closed on any day on which Fair Market
Value is to be determined, Fair Market Value shall be determined as of
the first date immediately preceding such date on which such exchange
or quotation system was open for trading.
2.16 OUTSTANDING STOCK means, at any time, the issued and
outstanding Stock.
2.17 PARTICIPANT means any person selected by the Committee,
pursuant to Section 5.01 of these rules, as eligible to participate
under the SARP.
2.18 PERMITTED TRANSFEREE means a Participant's spouse, or (by
blood, adoption or marriage) parent, child, stepchild, descendant or
sibling, or the estate, any guardian, custodian, conservator or
committee of, or any trust for the benefit of, the Participant or any
of the foregoing persons.
2.19 PLAN means the Allegheny Teledyne Incorporated 1996
Incentive Plan, as the same may be amended from time to time.
2.20 PURCHASE AMOUNT means the dollar amount that a
Participant specifies in a Purchase Notice with respect to a particular
Purchase Date.
2.21 PURCHASE DATE means, with respect to any Window Period,
the Business Day immediately following the last day of the Window
Period.
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<PAGE> 4
2.22 PURCHASED STOCK means Stock purchased by a Participant
pursuant to Article VI of these rules, which triggers the grant of
Restricted Stock to such Participant pursuant to Article VII of these
rules.
2.23 PURCHASE LOAN means a loan provided to a Participant by
the Corporation to facilitate the Participant's purchase of Stock
pursuant hereto.
2.24 PURCHASE NOTICE means a written notice, in a form
acceptable to the Committee, by which a Participant may elect to
purchase Stock as of a Purchase Date in accordance with Section 6.01 of
these rules.
2.25 RELATED STOCK means, with respect to any share of
Restricted Stock, the two shares of Purchased Stock or Designated
Stock, as the case may be, which entitle such Participant to receive
such share of Restricted Stock pursuant to Article VII of these rules.
2.26 RESTRICTED STOCK means shares of Stock awarded to a
Participant subject to restrictions as described in Article VII of
these rules.
2.27 SARP means the Stock Acquisition and Retention Program,
as the same may be amended from time to time.
2.28 SARP YEAR means each of the calendar years during the
term the SARP remains in effect.
2.29 STOCK means the common stock, par value $0.10 per share,
of the Corporation.
2.30 WINDOW PERIOD means each of the four (4) periods in each
year consisting of the ten (10) consecutive Business Days beginning on
the third (3rd) Business Day following the release by the Corporation
of its quarterly or annual summary statements of sales and earnings and
ending on the twelfth (12th) Business Day following such date.
ARTICLE III. ADMINISTRATION
The SARP shall be administered by the Committee, which shall have
exclusive and final authority and discretion in each determination,
interpretation or other action affecting the SARP and its Participants. The
Committee shall have the sole and absolute authority and discretion to interpret
the SARP, to modify these administrative rules for the SARP, to select, in
accordance with Section 5.01 of these rules, the persons who will be
Participants hereunder, to impose such conditions and restrictions as it
determines appropriate and to take such other actions and make such other
determinations in connection with the SARP as it may deem necessary or
advisable.
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<PAGE> 5
ARTICLE IV. STOCK ISSUABLE UNDER THE SARP
4.01 SHARES OF STOCK ISSUABLE. The Stock to be offered under
the SARP shall be authorized and unissued Stock, or Stock which shall
have been reacquired by the Corporation and held in its treasury.
4.02 SHARES SUBJECT TO TERMINATED AWARDS. Shares of Stock
forfeited as provided in Section 7.02 of these rules may again be
issued under the SARP.
ARTICLE V. PARTICIPATION
5.01 DESIGNATION OF PARTICIPANTS. Participants in the SARP
shall be such officers and senior executives of the Corporation and its
subsidiaries whose actions most directly affect the long-term success
of the Corporation as the Committee, in its sole discretion, after
consultation with the Chief Executive Officer, may designate as
eligible to participate in the SARP. Prior to the commencement of each
SARP Year during the term of the SARP, the Committee shall designate
the Participants who are eligible to participate in the SARP during
such SARP Year; provided, however, that with respect to the initial
SARP Year of the SARP, such designations shall be made no later than
thirty (30) days following the Effective Date. The Committee's
designation of a Participant with respect to any SARP Year shall not
require the Committee to designate such person as a Participant with
respect to any other SARP Year. The Committee shall consider such
factors as it deems pertinent in selecting Participants. The Committee
shall promptly provide to each person selected as a Participant written
notice of such selection. The designation of a person as a Participant
with respect to a SARP Year shall permit such person to elect to submit
one or more Purchase Notices and/or Designation Notices during such
SARP Year irrespective of whether, in the case of Purchase Notices, the
applicable Purchase Date(s) fall within such SARP Year.
5.02 PARTICIPANT ELECTIONS. A person who is designated as a
Participant in accordance with Section 5.01 of these rules shall be
entitled to purchase Stock by delivering one or more Purchase Notices
in accordance with Article VI of these rules, and such Stock purchases
shall result in the award of Restricted Stock to such Participant in
accordance with Article VII of these rules. In addition, a Participant
shall be entitled to designate as Designated Stock, in one or more
Designation Notices delivered to the Corporation at any time during a
SARP Year, any even number of shares of Stock then owned by the
Participant, other than shares of Purchased Stock, shares of Stock
credited to the Participant's account under a company-sponsored defined
contribution plan and shares of Stock subject to outstanding and as yet
unexercised stock options. Such designation of shares as Designated
Stock shall result in the award of Restricted Stock to the Participant
in accordance with Article VII of these rules. The sum of (i) the
aggregate Purchase Amounts elected by a Participant pursuant to one or
more Purchase Notices submitted within any one SARP Year and (ii) the
Fair Market Value of the Designated Stock designated by the Participant
pursuant to one or more Designation Notices submitted within such SARP
Year (such Fair Market Value being determined as of the date the
applicable Designation Notice is delivered), shall not exceed such
Participant's gross annual salary as in effect on the first day of such
SARP Year; provided, however, that, for any SARP Year, the Committee
may establish such greater or lesser dollar limit as it deems
appropriate.
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<PAGE> 6
ARTICLE VI. STOCK PURCHASES
6.01 STOCK PURCHASE ELECTIONS. A Participant shall have the
right to purchase Stock in accordance with the terms of this Article VI
of these rules. A Participant may elect to purchase Stock under this
SARP by delivering to the Corporation a Purchase Notice and cash and/or
a promissory note executed by the Participant in an amount equal to the
purchase price designated in such Participant's Purchase Notice. Such
Purchase Notice shall set forth, among other things, the Purchase
Amount elected by the Participant. Such promissory note which shall
evidence such Participant's Purchase Loan in accordance with Section
6.03 of these rules, shall be in a principal amount equal to the
Purchase Amount designated in such Participant's Purchase Notice and
shall by its terms become effective as of the applicable Purchase Date.
All elections under this Section 6.01 shall be irrevocable. Each
election shall take effect as of the Purchase Date immediately
following the close of the Window Period that follows the date the
Purchase Notice is received by the Corporation. If an election is not
submitted during a Window Period, such election shall take effect as of
the first Purchase Date that occurs after the date the election is
submitted.
6.02 ISSUANCE OF AND PAYMENT FOR STOCK. As of each Purchase
Date, the Corporation shall credit to each Participant the number of
shares of Purchased Stock purchased pursuant to the Purchase Notice
submitted by such Participant. The number of shares of Purchased Stock
to be so credited shall be determined by dividing the Purchase Amount
designated by such Participant in his or her Purchase Notice by a
purchase price per share equal to the average Fair Market Value during
the Window Period. As of any Purchase Date, only an even number of
shares of Purchased Stock can be purchased by a Participant and in no
event shall the Corporation be required to issue fractional shares. The
Purchase Amount elected by a Participant, and the principal amount of
the related promissory note, shall be automatically reduced (and if the
entire Purchase Amount is paid in cash, cash shall be returned to the
Participant) to the minimum extent necessary in order that an even
number of whole shares of Purchased Stock is credited to such
Participant as of the Purchase Date. The purchase price for shares of
Purchased Stock credited to a Participant as of a Purchase Date shall
be paid in cash and/or by means of a Purchase Loan made by the
Corporation to the Participant in accordance with Section 6.03 of these
rules. The Participant shall have all of the rights of a stockholder
with respect to the shares of Purchased Stock credited to him under
this Section 6.02 including, but not limited to, the right to vote such
shares and the right to receive dividends (or dividend equivalents)
paid with respect to such shares.
6.03 TERMS OF PURCHASE LOAN.
(a) Purchase Loan. The promissory note delivered to
the Corporation by a Participant in accordance with Section
6.01 of these rules shall evidence a Purchase Loan in
principal amount equal to such Participant's Purchase Amount
reduced by the amount of cash paid, if any. Unless the
Committee shall otherwise determine prior to the applicable
Purchase Date, each Purchase Loan shall have a term not to
exceed ten years, and be secured by the shares of Purchased
Stock acquired with such Purchase Loan.
(b) Interest on Purchase Loan. Until the
Participant's Purchase Loan is paid in full, or otherwise
satisfied or discharged in full, interest on the outstanding
balance of the Purchase Loan shall accrue at a fixed rate per
annum equal to the minimum rate required to avoid imputed
interest under the applicable provisions of the Internal
Revenue Code of 1986.
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<PAGE> 7
(c) Repayment of Purchase Loan. No principal or
interest payments with respect to a Purchase Loan shall be
required prior to the fifth anniversary of the date such
Purchase Loan is made; provided, however, that prior to such
fifth anniversary, cash dividends on shares of Purchased Stock
held as security for such Purchase Loan, and on the related
shares of Restricted Stock, shall be applied to pay accrued
interest on the Purchase Loan (any non-cash dividends shall
remain as part of the collateral securing such Purchase Loan).
After such fifth anniversary, level monthly payments of
principal and accrued interest with respect to a Purchase Loan
shall be required for the remaining term thereof. Unless
otherwise determined by the committee, all outstanding
principal and interest on a Participant's Purchase Loan shall
be immediately due and payable in full upon termination of the
Participant's employment with the Corporation and its
affiliates. All or any portion of the principal and/or
interest with respect to a Purchase Loan may, at the election
of the Participant, be paid by the delivery to the Corporation
of whole shares of Stock, other than (i) shares of Stock
credited to the Participant's account under a
company-sponsored defined contribution plan or (ii) shares of
Stock subject to outstanding and as yet unexercised stock
options. For purposes of the immediately preceding sentence,
shares of Stock shall be valued at the Fair Market Value of
such shares on the Business Day immediately preceding the date
such shares are delivered to the Corporation.
(d) Other Terms. The promissory notes evidencing the
Purchase Loans shall contain such other terms and conditions
as the Committee may determine, including, without limitation,
any special terms relating to the retirement of a Participant
prior to the expiration of the term of one or more Purchase
Loans.
6.04 STOCK CERTIFICATES. As promptly as administratively
feasible after each Purchase Date, the Corporation shall deliver to
each Participant one or more stock certificates for the number of
shares of Stock purchased by such Participant as of such Purchase Date
in accordance with this Article VI. The Participant shall then deliver
certificates representing a number of shares with a value equal to the
principal amount of the Purchase Loan to the Corporation in pledge for
the related Purchase Loan along with an executed security agreement in
such form as the Committee shall specify. Upon satisfaction in full of
the Purchase Loan, the certificates shall be delivered to the
Participant free and clear of any restrictions except for any
restrictions that may be imposed by law.
ARTICLE VII. RESTRICTED STOCK
7.01 RESTRICTED STOCK AWARDS. As of each Purchase Date, there
shall automatically be granted to any Participant who purchases
Purchased Stock as of such Purchase Date pursuant to Article VI of
these rules an award of one share of Restricted Stock for each two
shares of Purchased Stock. The Purchase Date shall be the Date of Grant
of such Restricted Stock. As of any date that a Participant delivers a
Designation Notice to the Corporation, in accordance with Section 5.02
of these rules, designating shares of Stock as Designated Stock, there
shall automatically be granted to such Participant an award of one
share of Restricted Stock for each two shares of Designated Stock. The
date of delivery of such Designation Notice shall be the Date of Grant
of such Restricted Stock. The terms of all such Restricted Stock awards
shall be set forth in an Award Agreement between the Corporation and
the Participant which shall contain such forfeiture periods and
conditions, restrictions and other provisions, not inconsistent with
these rules, as shall be determined by the Committee.
(a) Issuance of Restricted Stock. As soon as
practicable after the Date of Grant of Restricted Stock, the
Corporation shall cause to be transferred on the books of the
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<PAGE> 8
Corporation shares of Stock, registered on behalf of the
Participant, evidencing such Restricted Stock, but subject to
forfeiture to the Corporation retroactive to the Date of Grant
if an Award Agreement delivered to the Participant by the
Corporation with respect to the Restricted Stock is not duly
executed by the Participant and timely returned to the
Corporation. Until the lapse or release of all restrictions
applicable to an award of Restricted Stock, the stock
certificates representing such Restricted Stock shall be held
in custody by the Corporation or its designee.
(b) Stockholder Rights. Beginning on the Date of
Grant of the Restricted Stock and subject to execution of the
Award Agreement as provided in Section 7.01(a) of these rules,
the Participant shall become a stockholder of the Corporation
with respect to all Stock subject to the Award Agreement and
shall have all of the rights of a stockholder, including, but
not limited to, the right to vote such Stock and the right to
receive dividends (or dividend equivalents) paid with respect
to such Stock; provided, however, that any Stock distributed
as a dividend or otherwise with respect to any Restricted
Stock as to which the restrictions have not yet lapsed shall
be subject to the same restrictions as such Restricted Stock
and shall be held as prescribed in Section 7.01(a) of these
rules.
(c) Restriction on Transferability. None of the
Restricted Stock may be assigned, transferred (other than by
will or the laws of descent and distribution), pledged, sold
or otherwise disposed of prior to lapse or release of the
restrictions applicable thereto.
(d) Delivery of Stock Upon Release of Restrictions.
Upon expiration or earlier termination of the forfeiture
period without a forfeiture, the satisfaction of the Purchase
Loan, if any, for the Related Stock and the satisfaction of or
release from any other conditions prescribed by the Committee,
the restrictions applicable to the Restricted Stock shall
lapse. As promptly as administratively feasible thereafter,
subject to the requirements of Section 8.02 of these rules,
the Corporation shall deliver to the Participant, or, in case
of the Participant's death, to the Participant's legal
representatives, one or more stock certificates for the
appropriate number of shares of Stock, free of all such
restrictions, except for any restrictions that may be imposed
by law.
7.02 TERMS OF RESTRICTED STOCK.
(a) Forfeiture of Restricted Stock. Subject to
Section 7.02(b) of these rules, all Restricted Stock shall be
forfeited and returned to the Corporation and all rights of
the Participant with respect to such Restricted Stock shall
cease and terminate in their entirety if during the forfeiture
period (i) the Participant transfers, sells or otherwise
disposes of the Related Stock other than to a Permitted
Transferee or in a transaction constituting a Change in
Control or (ii) the employment of the Participant with the
Corporation and its affiliates terminates for any reason or
(iii) the Participant defaults on the Purchase Loan, if any,
for the Related Stock. Unless the Committee, in its sole
discretion, provides otherwise in the applicable Award
Agreement, the forfeiture period for any shares of Restricted
Stock shall be five years from the Date of Grant of such
Restricted Stock. Notwithstanding the foregoing, in the event
of the discharge by the Corporation and its subsidiaries of a
Participant without Cause or termination of a Participant's
employment by reason of death, Disability or retirement
pursuant to the retirement policy of the Corporation or its
applicable subsidiaries, all forfeiture restrictions imposed
on Restricted Stock shall immediately and fully lapse. In
addition, upon the occurrence of a Change in Control, all
forfeiture restrictions imposed on Restricted Stock shall
immediately and fully lapse.
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<PAGE> 9
(b) Waiver of Forfeiture Period. Notwithstanding
anything contained in this Article VII to the contrary, the
Committee may, in its sole discretion, waive the forfeiture
conditions set forth in any Award Agreement under appropriate
circumstances and subject to such terms and conditions
(including forfeiture of a proportionate number of the shares
of Restricted Stock) as the Committee may deem appropriate,
provided that the Participant shall at that time have
completed at least one year of employment after the Date of
Grant.
ARTICLE VIII. MISCELLANEOUS
8.01 LIMITATIONS ON TRANSFER. The rights and interest of a
Participant under the SARP may not be assigned or transferred other
than by will or the laws of descent and distribution. During the
lifetime of a Participant, only the Participant personally may exercise
rights under the SARP.
8.02 TAXES. The Corporation shall be entitled to withhold (or
secure payment from the Participant in lieu of withholding) the amount
of any withholding or other tax required by law to be withheld or paid
by the Corporation with respect to any Stock issuable under the SARP,
or with respect to any income recognized upon the lapse of restrictions
applicable to Restricted Stock, and the Corporation may defer issuance
of Stock hereunder until and unless indemnified to its satisfaction
against any liability for any such tax. The amount of such withholding
or tax payment shall be determined by the Committee or its delegate and
shall be payable by the Participant at such time as the Committee
determines. The Committee shall prescribe in each Award Agreement one
or more methods by which the Participant will be permitted to satisfy
his or her tax withholding obligation, which methods may include,
without limitation, the payment of cash by the Participant to the
Corporation and the withholding, at the appropriate time, of shares of
Stock otherwise issuable to the Participant in a number sufficient,
based upon the Fair Market Value of such Stock, to satisfy such tax
withholding requirements.
8.03 LEGENDS. All certificates for Stock delivered under the
SARP shall be subject to such transfer restrictions set forth in these
rules and such other restrictions as the Committee may deem advisable
under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Stock is
then listed and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be endorsed on any such
certificates making appropriate references to such restrictions.
8.04 AMENDMENT AND TERMINATION. The Committee shall have
complete power and authority to amend or terminate these rules at any
time it is deemed necessary or appropriate. No termination or amendment
of the SARP may, without the consent of the Participant to whom any
award shall theretofore have been granted under the SARP, adversely
affect the right of such individual under such award; provided,
however, that the Committee may, in its sole discretion, make such
provision in the Award Agreement for amendments which, in its sole
discretion, it deems appropriate.
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<PAGE> 1
Exhibit 10.4
ALLEGHENY TELEDYNE INCORPORATED
1996 NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
(AS AMENDED DECEMBER 17, 1998)
ARTICLE I. GENERAL
1.1. PURPOSE. It is the purpose of the Plan to promote the interests of the
Company and its stockholders by attracting, retaining and providing an incentive
to Non-Employee Directors through the acquisition of a proprietary interest in
the Company and an increased personal interest in its performance. This purpose
will be served by providing an opportunity for Non-Employee Directors to elect
to receive Stock Options and/or Common Stock in lieu of Director's Fees, the
automatic payment of a portion of the Director's Retainer Fee Payment in the
form of Common Stock to those Non-Employee Directors not electing to receive
such portion in the form of Stock Options and/or Common Stock and granting each
Non-Employee Director annually an option covering 1,000 shares of Common Stock.
1.2. ADOPTION AND TERM. The Plan has been approved by the Board and shall become
effective as of the Effective Date (as hereinafter defined). The Plan shall
terminate without further action upon the earlier of (a) the tenth anniversary
of the effective date, and (b) the first date upon which no shares of Common
Stock remain available for issuance under the Plan.
1.3. DEFINITIONS. As used herein the following terms have the following
meanings:
(a) "Annual Options" means the Stock Options issuable under Section 4.4(a) of
the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended. References to a
section of the Code shall include that section and any comparable section or
sections of any future legislation that amends, supplements or supersedes said
section.
(d) "Common Stock" means the common stock par value $0.10 per share, of the
Company.
(e) "Company" means Allegheny Teledyne Incorporated, a Delaware corporation, and
any successor thereto.
(f) "Compensation Year" means each calendar year or portion thereof during which
the Plan is in effect.
(g) "Director" means a member of the Board.
(h) "Director's Fees" means the Director's Retainer Fee Payments and the
Director's Meeting Fee Payments.
(i) "Director's Meeting Fee Payment" means the dollar value of the fees which
the Non-Employee Director would be entitled to receive for attending meetings of
the Board or any committee of the Board.
<PAGE> 2
(j) "Director's Retainer Fee Payment" means the dollar value of that portion of
the annual retainer fee payable by the Company to a Non-Employee Director for
serving as a Director and for serving as the chair of the Board or any committee
of the Board as of a particular Payment Date, as established by the Board and in
effect from time to time.
(k) "Effective Date" means the date on which the "Effective Time" occurs. The
term "Effective Time" shall have the meaning set forth in the Agreement and Plan
of Merger and Combination, dated as of April 1, 1996, as amended and restated,
by and among the Company, Allegheny Ludlum Corporation and Teledyne, Inc.
(l) "Employee" means any employee of the Company or an affiliate.
(m) "Fair Market Value" means, as of any given date, the average of the high and
low trading prices of the Common Stock on such date as reported on the New York
Stock Exchange, or, if the Common Stock is not then traded on the New York Stock
Exchange, on such other national securities exchange on which the Common Stock
is admitted to trade, or, if none, on the National Association of Securities
Dealers Automated Quotation System if the Common Stock is admitted for quotation
thereon; provided, however, if there were no sales reported as of such date,
Fair Market Value shall be computed as of the last date preceding such date on
which a sale was reported; provided, further, that if any such exchange or
quotation system is closed on any day on which Fair Market Value is to be
determined, Fair Market Value shall be determined as of the first date
immediately preceding such date on which such exchange or quotation system was
open for trading.
(n) "Meeting Fee Options" means the Stock Options issuable under Section 4.4(b)
of the Plan.
(o) "Non-Employee Director" means a Director who is not an Employee.
(p) "Non-Employee Director Notice" means a written notice delivered in
accordance with Section 4.2.
(q) "Plan" means this Allegheny Teledyne Incorporated 1996 Non-Employee Director
Stock Compensation Plan, as it may hereafter be amended from time to time.
(r) "Payment Date" means the first business day of January and July of each
Compensation Year on which the Director's Retainer Fee Payment for serving as a
Director is paid by the Company and the first business day of January of each
Compensation Year on which the Director's Retainer Fee Payment for serving as
the chair of the Board or any committee of the Board is paid by the Company.
(s) "Retainer Fee Options" means the Stock Options issuable under Section 4.3 of
the Plan.
(t) "Stock Options" means options to purchase shares of Common Stock of the
Company issuable hereunder.
1.4. SHARES SUBJECT TO THE PLAN. The shares to be offered under the Plan shall
consist of the Company's authorized but unissued Common Stock or treasury shares
and, subject to adjustment as provided in Section 5.1 hereof, the aggregate
amount of such stock which may be issued or
<PAGE> 3
subject to Stock Options issued hereunder shall not exceed 700,000. If any Stock
Option granted under the Plan shall expire or terminate for any reason, without
having been exercised or vested in full, as the case may be, the unpurchased
shares subject thereto shall again be available for issuance under the Plan.
Stock Options granted under the Plan will not be qualified as "incentive stock
options" under Section 422 of the Code.
ARTICLE II. ADMINISTRATION
2.1. THE BOARD. The Plan shall be administered by the Board. Subject to the
provisions of the Plan, the Board shall interpret the Plan, promulgate, amend,
and rescind rules and regulations relating to the Plan and make all other
determinations necessary or advisable for its administration. Interpretation and
construction of any provision of the Plan by the Board shall be final and
conclusive. Notwithstanding the foregoing, the Board shall have or exercise no
discretion with respect to the selection of persons eligible to participate
hereunder, the determination of the number of shares of Common Stock or number
of Stock Options issuable to any person or any other aspect of Plan
administration with respect to which such discretion is not permitted in order
for grants of shares of Common Stock and Stock Options to be exempt under Rule
16b-3 under the Securities Exchange Act of 1934, as amended.
ARTICLE III. PARTICIPATION
3.1. PARTICIPANTS. Each Non-Employee Director shall participate in the Plan on
the terms and conditions hereinafter set forth.
ARTICLE IV. PAYMENT OF DIRECTOR'S FEES
4.1. GENERAL. The Director's Retainer Fee Payment shall be paid to each
Non-Employee Director, as of each Payment Date, as set forth in the Plan and
subject to such other payment policies and procedures as the Board may establish
from time to time. Director's Meeting Fee payments shall be paid reasonably
promptly following the date of the meeting to which such payments relate. If for
the applicable Compensation Year such Non-Employee Director has not made an
election to receive Stock Options or Common Stock in lieu of at least
twenty-five percent (25%) of the Director's Retainer Fee Payment pursuant to
Section 4.2, seventy-five percent (75%) of the director's Retainer Fee Payment
shall be paid in cash and twenty-five percent (25%) of the Director's Retainer
Fee Payment shall be paid in the form of Common Stock.
4.2 NON-EMPLOYEE DIRECTOR NOTICE. A Non-Employee Director may file with the
Secretary of the Company or other designee of the Board of Directors, at any
time prior to December first of the calendar year prior to any Compensation
Year, and at such other times as the Board may approve, a Non-Employee Director
Notice making an election to receive (i) either twenty-five percent (25%), fifty
percent (50%), seventy-five percent (75%) or one hundred (100%) of his or her
Director's Retainer Fee Payment in the form of Stock Options and/or Common Stock
with the balance to be paid in cash, and/or (ii) either one hundred percent
(100%) in cash or twenty-five percent (25%), fifty percent (50%), seventy-five
percent (75%) or one hundred percent (100%) of his or her Director's Meeting Fee
Payment in the form of Stock Options and/or Common Stock with the balance, if
any, to be paid in cash. If a Director does not timely file an election, he or
she shall receive twenty-five percent (25%) of the Director's Retainer Fee
Payment in Common Stock and seventy-five percent (75%) in cash and one hundred
percent (100%) of the Director's Meeting Fee Payment in cash. Notwithstanding
the foregoing, elections with respect to the 1996 and 1997 Compensation Years
and elections by newly elected or
<PAGE> 4
appointed Non-Employee Directors may be made during the Compensation Years to
which such elections relate. Once filed, a Non-Employee Director Notice is
irrevocable with respect to the initial Compensation Year to which it relates
and will be effective and irrevocable for all subsequent compensation Years
until another Non-Employee Director Notice is filed by such director in
accordance with the procedure described in the first sentence of this Section
4.2.
4.3 CONVERSION TO SHARES
(a) DIRECTOR'S RETAINER FEE PAYMENT. Each Non-Employee Director who pursuant to
Section 4.1 or 4.2 is to receive Common Stock as all or part of his or her
Director's Retainer Fee Payment with respect to a Compensation Year and who is
elected or reelected or is a continuing Non-Employee Director as of the date of
commencement of such Compensation Year as of the applicable Payment Date, shall
receive as of each Payment Date during such Compensation Year a number of shares
of Common Stock equal to the quotient obtained by dividing (i) the amount of the
Director's Retainer Fee Payment to be paid in the form of Common Stock by (ii)
the Fair Market Value of the Common Stock per share on such Payment Date. Cash
shall be paid in lieu of any fractional shares.
(b) DIRECTOR'S MEETING FEE PAYMENT. Each Non-Employee Director who has duly
filed a Non-Employee Director Notice in accordance with Section 4.2 with respect
to a Compensation Year and elected to receive all or any portion of the
Director's Meeting Fee Payment in the form of Common Stock shall receive as of
the first business day in January of the next following Compensation Year a
number of shares of Common Stock equal to the quotient obtained by dividing (i)
the amount of the Director's Meeting Fee Payment for the Compensation Year to be
paid in the form of Common Stock by (ii) the Fair Market Value of the Common
Stock per share on such day. Cash shall be paid in lieu of any fractional
shares.
4.4 STOCK OPTIONS
(a) ANNUAL OPTION GRANTS. An Annual Option covering 1,000 shares of Common Stock
shall be granted to each Non-Employee Director on the date of adoption of the
Director Stock Plan by the Board, subject to approval by the stockholders of
Allegheny Ludlum Corporation and Teledyne, Inc. at their respective special
meetings of shareholders presently scheduled to be held in 1996 and to the
effectiveness of the Plan. Thereafter, an Annual Option covering 1,000 shares of
Common Stock will be granted to each Non-Employee Director automatically at the
conclusion of each Company Annual Meeting. If, after the date of adoption of
this Plan, a director first becomes a Non-Employee Director on a date other than
an Annual Meeting date, an Annual Option covering 1,000 shares of Common Stock
will be granted to such director on his or her first date of Board service. The
purchase price of the Common Stock covered by each Annual Option will be the
Fair Market Value of a share of Common Stock as of the date of grant of the
Annual Option.
(b) RETAINER FEES OPTIONS. Retainer Fee Options will be granted on the Payment
Dates of each Compensation Year. The number of shares of Common Stock to be
subject to a Retainer Fee Option shall be equal to the nearest number of whole
shares determined by multiplying the Fair Market Value of a share of Company
Common Stock on the date of grant by 0.3333 and dividing the result into the
applicable portion of the Director's Retainer Fee Payment elected to be received
as Stock Options by the Non-Employee Director for the Compensation Year. The
purchase price of each share covered by each Retainer Fee Option shall be equal
to the Fair Market Value of a share of Common Stock on the date of grant of the
Retainer Fee Option multiplied by 0.6666.
<PAGE> 5
(c) MEETING FEE OPTIONS. Meeting Fee Options for a Compensation Year will be
granted on the first business day of the next following Compensation Year after
the conclusion of the Compensation Year. The number of shares of Common Stock to
be subject to a Meeting Fee Option shall be equal to the nearest number of whole
shares determined by multiplying the Fair Market Value of a share of Company
Common Stock on the date of grant by 0.3333 and dividing the result into the
portion of the Director's Meeting Fee Payment elected to be received as Stock
Options by the Non-Employee Director. The purchase price of each share covered
by each Meeting Fee Option shall be equal the Fair Market Value of a share of
Common Stock on the date of grant of the Meeting Fee Option multiplied by
0.6666.
(d) DURATION AND EXERCISE OF STOCK OPTIONS. Subject to Section 4.4(g) below,
Annual Options and Retainer Fee Options become exercisable on the first
anniversary of the date on which they were granted and Meeting Fee Options
become exercisable immediately upon grant. Stock Options shall terminate upon
the expiration of ten years from the date of grant. No Stock Option may be
exercised for a fraction of a share and no partial exercise of any Stock Option
may be for less than one hundred (100) shares.
(e) PURCHASE PRICE. The purchase price for the shares shall be paid in full at
the time of exercise (i) in cash or by check payable to the order of the
Company, (ii) by delivery of shares of Common Stock of the Company already owned
by, and in the possession of Stock Option holder, or (iii) by delivering a
properly executed exercise notice together with irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds to
pay the Stock Option price (in which case the exercise will be effective upon
receipt of such proceeds by the Company). Shares of Common Stock used to satisfy
the exercise price of a Stock Option shall be valued at their Fair Market Value
on the date of exercise.
(f) TRANSFERABILITY. Stock Options granted hereunder shall not be transferable,
other than by will or the laws of descent and distribution and shall be
exercisable during a Stock Option holder's lifetime only by the Stock Option
holder or by his or her guardian or legal representative, except to the extent
(i) transfer is permitted by Rule 16b-3 promulgated under the Exchange Act, and
(ii) approved by the Committee. Subject to the foregoing, Stock Options shall
not be assigned, pledged or otherwise encumbered by the holder thereof, either
voluntarily or by operation of law.
(g) TERMINATION OF DIRECTORSHIP. If a director ceases to be a director of the
Company for any reason other than death or removal by the Board of Directors or
the stockholders, the director's Stock Options granted on or after December 17,
1998 shall continue to vest as provided in Section 4.4 (d) above and the right
of the Optionee to exercise such Stock Options shall continue until the options
expire in accordance with Section 4.4(d). In no event may a Stock Option be
exercised after the expiration of the period specified in Section 4.4(d). In the
event of death of a director or former director who holds an outstanding Stock
Option, the right of his or her estate or beneficiary to vesting and exercise of
the Stock Option shall terminate upon the expiration of twelve months from the
date of death, but in no event may a Stock Option be exercised after the
expiration of the Option Period. In the event of removal of a director from the
Board of Directors, all rights of such director in a Stock Option that the
director was entitled to exercise on the date of removal shall terminate on the
30th day (or, if such day is not a business day, on the next business day) after
the date of removal, but in no event may such Stock Options be exercised after
the expiration of the Option Period.
<PAGE> 6
ARTICLE V. MISCELLANEOUS
5.1. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. The number and kind of shares
available for issuance under the Plan, and the number and kind of shares subject
to, and the exercise price of, outstanding Stock Options, shall be appropriately
adjusted to prevent dilution or enlargement of rights by reason of any stock
dividend, stock split, combination or exchange of shares, recapitalization,
merger, consolidation or other change in capitalization with a similar
substantive effect upon the Plan or the shares issuable under the Plan.
5.2. AMENDMENT AND TERMINATION. The Board shall have complete power and
authority to amend the Plan at any time; provided, however, that the Board shall
not, without the affirmative approval of the shareholders of the Company,
increase the number of shares of Common Stock available for issuance hereunder
or make any other amendment which requires shareholder approval under Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended, unless the
Board determines that such compliance is no longer desired, or under any
applicable law. The Board shall have the right and the power to terminate the
Plan at any time. No amendment or termination of the Plan may, without the
consent of the Non-Employee Director, adversely affect the right of such
Non-Employee Director with respect to any Stock Options then outstanding.
5.3. REQUIREMENTS OF LAW. The issuance of Common Stock under the Plan shall be
subject to all applicable laws, rules and regulations and to such approval by
governmental agencies as may be required.
5.4. NO GUARANTEE OF MEMBERSHIP. Nothing in the Plan shall confer upon a
Non-Employee Director any right to continue to serve as a Director.
5.5 CONSTRUCTION. Words of any gender used in the Plan shall be construed to
include any other gender, unless the context requires otherwise.
<PAGE> 1
Exhibit 10.8
ALLEGHENY TELEDYNE INCORPORATED
BENEFIT RESTORATION PLAN
PURPOSE
The purpose of the Allegheny Teledyne Incorporated Benefit Restoration
Plan is to provide certain corporate employees of Allegheny Teledyne
Incorporated ("Allegheny Teledyne") and salaried employees of its wholly owned
subsidiary, Allegheny Ludlum Corporation ("Allegheny Ludlum"), who participate
in the RSP (as defined below), with benefits and retirement income equal to that
which they would have received (i) but for the limitations imposed on plans
which are qualified within the meaning of Section 401(a) of the Internal Revenue
Code of 1986, as amended, by Sections 401(a)(17), 401(k), 401(m), 402(g) or 415
of the Code, and (ii) but for participation in the Allegheny Teledyne
Incorporated Executive Deferred Compensation Plan, by supplementing, on an
unfunded basis, amounts payable under such qualified plans with amounts paid
under this Plan.
Allegheny Ludlum sponsored this Benefit Restoration Plan for several
years with regard to its defined benefit plan and such arrangements are set
forth herein as the Defined Benefit Portion. However, in 1989, due to changes in
Allegheny Ludlum's benefit focus and, in light of the effects of then recent
federal legislation, Allegheny Ludlum amended this Plan by adding the Defined
Contribution Portion effective January 1, 1989.
In connection with the business combination between the Allegheny
Ludlum and Teledyne, Inc. ("Teledyne") to form Allegheny Teledyne, certain
employees of Allegheny Ludlum and Teledyne were transferred to a payroll of
Allegheny Teledyne to perform various management and corporate staff functions.
All former employees of Teledyne who transferred to Allegheny Teledyne's payroll
began to participate in the RSP and former Teledyne employees
<PAGE> 2
ceased to accrue benefits under any defined benefit plan. Such transferred
employees were made participants in this Plan effective upon the business
combination.
In addition, effective January 1, 1999, employees covered by this Plan
were included in a group of employees permitted to participate in the Executive
Deferred Compensation Plan under which eligible employees may defer all or any
portion (subject to certain income and payroll tax limitations) of their
compensation. Accordingly, effective January 1, 1999, this Plan was amended to
restore to employees making deferrals under the Executive Deferred Compensation
Plan amounts lost and/or foregone as RSP contributions.
ARTICLE I. DEFINITIONS
1.01 "Administrator" shall mean the person or committee appointed by
the Board for such purpose under Article VI.
1.02 "ALPS" shall mean the Allegheny Ludlum Planned Savings Plan and,
except as otherwise noted to the contrary, the S and S Plan (in each case
predecessor plans to the RSP) as in effect prior to the merger of the ALPS and
the Allegheny Ludlum Corporation Retirement Security Plan.
1.03 "Code" shall mean the Internal Revenue Code of 1986, as the same
shall be amended from time to time.
1.04 "Corporation" shall mean Allegheny Teledyne Incorporated.
1.05 "DCP" shall mean the Allegheny Teledyne Executive Deferred
Compensation Plan.
1.06 "Defined Contribution Portion" shall mean that portion of this
Plan which
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<PAGE> 3
relates to the restoration of aggregate benefits under the RSP or, for events
prior to the merger of the ALPS and RSP, ALPS or an S and S Plan.
1.07 "Employee" shall mean any employee of the Corporation and
employees of Allegheny Ludlum and employees of Teledyne assigned to the
corporate offices of Allegheny Teledyne.
1.08 "Limitations" shall mean any limitation, with respect to a
qualified plan, within the meaning of Section 401(a) of the Code, on the amount
of contributions or the accrual or payment of benefits to or on behalf of a
Participant as imposed under Section 401(a)(17), Section 401(k), Section 401(m),
Section 402(g), Section 415 and/or under any other Section of the Code
hereinafter adopted which shall be the successor of any of them or have the
effect of any of them.
1.09 "Matching Contributions" shall mean the contributions made by the
Corporation under the Savings Portion (or its predecessor, ALPS) based on a
percentage of deferrals made by a Participant.
1.10 "Participant" shall mean any Employee who meets the conditions for
participation set forth in Article III.
1.11 "Pension Plan" shall mean the Allegheny Ludlum Corporation
Salaried Pension Plan and, from and after December 31, 1996, that portion of the
Allegheny Teledyne Incorporated Pension Plan commonly referred to as the
Allegheny Ludlum Corporation Salaried Pension Plan.
1.12 "Plan" shall mean this Allegheny Teledyne Incorporated Benefit
Restoration Plan, formerly known as the Allegheny Ludlum Corporation Benefit
Restoration Plan.
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<PAGE> 4
1.13 "Plans" shall mean, collectively, the applicable of ALPS, an S and
S Plan, the Pension Plan or the RSP.
1.14 "RSP" shall mean the Allegheny Teledyne Incorporated Retirement
Savings Plan (including in such reference the Retirement Portion and the Savings
Portion).
1.15 "Retirement Portion" shall mean the portion of the RSP under which
the Corporation (or an affiliate which employs an Employee) makes contributions
to the Account of a Participant determined by multiplying the amount of
compensation earned by the rate of corporate contributions then in effect and,
for events prior to the merger of the ALPS and the Allegheny Ludlum Retirement
Savings Plan, the Allegheny Ludlum Retirement Security Plan.
1.16 "S and S Plan" shall mean the applicable, if any, of the Savings
and Security Plan of the Special Materials Division or of the Tubular Products
Division.
1.17 "Savings Portion" shall mean the portion of the RSP under which a
Participant may defer compensation and the Corporation (or an affiliate which
employs the Employee) makes contributions based on a percentage of the amount
deferred by the Participant, and for events prior to the merger of the ALPS and
the Allegheny Ludlum Corporation Retirement Security Plan, the ALPS.
ARTICLE II. EFFECTIVE DATE
The Effective Date of this Plan with respect to the Defined Benefit
Portion is January 1, 1986 and with respect to the Defined Contribution Portion
(i) as it relates to the RSP and/or to the Savings and Security Plan of the
Tubular Products Division, is January 1, 1989; (ii) as it relates to all other
plans of Allegheny Ludlum, is January 1, 1990; (iii) with regard to
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<PAGE> 5
corporate employees of Allegheny Teledyne, is August 15, 1996; and (iv) with
regard to deferrals under the Allegheny Teledyne Incorporated Executive Deferred
Compensation Plan, is January 1, 1999.
ARTICLE III. PARTICIPATION
3.01 Group Eligible to Participate. Prior to January 1, 1998,
participation was limited to that group of highly compensated Employees who were
eligible to participate and were designated as participants in the Allegheny
Ludlum Corporation Additional Compensation Plan (or a successor plan as in
effect from time to time). Since January 1, 1998, participation is limited to
that group of highly compensated Employees eligible to participate in the
Allegheny Teledyne Annual Incentive Program (or a successor plan as in effect
from time to time).
3.02 Contributions by Participants. Participants shall not be permitted
to make contributions in any form to this Plan.
ARTICLE IV. DEFINED BENEFIT PORTION
4.01 Restoration of Pension Plan Benefits. In respect of each
Participant who participates or participated in the Pension Plan, the
Corporation agrees to pay to the Participant, without requirement for
Participant contribution upon his retirement, a retirement benefit equal to the
difference between (a) and (b):
(a) the maximum life annuity to which the participant would be entitled
under the Pension Plan upon his or her retirement without regard to
the Limitations; less
(b) the life annuity which is actually paid to the participant under
the Pension Plan after giving effect to the Limitations.
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<PAGE> 6
4.02 Elections and Calculations. Any election made by a Participant
pursuant to the Pension Plan relating to his benefit thereunder shall be deemed
an election hereunder and the Participant shall be deemed to have made the same
election hereunder without requirement of additional elections. All calculations
pursuant to the Defined Benefit Portion shall be consistent with those used in
determining benefits under the Pension Plan, including, but not limited to,
calculation of actuarial equivalents for optional forms of benefits and
reductions for early payment.
4.03 Reports. The Corporation may, but shall not be required to, send
reports from time to time to each Participant regarding the amounts to which he
is entitled under this Plan.
4.04 Payment of Restored Defined Benefit Portion Benefits. When a
Participant retires within the meaning of the Pension Plan or dies, the
Corporation shall pay to the Participant or his or her beneficiary, as the case
may be, the amounts determined under this Article IV in the same manner, at the
same times and frequencies and subject to the same terms and conditions (except
as set forth herein) which the Participant's benefits are paid under the Pension
Plan.
4.05 Special Calculation of Grandfathered Amount under Pension Plan. In
calculating the amount restored under the Defined Benefit Portion for a
Participant who meets the grandfather provisions under the Pension Plan as of
December 31, 1988, the Administrator of the Plan shall calculate the amount set
forth in Section 4.01(a) using the formula in effect at any time on or after
January 1, 1986 which produces the greatest benefit without regard to any
Limitations.
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<PAGE> 7
ARTICLE V. DEFINED CONTRIBUTION PORTION
5.01 Restoration of Savings Portion. The applicable, if any, of the
following amounts shall be credited to a Participant's Defined Contribution
Portion in addition to amounts under Section 5.02:
(a) Restoration of Deferrals for Effect of Limitations. For each
calendar year beginning on or after January 1, 1990, in the event a
Participant is deferring or contributing the maximum amount then
permitted under the Limitations and such contributed amount is less
than the amount which could be deferred or contributed by the
Participant as Basic Savings under the Savings Portion without
regard to the Limitations, the Participant's Defined Contribution
Portion shall be credited with an amount equal to the difference
between (i) the amount which would have been contributed as a
Corporation matching contribution under the Savings Portion of the
RSP if the Participant was permitted to contribute 100% of Basic
Savings without regard to the Limitations and (ii) the amount
actually contributed on the Participant's behalf as matching
contributions under ALPS or the Savings Portion of the RSP.
(b) Restoration of Matching Contributions for Participation in the DCP.
For each calendar year beginning on or after January 1, 1999, a
Participant's Defined Contribution Portion shall be credited with
an amount equal to the amount of Matching Contributions the
Participant would have received under the Savings Portion if his or
her deferrals, if any, under the DCP were
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<PAGE> 8
compensation for purposes of the Savings Portion and the
Participant was permitted to contribute 100% of Basic Savings with
respect to deferrals under the DCP without regard to the
Limitations.
5.02 Restoration of Retirement Portion of the RSP. The applicable, if
any, of the following amounts shall be credited to a Participant's Defined
Contribution Portion in addition to amounts under Section 5.01:
(a) Restoration of Corporate Contributions for Effect of the
Limitations. For each calendar year beginning on or after January
1, 1989, a Participant's Defined Contribution Portion shall be
credited with the amount equal to the difference, if any, between
(i) the amount which would have been allocated to his or her
account under the Retirement Portion (at the rate of corporate
contributions to the Retirement Portion then in effect) without
regard to the Limitations and (ii) the amount actually allocated to
his or her Account under the Retirement Portion.
(b) Restoration of Corporate Contributions for Deferrals under the DCP.
For each calendar year beginning on or after January 1, 1999, a
Participant's Defined Contribution Portion shall be credited with
an amount equal to the difference, if any, between (i) the amount
which would have been allocated to his or her Account under the
Retirement Portion (at the rate of corporate contributions to the
Retirement Portion then in effect) if the Participant's deferrals
under the DCP, if any, were compensation for purposes of the
Retirement Portion and (ii) the amount actually allocated to his or
her Account under the Retirement
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<PAGE> 9
Portion, provided, however, compensation amounts taken into account
under Section 5.02(a) shall not be taken into account a second time
under this Section 5.02(b).
5.03 Earnings. Balances in Participant's Defined Contribution Portion
shall be credited with earnings as of the last day of each calendar year at the
rate then in effect under the Fixed Income Fund under the RSP.
5.04 Accounting. The Administrator shall establish on its records, for
bookkeeping purposes, an account for each Participant receiving credits under
this Deferred Contribution Portion to record the amount credited as
contributions under Section 5.01 and/or 5.02 and earnings, if any, pursuant to
Section 5.03. The Administrator shall post any contributions to such bookkeeping
account within thirty (30) days of the date a contribution would have been made
to the appropriate of the Plans under this Article V. The Administrator shall
respond to any inquiry of any Participant concerning the status of his or her
account within thirty (30) days of receipt thereof.
5.05 No Withdrawals or Loans. No withdrawals of or loans against any
balance under the Plan may be made at any time by a Participant.
5.06 Payment of Restored Defined Contribution Portion Benefit.
(a) Death. In the event of a Participant's death, the then balance in
his or her Defined Contribution Portion (including any corporate
contributions for such calendar year pursuant to Section 5.01
and/or Section 5.02, whether or not then actually made, net of
withholding of applicable federal, state and local taxes) shall be
distributed in a single cash payment to his or her beneficiary
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<PAGE> 10
designated pursuant to the ALPS Plan or RSP, as applicable, as soon
as administratively feasible after the Administrator receives
notice of such death.
(b) Disability, Retirement or Other Severance from Service. In the
event of the Participant's Disability, Retirement or other
severance from service, the then balance in his or her Defined
Contribution Portion (including corporate contributions for such
calendar year pursuant to Section 5.01 and/or Section 5.02, whether
or not then actually made, net of withholding or applicable
federal, state and local income tax) shall be distributed in a
single cash payment to him as soon as administratively feasible
after the Administrator receives notice of such event; provided,
however, with the consent of the Administrator, the Participant may
elect to receive such amount at a later time and/or in a different
form of payment.
ARTICLE VI. ADMINISTRATION
6.01 Administration. The Plan shall be administered by the
Administrator appointed for such purpose by the Board who shall have the power
and duty to interpret the Plan and to make such rules and regulations as the
Administrator, in its discretion, shall deem appropriate. The Administrator may
retain such experts, consultants, or advisors as it, in its discretion deems
necessary or appropriate to the administration of the Plan and/or may delegate
to Allegheny Teledyne or to employees of Allegheny Teledyne such duties as it
may deem necessary or appropriate. Any determination of the Administrator shall
be final, conclusive and binding for all parties.
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ARTICLE VII. AMENDMENT AND TERMINATION
The Corporation shall have the right to amend or terminate this Plan at
any time; provided that no amendment shall be made which would have the effect
of decreasing the amount payable to any Participants hereunder.
ARTICLE VIII. ASSIGNMENT
No benefit or other right under or created by this Plan shall be
assignable by any Participant or the Participant's beneficiary by pledge or
otherwise. Any attempt to assign, pledge or otherwise dispose of or anticipate
benefits under this Plan shall be void.
ARTICLE IX. BENEFITS UNFUNDED
The benefits provided under this Plan shall be unfunded. All payments
of benefits hereunder shall be made by the Corporation from general assets and
the Corporation will not be obligated to establish any special or separate fund
or make other segregation of assets to assure the payment of any benefits
hereunder. In the event the Corporation establishes any fund or segregation, no
party who is or becomes entitled to receive amounts hereunder shall have any
right to assert any claim, levy or lien thereon or assert any right thereto
unless such right is specifically set forth in writing. The rights of any party
to receive payments of any benefits hereunder shall be no greater than the
rights of an unsecured creditor of the Corporation.
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ARTICLE X. MISCELLANEOUS
10.01 Applicable Law. This Plan shall be governed by, and construed in
accordance with, the law of the Commonwealth of Pennsylvania, except with regard
to its principles of conflicts of laws or to the extent that the law of the
Commonwealth of Pennsylvania shall have been specifically preempted by federal
law.
10.02 Incapacity of Recipient of Benefits. If any person entitled to
receive benefits hereunder shall be physically or mentally incapable of
receiving or acknowledging receipt of any payment of benefits, the Corporation,
upon the receipt of satisfactory evidence that such incapacitated person is so
incapacitated and that another person or institution is maintaining him or her
and that no guardian or committee has been appointed for him or her, may provide
for such payment of benefits hereunder to such person or institution maintaining
him or her, and such payments so made shall be deemed for every purpose to have
been made to such incapacitated person.
10.03 Liability of Officers and Directors of the Corporation. No past,
present or future officer or director of the Corporation shall be personally
liable to any Participant, beneficiary or other person under any provision of
this Plan.
10.04 Assets Owned by the Corporation. Nothing contained herein shall
be deemed to give any Participant or his or her beneficiary any interest in any
specific property of the Corporation or any right except to receive such
distributions as are expressly provided for in this Plan.
10.05 Withholding. The payment of any benefits under this Plan shall be
net of any federal, state and local taxes which the Corporation is required to
withhold.
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10.06 Meaning of Certain Words. As used herein any gender shall include
all other genders and the singular shall include the plural and the plural shall
include the singular in all cases where such meaning would be appropriate. The
terms "herein", "hereto", "hereunder", and the like shall be deemed to refer to
this Plan as a whole and not to any particular paragraph or other subdivision of
this Plan.
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Exhibit 10.21
ALLEGHENY TELEDYNE INCORPORATED
EXECUTIVE DEFERRED COMPENSATION PLAN
as amended and restated as of July 9, 1998 and
further amended and restated as of December 31, 1998
<PAGE> 2
1 Purpose. The Allegheny Teledyne Incorporated Executive Deferred
Compensation Plan, formerly known as the Teledyne, Inc. Executive Deferred
Compensation Plan, is an unfunded plan maintained for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
2 Definitions.
2.1 "Account" shall mean the bookkeeping account maintained by the
Committee for each Participant that is credited with (1) the portion of the
Participant's Salary that he elects to defer, (2) the portion of the
Participant's Bonus that he elects to defer, (3) portions of the Participant's
account balance under the Prior Plan and (4) earnings on such amounts.
2.2 "Beneficiary" shall mean the Participant's spouse or, if the
Participant has no spouse or the spouse consents in writing in the presence of a
notary public, the person or persons, trustee, or other legal entity or entities
last designated by the Participant on a form approved by the Director of Human
Resources to receive the benefits specified hereunder in the event of the
Participant's death. If the Participant has not designated a beneficiary or if
no person designated as a beneficiary survives the Participant, the payment of
the Participant's benefits under this Plan following his death shall be made (a)
to the Participant's spouse, if living, (b) if his spouse is not then living, to
his then living issue by right of representation, (c) if neither his spouse nor
his issue are then living, to his then living parents, or (d) if none of the
above are then living, to his estate. Notwithstanding the foregoing, the
Beneficiary of an Insurable Participant under the Plan must be the same as the
beneficiary designated with respect to the benefit provided under Article 8
hereof if the Insurable Participant dies prior to his Payment Eligibility Date.
2.3 "Bonus" shall mean the award or awards payable under the Allegheny
Teledyne Incorporated management bonus program (or the comparable annual
incentive plan of a subsidiary, if applicable, and any predecessor or successor
program).
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Committee" shall mean the administrative committee appointed
pursuant to Section 9.1 of the Plan.
2.6 "Company" shall mean Allegheny Teledyne Incorporated, a Delaware
corporation, and any corporation which is a subsidiary of the corporation
(within the meaning of Code Section 424(f)) of Allegheny Teledyne Incorporated,
unless the context requires otherwise.
2.7 "Compensation" shall mean the Salary and Bonus paid by the Company
to a Participant.
<PAGE> 3
2.8 "Director of Human Resources" shall mean the Director, Human
Resources Administration, Pensions, and Benefits of Allegheny Teledyne
Incorporated located at 1000 Six PPG Place, Pittsburgh, Pennsylvania 15222-5479
or such other person as the Committee may from time to time designate.
2.9 "Effective Date" shall mean September 1, 1994.
2.10 "Eligible Employee" shall mean:
2.10.1 For a Plan Year other than the Plan Years described in
Sections 2.10.2, 2.10.3 and 2.10.4, each employee of the Company who:
(a) as of December 1 of the preceding Plan Year holds the title of
president of an operating company; or (b) received Compensation during
the preceding Plan Year at least equal to $100,000.
2.10.2 For the first Plan Year of the Plan, each employee of
the Company who: (a) as of the Effective Date holds the title of
president of an operating company; or (b) for employees of Teledyne,
Inc. who were participants in the Plan prior to July 9, 1998, received
or is expected to receive Compensation during the applicable calendar
year at least equal to the amount specified in Section 4.14(q)(1)(B) of
the Code, as such amount is adjusted for such calendar year by the
Secretary of the Treasury for increases in the cost of living.
2.10.3 For the first Plan Year in which employees of Allegheny
Teledyne Incorporated and Allegheny Ludlum Corporation may participate
in the Plan, each employee of the Company who: (a) as of July 9, 1998
holds the title of president of an operating company; or (b) received
or is expected to receive Compensation during calendar year 1998 at
least equal to the amount specified in Section 4.14(q)(1)(B) of the
Code, as such amount is adjusted for such calendar year by the
Secretary of the Treasury for increases in the cost of living.
2.10.4 For any Plan Year beginning after December 1, 1998
which includes an employee's date of hire, each employee of the Company
who: (a) as of the employee's date of hire holds the title of president
of an operating company; or (b) receives Compensation during such Plan
Year at least equal to $100,000. For purposes of this Section 2.10.4
only, Compensation shall include Salary that would be paid if the
employee's Salary were paid for the full Plan Year and shall include a
Bonus, if any, that would be paid at 100% of the target bonus amount
for performance during said Plan Year.
2.11 "Fund" or "Funds" shall mean one or more of the mutual funds,
investment portfolios or contracts selected by the Committee pursuant to Section
4.2.2.
2.12 "Initial Election Period" shall mean the first thirty days of the
first Plan Year during which an employee of the Company is an Eligible Employee
or, in the case of an employee who is an Eligible Employee on his date of hire
after the Effective Date, the first thirty
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<PAGE> 4
days after such date of hire; provided, however, that the Initial Election
Period for employees of Allegheny Teledyne Incorporated and Allegheny Ludlum
Corporation shall mean the period from July 9, 1998 through July 31, 1998,
unless the Committee shall determine to extend such Initial Election Period to a
date no later than August 30, 1998.
2.13 "Insurable Participant" shall mean a Participant who satisfies
underwriting standards for the issuance of life insurance determined by the
insurance company selected by the Company to provide the pre-distribution death
benefit described in Article 8.
2.14 "Interest Rate" shall mean, for each Fund, an amount equal to the
net rate, expressed as a percent, of gain or loss on the assets of such Fund
during a month, reduced for calendar years beginning before December 31, 1998,
with respect to Funds selected by Insurable Participants, by .0833 percent. If a
Participant satisfied the definition of an Insurable Participant (as set forth
in Section 2.13) prior to December 31, 1998 at the time he becomes a
Participant, but fails to satisfy such definition thereafter, the .0833 percent
reduction described in the preceding sentence shall apply only to that portion
of the net rate of gain or loss credited to the Participant's Account as:
(1) the Participant's Account balance on the last of the
month in which such failure occurs bears to
(2) the Participant's Account balance on the last day of
the month preceding the month for which such gain or
loss is allocated.
Effective January 1, 1999, the Interest Rate shall be, for
each Fund, the net rate, expressed as a percent, of gain or loss on the assets
of such Fund for the applicable period.
2.15 "Participant" shall mean any Eligible Employee who, prior to the
Effective Date, has not announced his intention to retire and who (a) elects to
defer Compensation in accordance with Section 4.1, or (b) has an account balance
under the Prior Plan.
2.16 "Payment Eligibility Date" shall mean the earlier of (i) the date
selected by an Eligible Employee on his or her Distribution Election form, but
no such date shall be before the end of the Plan Year which is three calendar
years after the end of the Plan Year for which such election is made or (ii) the
first day of the month following the end of the calendar quarter in which a
Participant terminates employment or dies. Beginning with the Plan Year
commencing January 1, 1999, a Participant may have multiple Payment Eligibility
Dates attributed to deferral elections for distinct Plan Years. For deferral
elections made for Plan Years prior to the Plan Year commencing January 1, 1999,
there shall be only one Payment Eligibility Date for all such deferrals, which
shall be the date set forth in clause (ii) above. A Participant receiving
benefits under the Company's short-term disability plan or on an approved leave
of absence shall not be deemed to have terminated employment for purposes of the
Plan.
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<PAGE> 5
2.17 "Plan" shall mean the Allegheny Teledyne Incorporated Executive
Deferred Compensation Plan as set forth herein, or as amended from time to time.
The Plan was formerly known as the Teledyne, Inc. Executive Deferred
Compensation Plan.
2.18 "Plan Year" shall mean the calendar year, except that the initial
Plan Year shall be the period from the Effective Date through December 31, 1994
for employees of Teledyne, Inc. and its subsidiaries and the initial Plan Year
shall be the period from August 1, 1998 through December 31, 1998 for employees
of Allegheny Teledyne Incorporated and Allegheny Ludlum Corporation.
2.19 "Plan Year Account" has the meaning set forth in Section 5.
2.20 "Pre-1999 Account" has the meaning set forth in Section 5.
2.21 "Prior Plan" shall mean the nonqualified plan or arrangement
maintained by the Company for deferral of bonuses prior to the Effective Date.
2.22 "Retirement" shall mean the date as of which a Participant
commences to receive a benefit under a pension plan maintained by the Company,
the date as of which a Participant commences to receive disability benefits
under the Company's long-term disability plan or, in the case of a Participant
who is not entitled to benefits under the Company's long-term disability plan,
the date the Committee determines is the first date the Participant satisfies
the definition of disability set forth in that plan.
2.23 "Salary" shall mean the base rate of pay that an employee is
entitled to receive for services rendered to the Company.
3 Participation. An Eligible Employee who, prior to the Effective Date,
has not announced his intention to retire shall become a Participant in the Plan
on (a) the first day of the first pay period for which he elects to defer a
portion of his Compensation in accordance with Section 4.1, or (b) the Effective
Date if he has an account balance under the Prior Plan.
4 Deferral Elections.
4.1 Elections to Defer Compensation.
4.1.1 For Plan Years Beginning on or After January 1, 1999. An
Eligible Employee may elect to defer, in increments of 1% and subject to the
limitation set forth herein, a portion of his or her Salary and, separately, a
portion of his or her Bonus for the calendar year following the calendar year in
which a written election, on a form approved by the Director of Human Resources,
to defer Salary and/or Bonus is delivered to the Director of Human Resources.
Each election to defer Salary and/or Bonus shall be effective for only the next
succeeding calendar year and shall expire on the last day of the calendar year
next following its delivery. No election may be for less than 5% of the Salary
or Bonus payment, respectively, and no election shall exceed an amount which
would prevent the Eligible Employee from making
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<PAGE> 6
required or elected contributions under employee benefit plans or to have
required federal, state and local income or payroll tax payments made or such
other amounts as determined appropriate by the Committee. An election to defer
Salary or Bonus with respect to services rendered during a calendar year must be
filed with the Director of Human Resources on or before December 31 of the
preceding calendar year.
4.1.2 For Plan Years Ending before January 1, 1999.
4.1.2.1 General Rule. An Eligible Employee may elect to defer
up to 50 percent of his Salary and up to 100 percent of his Bonus; provided,
however, that the amount of Salary and/or Bonus not paid to the Eligible
Employee during any Plan Year because of such election must be at least equal to
five percent of the Eligible Employee's anticipated Salary for that Plan Year;
and provided, further, that the amount of a Participant's Salary and/or Bonus
which may be deferred for a Plan Year shall not reduce the Participant's Salary
and/or Bonus (after taking into account such deferrals) below the amount
necessary to satisfy any employment or income tax withholding requirements which
may be applicable with respect to the Participant.
4.1.2.1(a) Committee Discretion. Notwithstanding Section
4.1.2.1 and in addition to any other power or discretion granted to the
Committee, the Committee may, in its sole discretion and on a case-by-case
basis, permit one or more Eligible Employees to elect to defer more than 50% of
his or her Salary. In the event that the Committee permits one or more Eligible
Employees to defer more than 50% of his or her Salary, the amount permitted to
be deferred shall not exceed the amount necessary to permit the Eligible
Employee to make contributions, as elected by or required of the Eligible
Employee, under employee benefit plans, and to have withheld applicable federal,
state and local income or payroll tax and such other amounts as determined
appropriate by the Committee.
4.1.2.2 Initial Election Period. Each Eligible Employee may
elect to defer Compensation by filing with the Director of Human Resources an
election, on a form provided by the Committee, no later than the last day of his
or her Initial Election Period. An election to defer Compensation during the
Initial Election Period shall be effective with respect to the Participant's
Salary earned during the first pay period beginning after the election and with
respect to the portion of the Participant's Bonus attributable to the portion of
the calendar year following the election.
4.1.2.3 Elections other than Elections during the Initial
Election Period. Subject to the limitations of Section 4.1.2.1 above, any
Eligible Employee who fails to elect to defer Compensation during his or her
Initial Election Period may subsequently elect to defer Compensation, and any
Eligible Employee who has terminated a prior Salary deferral election may elect
to again defer Salary, by filing with the Director of Human Resources an
election, on a form provided by the Committee, to defer Compensation as
described in Section 4.1.2.1 above. An election to defer Salary payable during a
calendar year must be filed with the Director of Human Resources on or before
December 1 of the preceding calendar year. An election to defer Bonus payable
with respect to services rendered during a calendar year must be filed with the
Director of Human Resources on or before December 1 of the preceding calendar
year.
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<PAGE> 7
4.1.2.4 Duration of Salary Deferral Election. Any Salary
deferral election made under Section 4.1.2.2 or Section 4.1.2.3 shall remain in
effect, notwithstanding any change in the Participant's Salary, until changed or
terminated in accordance with the terms of this Section 4.1.2.4; provided,
however, that such election shall terminate for any Plan Year for which the
Participant is not an Eligible Employee. A Participant may increase, decrease or
terminate his or her Salary deferral election with respect to Salary earned
during a calendar year by filing a new election, in accordance with the terms of
this Section 4.1, with the Director of Human Resources on or before December 1
of the preceding calendar year.
4.1.2.5 Duration of Bonus Deferral Election. Any Bonus
deferral election made under Section 4.1.2.2 or Section 4.1.2.3 shall be
irrevocable and shall apply only to the Bonus payable with respect to services
performed during the calendar year for which the election is made. For each
subsequent calendar year, an Eligible Employee must make a new election, subject
to the limitations set forth in this Section 4.1, to defer a percentage of his
or her Bonus. Such election shall be on forms provided by the Committee and
shall be filed with the Director of Human Resources on or before December 1 of
the calendar year preceding the calendar year in which the services that are to
result in the Bonus are performed.
4.1.2.6 Extension of Election Deadline. Notwithstanding the
foregoing provisions of this Section 4.1, the Committee may extend the deadline
for filing elections set forth in Sections 4.1.2.3, 4.1.2.4 and 4.1.2.5 from
December 1 of a particular calendar year as the Committee shall determine. The
Committee shall give notice of such extension to all Eligible Employees.
4.2 Investment Elections.
4.2.1 Investment Options. The Committee shall select from time
to time the types of mutual funds, investment portfolios or contracts in which
Participants' Accounts shall be deemed to be invested. At the time an Eligible
Employee first becomes a Participant, the Participant shall file with the
Director of Human Resources a form provided by the Committee designating which
of such types of mutual funds, investment portfolios or contracts the
Participant's Account shall be deemed to be invested in for purposes of
determining the amount of earnings to be credited to such Account. In making the
designation pursuant to this Section 4.2.1, the Participant may specify that all
or any portion of his Account, designated in whole percentages, be deemed to be
invested in one or more of the types of mutual funds, investment portfolios or
contracts selected by the Committee. A Participant may change monthly the
designation made under this Section 4.2.1 by filing with the Director of Human
Resources an election, on a form approved by the Director of Human Resources, at
any time during a month, with such change to be effective as of the first day of
the month immediately succeeding the date on which such form is filed. If a
Participant fails to elect a type of fund under this Section 4.2.1, any prior
election shall remain in effect or, if there is no prior election of types of
funds, he shall be deemed to have elected the fund, portfolio or contract
designated by the Committee as the default fund. If a Participant who receives
allocations to his Account only pursuant to Sections
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<PAGE> 8
5.3 and 5.4 fails to elect a type of fund under this Section 4.2.1, he shall be
deemed to have elected the fund, portfolio or contract designated by the
Committee as the default fund.
4.2.2 Committee Selection of Funds. Although the Participant
may designate the type of mutual funds, investment portfolios or contracts
pursuant to Section 4.2.1, the Committee shall select from time to time, in its
sole discretion, a commercially available fund, portfolio or contract of each of
the types selected pursuant to Section 4.2.1 to be the Funds. The Interest Rate
of each such Fund shall be used to determine the amount of investment return
(gains or losses) to be credited to Participants' Accounts under Section 5.4.
5 Participant Accounts. The Committee shall establish and maintain an
Account for each Participant under the Plan. Beginning with the Plan Year
commencing January 1, 1999, each Participant's Account shall be further divided
into a separate subaccount for Compensation deferred in Plan Years ending prior
to January 1, 1999 (a "Pre-1999 Account") and separate subaccounts for
Compensation deferred in each Plan Year beginning on or after January 1, 1999
(each a "Plan Year Account"). Each Participant's Account shall be further
divided into separate subaccounts ("subaccounts"), each of which corresponds to
a mutual fund, investment portfolio or contract elected by the Participant in
accordance with Section 4.2. A Participant's Account shall be credited as
follows:
5.1 Salary Credits. As of the last day of each month, the Committee
shall credit the subaccounts of the Participant's Account with an amount equal
to Salary deferred by the Participant during each pay period ending in that
month in accordance with the Participant's election under Section 4.2; that is,
the portion of the Participant's deferred Salary that the Participant has
elected to be deemed to be invested in a certain type of Fund shall be credited
to the subaccount corresponding to that Fund.
5.2 Bonus Credits. As of the last day of the month in which the Bonus
is payable, the Committee shall credit the subaccounts of the Participant's
Account with an amount equal to the portion of the Bonus deferred by the
Participant in accordance with the Participant's election under Section 4.2;
that is, the portion of the Participant's deferred Bonus that the Participant
has elected to be deemed to be invested in a particular type of Fund shall be
credited to the subaccount corresponding to that Fund.
5.3 Prior Plan Credits. As of the Effective Date, the Committee shall
credit the subaccounts of the Participant's Account with an amount equal to 25
percent of the Participant's account balance under the Prior Plan as of the
Effective Date. As of September 1 of each of the following years, the Committee
shall credit the subaccounts of the Participant's Account with an amount equal
to the percentage set forth below of the Participant's account balance under the
Prior Plan as of such date:
1995 33-1/3
1996 50
1997 100
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Notwithstanding the foregoing, as of a Participant's Payment Eligibility Date
prior to September 1, 1997, the Committee shall credit the subaccounts of the
Participant's Account with an amount equal to any unpaid balance then remaining
in the Participant's account under the Prior Plan.
5.4 Earnings Credits. As of the last day of each month in which any
amount remains credited to a Participant's Account, each subaccount of a
Participant's Account shall be credited with its investment return (gains or
losses) in an amount equal to that determined by multiplying the balance
credited to such subaccount as of the last day of the preceding month by the
Interest Rate for that month for the corresponding Fund selected by the Company
pursuant to Section 4.2.2.
6 Vesting. A Participant's Account shall be 100 percent vested at all
times.
7 Distributions.
7.1 Amount and Time of Distribution.
7.1.1 Payment as of Payment Eligibility Date. Each Participant
(or, in the case of his death, his Beneficiary) shall be entitled to receive a
distribution of benefits under this Plan as soon as practicable following his
Payment Eligibility Date. The amount payable to a Participant shall be the
amount credited to the Participant's Pre-1999 Account or applicable Plan Year
Account, as the case may be, as of his Payment Eligibility Date.
7.1.2 Payment Prior to Payment Eligibility Date. A Participant
may elect by filing with the Director of Human Resources a form, in a form
approved by the Director of Human Resources, to receive an amount equal to
ninety percent of his aggregate Account balance at any time prior to a Payment
Eligibility Date. If the Participant makes an election described in this Section
7.1.2: the balance of the Participant's Account not distributed to the
Participant shall be forfeited to the Company; the amount to which he is
entitled under this Section 7.1.2 shall be distributed to the Participant in a
single lump sum within thirty days following such election; the Participant
shall be prohibited from participating in the Plan for the balance of the Plan
Year in which this distribution is made and the following Plan Year; and any
elections previously made pursuant to Article 4 of this Plan shall cease to be
effective.
7.2 Form of Distribution.
7.2.1 Distributions of Compensation Deferred in Plan Years
Beginning on or after January 1, 1999.
7.2.1.1 Distributions During Employment. If a Participant's
Payment Eligibility Date occurs prior to the date of his termination of
employment (a "Scheduled In-Service Distribution"), the Participant's applicable
Plan Year Account shall be paid to such Participant in the form of single lump
sum payment.
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7.2.1.2 Post-Termination Distributions. If a Participant's
Payment Eligibility Date occurs on or after the date of his termination of
employment, the Participant's applicable Plan Year Account shall be paid to such
Participant or, in the event of the Participant's death on or after his Payment
Eligibility Date, his Beneficiary in the form of sixty quarterly installments.
Such installment payments shall commence on the Participant's Payment
Eligibility Date or as soon thereafter as is practicable and shall continue on
the first day of each of the 59 calendar quarters thereafter.
7.2.1.3 Election of Optional Form of Distributions.
Notwithstanding the provisions of Section 7.2.1.2, a Participant may elect to
receive distribution of a Plan Year Account balance in a single lump sum, twenty
quarterly installments, or forty quarterly installments provided that at least
one year prior to his Payment Eligibility Date, the Director of Human Resources
receives from the Participant a notice, on a form approved by the Director of
Human Resources, that the Participant elects to receive payment in one of such
optional forms. Any such payment shall be made or commence to be made as of the
Participant's Payment Eligibility Date. Any election made pursuant to this
Section 7.2.1.3 may be revoked by filing notice of such revocation with the
Director of Human Resources on or before the date which is one year prior to the
Participant's Payment Eligibility Date.
7.2.1.4. Change in Scheduled In-Service Distribution Payment
Eligibility Date. Notwithstanding the provisions of Section 7.2.1.1., a
Participant may elect to extend the Participant's Payment Eligibility Date as it
relates to a Scheduled In-Service Distribution of an applicable Plan Year
Account, provided that at least one year prior to the then effective Payment
Eligibility Date for such Scheduled In-Service Distribution the Director of
Human Resources receives from the Participant a notice, on a form approved by
the Director of Human Resources, that the Participant elects to extend the
Participant's Payment Eligibility Date for such Scheduled In-Service
Distribution, the newly elected Payment Eligibility Date with respect to the
Scheduled In-Service Distribution is at least two years after the date the
Director of Human Resources receives the extension notice, and the Participant
does not terminate employment before the newly elected Payment Eligibility Date.
A Participant's Payment Eligibility Date as it relates to a Scheduled In-Service
Distribution of an applicable Plan Year Account may be extended no more than two
times.
7.2.2 Distributions of Compensation Deferred in Plan Years
Ending Prior to January 1, 1999.
7.2.2.1 Pre-Retirement Distributions. If a Participant's
Payment Eligibility Date occurs prior to the date of his Retirement, the
Participant's Pre-1999 Account shall be paid to such Participant in the form of
payment elected by the Participant from among the forms available under Section
7.2.2.3 or, if no election is made on a timely basis, in the form of sixty
quarterly installments. Such installment payments shall commence on the
Participant's Payment Eligibility Date or as soon thereafter as is practicable
and shall continue on the first day of each of the 59 calendar quarters
thereafter.
7.2.2.2 Post-Retirement Distributions. If a Participant's
Payment Eligibility Date occurs on or after the date of his Retirement, the
Participant's Pre-1999 Account shall be paid to
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such Participant or, in the event of the Participant's death on or after his
Payment Eligibility Date, his Beneficiary in the form of sixty quarterly
installments. Such installment payments shall commence on the Participant's
Payment Eligibility Date or as soon thereafter as is practicable and shall
continue on the first day of each of the 59 calendar quarters thereafter.
7.2.2.3 Election of Optional Form of Distributions.
Notwithstanding the provisions of Section 7.2.2.1 and Section 7.2.2.2, a
Participant may elect to receive distribution of his Pre-1999 Account balance in
a single lump sum, twenty quarterly installments or forty quarterly installments
provided that at least one year prior to his Payment Eligibility Date, the
Director of Human Resources receives from the Participant a notice, on a form
approved by the Director of Human Resources, that the Participant elects to
receive payment in one of such optional forms. Any such payment shall be made or
commence to be made as of the Participant's Payment Eligibility Date. Any
election made pursuant to this Section 7.2.2.3 may be revoked by filing notice
of such revocation with the Director of Human Resources on or before the date
which is one year prior to the Participant's Payment Eligibility Date.
7.2.3 Method for Calculating Installments. If a Participant or
Beneficiary receives payment in installments pursuant to Section 7.2.1 or 7.2.2,
the amount of each quarterly installment payable during the Plan Year which
includes the Participant's Payment Eligibility Date shall equal the
Participant's Pre-1999 Account balance or the Participant's applicable Plan Year
Account, as case may be, on the Payment Eligibility Date divided by the total
number of installments the Participant or Beneficiary is scheduled to receive.
The amount of each quarterly installment payable during each succeeding Plan
Year, other than the last Plan Year in which the Participant or Beneficiary
receives installment payments under the Plan, shall equal the Participant's
Pre-1999 Account balance or applicable Plan Year Account balance, as the case
may be, on September 30 of the preceding Plan Year divided by the number of
installments remaining to be paid after the last day of such preceding Plan
Year. The amount of each quarterly installment payable during the last Plan Year
in which the Participant or Beneficiary receives installment payments under the
Plan shall equal the Participant's Pre-1999 Account balance or applicable Plan
Year Account balance, as the case may be, on the last day of the second
preceding calendar quarter divided by the number of installments remaining to be
paid after the last day of the preceding calendar quarter, except that the final
quarterly installment shall be equal to the remaining balance in the
Participant's Pre-1999 Account or applicable Plan Year Account, as the case may
be.
7.2.4 Small Account Balances. Notwithstanding any other
provision of this Section 7.2, if a Participant's aggregate Account balance on a
Payment Eligibility Date is $10,000 or less, such Account balance or such amount
otherwise payable shall be paid in a single lump sum. For calendar years
beginning on or after January 1, 1999, $30,000 shall be substituted for $10,000
in the preceding sentence.
8 Pre-Distribution Death Benefit.
8.1 Amount of Benefit. The Company shall own and maintain one or more
life insurance policies on the life of each Insurable Participant (collectively,
the "Policy") each with a
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death benefit no less than the death benefit payable under this Section 8.1.
Until an employee of the Company (other than a Participant who has already been
determined not to be an Insurable Participant) completes an application for the
Policy, any deferral elections made by the employee pursuant to Article 4 hereof
shall be void. If an Insurable Participant shall die after such his Policy is in
effect and prior to his Payment Eligibility Date, his Beneficiary shall receive
directly from the insurance company issuing the Policy in a single lump sum an
amount equal to the greater of (I) or (II), where
(I) equals the lesser of (a) or (b), where
(a) equals the greater of (i) the amount of insurance coverage in
effect on December 31, 1998 or (ii) $1,000,000, and
(b) equals the greater of (i) ten times the amounts allocated to the
Insurable Participant's Account pursuant to Sections 5.1 and/or 5.2
during the first twelve months in which the Insurable Participant
receives allocations to his Account or (ii) two times the Insurable
Participant's Account balance as of his date of death if the Insurable
Participant has not attained age 56 at the date of death or, if the
Insurable Participant is age 56 or older at death, 1.5 times the
Insurable Participant's Account balance as of his date of death; and
(II) equals the Participant's Account balance as of a relevant time.
8.2 Other Rules.
8.2.1 Reduction of Account Balance. Notwithstanding anything
contained herein to the contrary, any benefits otherwise payable with respect to
an Insurable Participant under this Plan shall be reduced by the value of
benefits received by the Insurable Participant's Beneficiary under the Policy.
8.2.2 Death on or After Payment Eligibility Date. If an
Insurable Participant shall die on or after his Payment Eligibility Date, his
Beneficiary shall receive no benefits under the Policy and any death benefits
thereunder shall be paid to the Company.
8.2.3 Effect of Account Distribution Prior to Payment
Eligibility Date. If an Insurable Participant receives a distribution pursuant
to Section 7.1.2, for purposes of Section 8.1, the first twelve months in which
he receives allocations to his Account shall be deemed to be the first Plan Year
after such distribution in which he receives allocations under Section 5.1 or
5.2 and, for purposes of Section 8.1, the Insurable Participant's Account shall
include only amounts allocated to the Insurable Participant's Account following
such distribution and prior to his date of death.
8.2.4 Death Prior to Eligibility for Pre-Distribution Death
Benefit. If a Participant should die before such Participant's Policy for the
pre-distribution death benefit set forth in Section 8.1 is effective, his
Beneficiary shall receive only the balance in the Participant's Account as of
the Participant's Payment Eligibility Date.
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8.2.5 Failure to Remain Insurable. Notwithstanding the
foregoing provisions of this Article 8, if a Participant satisfies the
definition of an Insurable Participant (as set forth in Section 2.14) at the
time he becomes a Participant, but fails to satisfy such definition thereafter,
the pre-distribution death benefit payable to the Participant's Beneficiary
shall equal the lesser of:
(1) the pre-distribution death benefit determined
under the foregoing provisions of this Article 8; or
(2) the death benefit under the Policy payable to the
Participant's Beneficiary at the time the Participant fails to satisfy the
definition of an Insurable Participant.
9 Administration.
9.1 Committee Action. The Plan shall be administered by the Committee,
consisting of at least three members, appointed by and holding office at the
pleasure of the Personnel and Compensation Committee of the Board of Directors
of the Company. The Committee shall act at meetings by an affirmative vote of a
majority of the members of the Committee. Any action permitted to be taken at a
meeting may be taken without a meeting if a written consent to the action is
signed by all members of the Committee and such written consent is filed with
the minutes of the proceedings of the Committee. A member of the Committee shall
not vote or act upon any matter which relates solely to himself as a
Participant. The Chairman or any other member or members of the Committee
designated by the Chairman may execute any certificate or other written
direction on behalf of the Committee.
9.2 Powers and Duties of the Committee. The Committee, on behalf of the
Participants and their Beneficiaries, shall enforce the Plan in accordance with
its terms, shall be charged with the general administration of the Plan, and
shall have all powers necessary to accomplish its purposes, including, but not
by way of limitation, the following:
9.2.1 To determine all questions relating to the eligibility
of employees to participate;
9.2.2 To construe and interpret the terms and provisions of
this Plan;
9.2.3 To compute and certify to the amount and kind of
benefits payable to Participants and their Beneficiaries;
9.2.4 To maintain all records that may be necessary for the
administration of the Plan;
9.2.5 To provide for the disclosure of all information and the
filing or provision of all reports and statements to Participants, Beneficiaries
or governmental agencies as shall be required by law;
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<PAGE> 14
9.2.6 To make and publish such rules for the regulation of the
Plan and procedures for the administration of the Plan as are not inconsistent
with the terms hereof; and
9.2.7 To appoint a plan administrator or, any other agent, and
to delegate to such person such powers and duties in connection with the
administration of the Plan as the Committee may from time to time prescribe.
9.3 Construction and Interpretation. The Committee shall have full
discretion to construe and interpret the terms and provisions of this Plan,
which interpretation or construction shall be final and binding on all parties,
including but not limited to the Company and any Participant or Beneficiary. The
Committee shall administer such terms and provisions in a uniform and
nondiscriminatory manner and in full accordance with any and all laws applicable
to the Plan.
9.4 Information. To enable the Committee to perform its functions, the
Company shall supply full and timely information to the Committee on all matters
relating to the Compensation of all Participants, their death or other cause of
termination, and such other pertinent facts as the Committee may require.
9.5 Compensation, Expenses and Indemnity.
9.5.1 The members of the Committee shall serve without
compensation for their services hereunder.
9.5.2 The Committee is authorized at the expense of the
Company to employ such legal counsel as it may deem advisable to assist in the
performance of its duties hereunder. Expenses and fees in connection with the
administration of the Plan shall be paid by the Company.
9.5.3 The Company shall indemnify and save harmless the
Committee and each member thereof, the Director of Human Resources, and any
delegate of the Committee who is an employee of the Company against any and all
expenses, liabilities and claims, including legal fees to defend against such
liabilities and claims, arising out of their discharge of responsibilities under
or incident to the Plan, other than expenses and liabilities arising out of
willful misconduct. This indemnity shall not preclude such further indemnities
as may be available under insurance purchased by the Company or provided by the
Company under any bylaw, agreement or otherwise, as such indemnities are
permitted under applicable law.
9.6 Quarterly Statements. Under procedures established by the
Committee, a Participant shall receive quarterly statements with respect to such
Participant's Account.
10 Miscellaneous.
10.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors, and assigns shall have no legal or equitable rights, claims,
or interest in any specific
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<PAGE> 15
property or assets of the Company. No assets of the Company shall be held in any
way as collateral security for the fulfilling of the obligations of the Company
under this Plan. The Company's obligation under the Plan shall be merely that of
an unfunded and unsecured promise of the Company to pay money in the future, and
the rights of the Participants and Beneficiaries shall be no greater than those
of unsecured general creditors. The Plan is intended to be unfunded for tax
purposes and for purposes of Title I of ERISA.
10.2 Restriction Against Assignment. The Company shall pay all amounts
payable hereunder only to the person or persons designated by the Plan and not
to any other person or corporation. No part of a Participant's Account shall be
liable for the debts, contracts, or engagements of any Participant, his
Beneficiary, or successors in interest, nor shall a Participant's Account be
subject to execution by levy, attachment, or garnishment or by any other legal
or equitable proceeding, nor shall any such person have any right to alienate,
anticipate, commute, pledge, encumber, or assign any benefits or payments
hereunder in any manner whatsoever.
10.3 No Right to Continued Employment. Neither an employee's
participation in the Plan, nor his rights to his Account shall confer upon such
employee any right with respect to continuance of employment by or receipt of
Bonuses from the Company, nor shall such items interfere in any way with the
right of the Company to terminate such employee's employment or alter such
employee's Compensation at any time.
10.4 Withholding. There shall be deducted from each payment made under
the Plan or, if such payment is not large enough, from any other funds payable
to the Participant, all taxes which the Company determines are required to be
withheld with respect to such payment under the Plan. The Company shall have the
right to reduce any payment by the amount of cash sufficient to provide the
amount of said taxes.
10.5 Amendment, Modification, Suspension or Termination. The Committee
may at any time amend, modify, suspend or terminate the Plan in whole or in
part, subject to ratification by the Personnel and Compensation Committee of the
Company's Board of Directors, except that no amendment, modification, suspension
or termination shall reduce any amounts then credited to a Participant's
Account. The Company shall provide notice of such action to all Participants and
Beneficiaries of deceased Participants.
10.6 Governing Law. Except to the extent that it is preempted by
federal law, this Plan shall be construed, governed and administered in
accordance with the laws of the State of Delaware.
10.7 Receipt or Release. Any payment to a Participant or the
Participant's Beneficiary in accordance with the provisions of the Plan,
including but not limited to any payment from an insurance company, shall, to
the extent thereof, be in full satisfaction of all claims under the Plan against
the Committee and the Company. Any payment, whether by the Company or an
insurance company, to a Participant or the Participant's Beneficiary of an
amount described in Section 5.3 shall, to the extent thereof, be in full
satisfaction of all claims to such amount which
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<PAGE> 16
the Participant or his Beneficiary or any beneficiary designated in accordance
with the Prior Plan may have against the Company or any other person under the
Prior Plan. The Committee may require such Participant or Beneficiary, as a
condition precedent to such payment, to execute a receipt and release to such
effect.
10.8 Payments on Behalf of Minors. In the event that any amount becomes
payable under the Plan to a minor or a person who, in the sole judgment of the
Committee, is considered by reason of physical or mental condition to be unable
to give a valid receipt therefore, the Committee may direct that such payment be
made only to the conservator or the guardian of the estate of such person
appointed by a court of competent jurisdiction or such other person or in such
other manner as the Committee determines is necessary to assure that the payment
will legally discharge the Plan's obligation to such person. Any payment made
pursuant to such determination shall constitute a full release and discharge of
the Committee and the Company.
10.9 Miscellaneous. All pronouns and any variations thereof contained
herein shall be deemed to refer to masculine or feminine, singular or plural, as
the identity of the person or persons may require. The headings used in this
Plan are for convenience only and shall not be construed in interpreting this
Plan.
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<PAGE> 1
Exhibit 10.22
ALLEGHENY TELEDYNE INCORPORATED
1996 INCENTIVE PLAN
ADMINISTRATIVE RULES FOR THE
PERFORMANCE SHARE PROGRAM FOR KEY EMPLOYEES OF
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
ARTICLE I. Adoption and Purpose of the Program
1.01 Adoption. These rules are adopted by the Personnel and
Compensation Committee and the Stock Incentive Award Subcommittee of the Board
of Directors pursuant to the authority reserved in the Allegheny Teledyne
Incorporated 1996 Incentive Plan (the "Plan"), effective as of January 1, 1998.
Capitalized terms used but not defined herein shall have the same meanings as in
the Plan.
1.02 Purpose. The purposes of the Performance Share Program For Key
Employees of Allegheny Teledyne Incorporated and Subsidiaries are to (1) provide
a structure and framework for certain awards made under the Plan, (2) establish
rules for certain awards under the Plan, and (3) further the Plan's purpose of
promoting the growth and profitability of Allegheny Teledyne Incorporated and
its subsidiaries, providing key employees with an incentive to achieve long-term
corporate objectives and attracting and retaining key employees of outstanding
competence.
ARTICLE II. Definitions
For purposes of these rules, the capitalized terms set forth below
shall have the following meanings:
2.01 "Award" shall mean the grant of a Performance Award evidenced by
this Agreement.
<PAGE> 2
2.02 "Award Period" shall mean the time period established by the
Committee pursuant to Article IV of the PSP for the purpose of measuring
attainment of performance objectives.
2.03 "Board of Directors" shall mean the Board of Directors of the
Corporation.
2.04 "Chief Executive Officer" shall mean the chief executive officer
of the Corporation.
2.05 "Committee" shall mean the Stock Incentive Award Subcommittee of
the Board of Directors, in the case of individuals who are Statutory Insiders of
the Corporation, and the Personnel and Compensation Committee of the Board of
Directors, in the case of individuals who are not Statutory Insiders, in each
case as such Subcommittee or Committee which may be appointed from time to time
by the Board of Directors, subject to the provisions of Section 3.01(a) hereof.
2.06 "Common Stock" shall mean common stock, $0.10 par value per share,
of the Corporation.
2.07 "Corporation" shall mean Allegheny Teledyne Incorporated.
2.08 "Disability" shall mean the total and permanent disability of the
Grantee as determined by the Committee in its sole discretion.
2.09 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2.10 "Fair Market Value" shall mean, as of any given date, the average
of the high and low trading prices of the Common Stock on such date as reported
on the New York Stock Exchange or, if the Common Stock is not then traded on the
New York Stock Exchange, on such other national securities exchange on which the
Common Stock is admitted to trade, or, if none, on
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<PAGE> 3
the National Association of Securities Dealers Automated Quotation System if the
Common Stock is admitted for quotation thereon; provided, however, if there were
no sales reported as of such date, Fair Market Value shall be computed as of the
last date preceding such date on which a sale was reported; provided, further,
that if any such exchange or quotation system is closed on any day on which Fair
Market Value is to be determined, Fair Market Value shall be determined as of
the first date immediately preceding such date on which such exchange or
quotation system was open for trading.
2.11 "Grantee" shall mean a Key Employee to whom an Award or Awards
designated as a Performance Award have been granted.
2.12 "Key Employee" shall mean (a) an employee of the Corporation or a
Subsidiary who is a Statutory Insider (subject to the second sentence of this
subsection) and (b) any other employee of the Corporation or a Subsidiary who
is, in the judgment of the Chief Executive Officer, responsible to a material
extent for the profitability and continued growth of the Corporation and its
Subsidiaries. Directors of the Corporation who are not otherwise officers or
employees of the Corporation and directors who are members of the Committee may
not be designated as Key Employees.
2.13 "PSP" shall mean the Performance Share Program, as the same may be
amended from time to time.
2.14 "Performance Awards" shall mean Awards granted under the PSP in
accordance with Article VIII of the Plan.
2.15 "Performance Award Agreement" shall mean a written agreement
between the Corporation and a Key Employee or a written acknowledgment from the
Corporation to a Key Employee specifically setting forth the terms and
conditions of the Performance Award.
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2.16 "Retirement" shall mean early or normal retirement under a pension
plan or arrangement of the Corporation or one of its Subsidiaries.
2.17 "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
Securities and Exchange Commission under the Exchange Act, as in effect from
time to time.
2.18 "Section 162(m)" shall mean Section 162(m) of the Internal Revenue
Code of 1986, as amended, and the regulations promulgated thereunder.
2.19 "Statutory Insider" shall mean an "officer" of the Corporation as
defined in Rule 16a-1(f) as promulgated by the Securities and Exchange
Commission under the Exchange Act, as such Rule may be amended from time to
time.
2.20 "Subsidiary" shall mean any corporation at least a majority of
whose outstanding voting shares shall at the time be owned by the Corporation or
by one or more Subsidiaries.
ARTICLE III. General
3.01 Administration.
(a) The PSP shall be administered by the Committee which shall
have all necessary power and authority to interpret the PSP and take
all action necessary or appropriate in connection with the PSP. The
Committee will be constituted so as to qualify Awards for exemption
under Rule 16b-3 and as "performance-based compensation" for the
purposes of Section 162(m), with respect to participation of Statutory
Insiders in the PSP.
(b) The Committee at its discretion but after consultation
with the Chief Executive Officer shall (i) identify employees who, in
addition to Statutory
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<PAGE> 5
Insiders, are Key Employees; (ii) grant Awards pursuant to the PSP;
(iii) prescribe such limitations and restrictions as the Committee
shall deem appropriate; and (iv) interpret the PSP, adopt, amend and
rescind rules and regulations relating to the PSP, and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the PSP.
(c) All such actions shall be final, conclusive and binding
upon the Key Employees. Neither the Chief Executive Officer nor any
member of the Committee shall be liable for any action taken or
decision made in good faith relating to the PSP or any award
thereunder.
3.02 Grant of Award. The Committee shall select from among the Key
Employees those individuals who shall be granted Awards under the PSP. The
Committee shall determine the form, value and denomination of the Performance
Award to be granted to a Grantee. In granting such Performance Awards and
determining their form, value and denomination, consideration shall be given to
the recommendations of the Chief Executive Officer, the functions and
responsibilities of the Grantee, the Grantee's potential contributions to the
profitability and sound growth of the Corporation and such other factors as
shall be deemed relevant.
ARTICLE IV. Establishment of Corporate Objectives
The Committee, after discussion with the Chief Executive Officer, shall
determine whether to establish an Award Period commencing with the beginning of
a fiscal year with respect to which this determination is made and the
appropriate length of the Award Period. If the Committee establishes an Award
Period, the Committee, in consultation with the Chief
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<PAGE> 6
Executive Officer, shall determine the financial objectives of the Corporation
and its Subsidiaries to be achieved during such Award Period, the basis on which
awards granted for such Award Period shall vest upon either partial achievement
of the corporate objectives or upon the meeting or surpassing of the corporate
objectives, and the number of shares and/or dollars comprising each award. The
performance goals shall meet the requirements of an objective formula under
Section 162(m), unless the Committee determines otherwise.
ARTICLE V. Grant of Awards
5.01 Grant of Awards. The Committee, subject to the provisions of the
PSP, may grant Performance Awards to Key Employees and determine (and the
Performance Award Agreement shall state) the form, value and denomination of the
Performance Awards granted to the respective Grantees and such other terms and
conditions as the Committee may consider appropriate. In taking such action,
consideration shall be given to the recommendations of the Chief Executive
Officer.
5.02 Performance Award Agreements. Performance Awards granted to a Key
Employee shall be evidenced by a written Performance Award Agreement to be
entered into between the Corporation and the Key Employee and to contain such
terms and conditions as the Committee may consider appropriate in each case.
5.03 Grantee Account. At such time as it shall be determined by the
Committee that the objectives for such Award Period shall have been fully or
partially achieved or surpassed, the Corporation shall establish and maintain a
bookkeeping account for each Grantee who shall have been granted Performance
Awards for such Award Period and shall credit to such account a dollar amount
and/or the number of shares of Common Stock equal to
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the dollar value and/or the number of shares of Common Stock of the Performance
Award to which the Grantee becomes entitled pursuant to his Performance Award
Agreement.
5.04 Payment of Grantee Account. The dollar amount and/or the number of
shares of Common Stock credited to a Grantee's bookkeeping account shall be paid
to the Grantee in installments; provided, however, that a Grantee must be then
and have continuously been an employee of the Corporation or any of its
Subsidiaries from the date of the grant of the award to the date of each
installment payment. The installment payments shall be in the amount and/or the
number of shares of Common Stock as follows: thirty-three and one-third percent
(33-1/3%) of the total dollar amount and number of shares of Common Stock
credited to the Grantee's account on or before the first day of the calendar
month following the calendar month in which the amount was credited to the
account and an additional thirty-three and one-third percent (33-1/3%) on or
before the first business day of January of each succeeding calendar year
thereafter, until such amount is completely distributed. Fractional shares shall
not be distributed but shall be aggregated and paid in the last maturing
installment.
5.05 Termination of Employment. Notwithstanding the provisions of these
Rules, including Section 5.04 hereof, if a Grantee terminates employment with
the Corporation or any Subsidiary because of Retirement, death or Disability,
the Performance Award shall be prorated based on the number of full months of
employment during the Award Period divided by the total number of months in the
Award Period and the Performance Award shall be paid at the time and in the same
form as Performance Awards are paid to active participants. If a Grantee
terminates employment for any other reason or no reason, any unvested or unpaid
installment shall be forfeited unless determined otherwise by the Committee in
its sole discretion.
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ARTICLE VI. Miscellaneous
6.01 General Restriction. Any Performance Award denominated in Common
Stock shall be subject to the requirement that if at any time the Committee
shall determine that any listing or registration of the shares of Common Stock
or any consent or approval of any governmental body or any other agreement or
consent is necessary or desirable as a condition of the granting a Performance
Award or issuance of shares of Common Stock or cash in satisfaction thereof,
such grant of an award or issuance of shares of Common Stock may not be
consummated unless such requirement is satisfied in a manner acceptable to the
Committee.
6.02 Non-Assignability. No Performance Award shall be assignable or
transferable by the recipient thereof, except by will or by the laws of descent
and distribution. During the life of the recipient, any installment of a
Performance Award shall be paid only to such individual. No purported assignment
or transfer of a Performance Award, of the rights represented thereby or of a
Grantee's contingent interest in the bookkeeping account described in Section
5.03, whether voluntary or involuntary, by operation of law or otherwise (except
by will or the laws of descent and distribution), shall vest in the assignee or
transferee any interest or right herein whatsoever, but immediately upon such
assignment or transfer the Performance Awards shall terminate and become of no
further effect.
6.03 Withholding Taxes. Whenever the Corporation makes payments under
the PSP, in whole or in part, the Corporation shall notify the Grantee of the
amount of withholding tax, if any, which must be paid under federal and, where
applicable, state and local law. The Corporation shall, in the discretion of the
Corporation, but with the consent of the Committee, arrange for payment for such
withholding taxes in any one or combination of the following ways: (i)
acceptance of an amount in cash paid by the Grantee, (ii) deduction of amounts
for
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<PAGE> 9
withholding taxes from amounts of cash payable as an installment under the PSP,
(iii) reduction in the number of shares to be issued in an installment by that
number of shares having a Fair Market Value equal to the amount which the
Corporation is required to withhold and/or (iv) acceptance of whole shares of
Common Stock already owned by the Grantee, having a Fair Market Value equal to
the amount the Corporation is required to withhold. If the full amount of the
withholding tax is not recovered in the above manner, the Grantee shall,
forthwith upon receipt of notice, remit the deficiency to the Corporation. No
certificates for shares of Common Stock shall be issued or delivered to a
Grantee under the PSP until all applicable taxes shall have been satisfied in
full.
6.04 Delivery of Certificates. As soon as practicable after compliance
by a Grantee with all applicable conditions, the Corporation will issue and
deliver by mail, or cause delivery by mail to the Grantee at the address
specified, certificates registered in the name of the Grantee for the number or
shares of Common Stock which the Grantee is entitled to receive (subject to
reduction for withholding tax as provided in Section 6.03 hereof) under the
provisions of the PSP and the Performance Award Agreement.
6.05 No Right to Employment. Nothing in the PSP or in any agreement
entered into pursuant to the PSP shall confer upon any employee or Grantee the
right to continue in the employ of the Corporation or any Subsidiary or affect
any right which the Corporation or a Subsidiary may have to terminate the
employment of any employee or Grantee.
6.06 Non-Uniform Determinations. The actions and recommendations of the
Chief Executive Officer, the determinations by the Committee under the PSP
(including without limitation the determinations by the Chief Executive Officer
and the Committee of the persons to receive Performance Awards, and the
determinations by the Committee of the form, value and
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<PAGE> 10
denomination of such awards, and the terms and provisions of such Awards) need
not be uniform and may be made by the Chief Executive Officer or the Committee,
as the case may be, selectively among persons who receive, or are eligible to
receive Performance Awards under the PSP, whether or not such persons are
similarly situated.
6.07 Amendment or Termination of the PSP. The Board may at any time
terminate the PSP or any part thereof and may from time to time amend the PSP as
it may deem advisable; provided, however, that without stockholder approval, the
Board of Directors may not (i) increase the aggregate number of shares of Common
Stock which may be issued under the PSP (other than increases permitted under
Paragraph 6.10 hereof), (ii) extend the term of the PSP, or (iii) extend the
period during which Performance Awards may be granted. The termination or
amendment of the PSP shall not, without the consent of a Grantee, affect such
Grantee's rights under a previous grant of Performance Awards.
6.08 Investment Representation. Each Performance Award Agreement may
provide that the Grantee shall deliver to the Committee, upon demand by the
Committee, at the time of any payment of an installment which contains shares of
Common Stock a written representation that the shares to be acquired are to be
acquired for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to delivery of
any shares shall be a condition precedent to the right of the Grantee to receive
any shares.
6.09 No Rights as Stockholders. Recipients of Performance Awards
denominated in Common Stock shall have no rights as stockholders of the
Corporation with respect thereto unless and until certificates for shares of
Common Stock are issued to them.
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6.10 Adjustment of Awards. In the event of any change or changes in the
outstanding Common Stock of the Corporation by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination
or exchange of shares or any rights offering to purchase a substantial amount of
Common Stock at below fair market value or of any similar change affecting the
Common Stock, any of which takes effect after the first grant of a Performance
Award, the Committee may, in its discretion, appropriately adjust the number and
kind of shares which may be issued under the PSP, the number and kind of shares
subject to Performance Awards theretofore granted, and any and all other
adjustments deemed appropriate by the Committee to prevent substantial dilution
or enlargement of the rights granted under a Performance Award Agreement in such
manner as the Committee shall deem appropriate.
6.11 Awards Not a Bar to Corporate Event. The existence of the
Performance Awards granted hereunder shall not affect in any way the right or
the power of the Corporation or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Corporation's capital structure or its business, or any merger or consolidation
of the Corporation, or any issue of bonds, debentures, preferred or prior
preference stocks ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Corporation, or any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
ARTICLE VII. Rule 16b-3 Compliance
It is intended, unless the Committee shall determine otherwise, that
the PSP comply with Rule 16b-3, and that all interpretations of the PSP relating
to Statutory Insiders shall be consistent with such Rule and the Exchange Act.
In order to maintain compliance with such
-11-
<PAGE> 12
Rule and the Exchange Act and to facilitate and promote the conformity of the
transactions of Statutory Insiders under the PSP with such Rule, the Committee
may adopt such rules and policies as it deems advisable, including, but not
limited to, rules and policies restricting the timing of the reduction in the
number of shares to be issued in an installment pursuant to Section 6.03 hereof,
and any related rules or policies delaying payments pursuant to Section 5.04
hereof, and any election with respect thereto.
ARTICLE VIII. Section 162(m) Compliance
It is intended, unless the Committee shall determine otherwise, that
the PSP comply with Section 162(m), and that all interpretations of the PSP
relating to Statutory Insiders who are "covered employees" as defined in Section
162(m) shall be consistent with such Section. In order to maintain compliance
with such Section, the Committee may adopt such rules and policies as it deems
advisable.
-12-
<PAGE> 1
Exhibit 10.23
THE ANNUAL INCENTIVE PLAN
<PAGE> 2
<TABLE>
<CAPTION>
CONTENTS PAGE
- -------- ----
<S> <C>
At a Glance 1
What is the Annual Incentive Plan? 1
Who is Eligible for This Plan? 1
How Does the Annual Incentive Plan Work? 1
Calculation of the Annual Incentive Plan Award 2
Target Bonus Percentage 2
Performance Goals and the Target Bonus Percentage 2
Financial Performance Goals 3
Individual Performance Goals 3
How the AIP Award is Calculated when 100% of the Performance Goals 3
are Achieved
How the AIP Award is Calculated for Other Achievement Levels 4
Maximums and Minimums 4
Formulas for Weighting Financial and Individual Performance 4
Putting it Together 5
Additional Guidelines for the Annual Incentive Plan 7
Discretionary Adjustments 7
Some Special Circumstances 7
Making Payments 8
Administration Details 8
</TABLE>
<PAGE> 3
AT A GLANCE
WHAT IS THE ANNUAL INCENTIVE PLAN?
The Annual Incentive Plan (the "AIP" or the "Plan") provides key managers of
Allegheny Teledyne Incorporated ("Allegheny Teledyne") and its operating
companies with the opportunity to earn an incentive award when certain
pre-established goals are met:
o At the corporate, segment and/or operating company levels; and
o At the individual level.
WHO IS ELIGIBLE FOR THIS PLAN?
Generally, key managers who have a significant impact on the company's
operations will be eligible to participate in the Plan. Individuals eligible for
participation are determined annually, based on recommendations of the Segment
Executive, if applicable, and Allegheny Teledyne's Chief Executive Officer (the
"Chief Executive Officer"), with the approval of the Personnel and Compensation
Committee or Stock Incentive Award Subcommittee of its Board of Directors (the
"Committee").
HOW DOES THE ANNUAL INCENTIVE PLAN WORK?
Under the Plan, key managers may earn an incentive award equal to a percentage
of their base salary, depending on the extent to which pre-established
individual, corporate, segment, and operating company performance goals have
been achieved.
o For purposes of the Plan, base salary is generally the manager's annual
base salary rate as of the end of the year, excluding any commission or
other incentive pay. For some special circumstances affecting the
amount of base salary used in the Plan, see page 7.
o A target bonus percentage is used in calculating the incentive award.
It is explained on the next page. Each participating manager will be
given a target bonus percentage.
o The target bonus percentage will be adjusted (upward or downward) based
on the extent to which certain financial performance goals and
individual performance goals are achieved.
o The adjusted target bonus percentage generally determines the amount of
the incentive award for the year. See page 7 for other factors that may
affect the actual award.
o Incentive award payments will generally be distributed in cash after
the year-end audit is complete.
1
<PAGE> 4
CALCULATION OF THE ANNUAL INCENTIVE PLAN AWARD
TARGET BONUS PERCENTAGE
The Plan establishes an incentive opportunity for key managers who are
determined to be eligible to participate in the Plan, calculated as a percentage
of each manager's base salary. Each participant will be provided with an initial
percentage, referred to as a "target bonus percentage". The target bonus
percentage is the percentage of base salary that is generally earned as an award
if 100% of the various performance goals are achieved.
The performance goals reflect financial and individual performance and are
described below.
If there is a change in the key manager's job position during the year and the
manager's target bonus percentage is adjusted as a result, then the target bonus
percentage that will be used in the award calculation will be determined as
follows:
o If the individual has at least six months of service in the new
position, the newly adjusted target bonus percentage will be used in
calculating the individual's award for the full year.
o If the individual has less than six months of service in the new
position, the individual's award for the year will be calculated on a
pro-rata basis using the two different target bonus percentages
weighted by length of service in each position during the year.
Target bonus percentages, performance goals and performance achievements will be
communicated to each eligible participant. The Committee may change the goals
and objectives for the Plan at any time.
PERFORMANCE GOALS AND THE TARGET BONUS PERCENTAGE
The Plan establishes financial performance goals based on operating profit and
return on capital employed, and individual performance goals based on individual
effort.
Each performance goal is weighted as a percentage share of the target bonus
percentage. For all key managers in the Plan, 80% of the target bonus percentage
will be based on the two financial performance goals mentioned above; the other
20% of the target bonus percentage will be based upon individual performance.
Each year actual performance will be measured and compared to the performance
goals. The result achieved will be expressed as a percentage of that performance
goal. The adjustment formulas are described further below.
2
<PAGE> 5
FINANCIAL PERFORMANCE GOALS
The financial performance goals consist of two key measures:
o Operating Profit ("OP"), which represents a 40% share of the target
bonus percentage, and
o Return on Capital Employed ("RACE"), which also represents a 40% share
of the target bonus percentage.
Together, the achievements of OP and RACE constitute an 80% share of the target
bonus percentage. Each year OP and RACE goals will be set at the corporate,
segment and/or operating company level based on the applicable business plan.
How corporate, segment and/or operating company goals are weighted for a given
participant depends upon the participant's major area of responsibility at
Allegheny Teledyne and its operating companies.
With the concurrence of the Chief Executive Officer and the Committee, OP and
RACE goals may be further weighted within a particular operating company in
accordance with its separate business units ("SBU's") for key managers of those
SBU's.
INDIVIDUAL PERFORMANCE GOALS
Each year managers will establish individual performance goals with their
immediate supervisors. The achievement of individual performance goals will
represent a 20% share of the target bonus percentage.
HOW THE AIP AWARD IS CALCULATED WHEN 100% OF THE PERFORMANCE GOALS ARE ACHIEVED
If 100% of all performance goals are achieved, then 100% of the target bonus
percentage will generally be used to calculate the participant's incentive
award.
For example, if an individual's target bonus percentage is 20% and if all goals
are achieved at 100%, then the target bonus percentage of 20% is multiplied by
100% to produce an incentive award equal to 20% of base salary:
<TABLE>
<CAPTION>
PERCENT OF GOAL TARGET %
GOAL TARGET ACHIEVEMENT EARNED
- ---- --------- ----------- --------
<S> <C> <C> <C>
OP 40% x 100% = 40%
RACE 40% x 100% = 40%
Individual Performance 20% x 100% = 20%
--
Total Goals = 100%
</TABLE>
In the above example, 100% of the target bonus percentage is earned, and the
incentive award will generally be 20% of the participant's base salary.
3
<PAGE> 6
The sections below discuss the impact of achieving more or less than 100% of the
performance goals and also discuss the impact of other potential adjustments.
HOW THE AIP AWARD IS CALCULATED FOR OTHER ACHIEVEMENT LEVELS
If more or less than 100% of an individual's financial or individual performance
goals are achieved, then the individual's target bonus percentage will be
adjusted. The following section describes adjustments based on maximum and
minimum achievement levels, and the formulas used to weight achievements at all
levels.
Maximums and Minimums
o Where more than 100% of a financial or individual performance goal is
achieved, more than 100% will be earned for that goal's share of the
target bonus percentage. However, the maximum percentage earned for any
goal's share of the target bonus percentage is 200%, and the overall
maximum incentive award that an individual can earn under the weighting
formula is 200% of the target bonus percentage.
o Where 75% of a financial or individual performance goal is achieved,
only 25% of that goal's share (40%, 40% or 20% as applicable) of the
target bonus percentage will be earned.
o Where less than 75% of a financial or individual performance goal is
achieved, no amount of that goal's share (40%, 40% or 20% as
applicable) of the target bonus percentage will be earned.
o If less than 75% of OP is achieved, no award will be paid regardless of
the level of achievement of the other financial or individual
performance goals.
Formulas for Weighting Financial and Individual Performance
The following formulas will be used to weight the achievement of the financial
and individual performance measures under the Plan:
A. If 75% to 100% of a goal is achieved, the Percent of Target Earned for that
goal equals the Percentage of Goal Achieved (i.e. Actual Performance
divided by Planned Performance) minus 75% (which is the threshold level of
performance) times 3, plus 25%.
Example:
Assumption: Percentage of Goal Achieved = 90%
Percent of Target Earned for that Goal = [(90% - 75%) x 3] + 25%
= [(15% x 3)] + 25%
= 45% + 25%
= 70%
4
<PAGE> 7
B. If over 100% of goal is achieved, the Percent of Target Earned for that
goal equals the Percentage of Goal Achieved (i.e. Actual Performance
divided by Planned Performance) minus 100% (which is the target level of
performance) times 5, plus 100%. In all cases, the maximum Percent of
Target Earned of 200% results when 120% of that goal is achieved.
Formula B examples:
<TABLE>
<CAPTION>
<S> <C>
1. Assumption: Percentage of Goal Achieved = 130%
Percent of Target Earned for that Goal = [(130% - 100%) x 5] + 100%
= [30% x 5] + 100%
= 150% + 100%
= 250%
However the maximum target bonus is capped at 200%.
2. Assumption: Percentage of Goal Achieved = 110%
Percent of Target Earned for that Goal = [(110% - 100%) x 5] + 100%
= [10% x 5] + 100%
= 50% + 100%
= 150%
</TABLE>
The formulas described above are designed to create a greater positive incentive
for over-achieving the plan than for under-achieving. As a result of the
formulas, actual performance that exceeds the goal is weighted more than actual
performance that exceeds the 75% threshold levels of performance but does not
reach the goal.
Putting it Together
- -------------------
Here are two examples of how a manager might earn an incentive award under the
plan.
1. For the first example, assume that the manager achieves:
o 90% of planned Operating Profit, or OP, goals;
o 130% of planned Return on Capital Employed, or RACE, goals; and
o 80% of individual performance goals.
o Assume that the manager's annual salary is $80,000 and that the
manager's target bonus percentage is 20% of base salary.
The first step is to calculate the percent of target earned based upon actual
performance.
Formula A above would be used for weighting OP and individual performance goals,
because less than 100% of those goals were achieved. Formula B would be used for
weighting the RACE goal, because over 100% of that goal was achieved.
5
<PAGE> 8
<TABLE>
<CAPTION>
(1) (2) (3) (4)
--- --- --- ---
FORMULA TARGET %
PERCENT OF GOAL WEIGHTING OF EARNED
GOAL TARGET ACHIEVEMENT ACHIEVEMENT (1) X (3)
- ---- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
OP 40% 90% 70% 28%
RACE 40% 130% 200% 80%
Individual Performance 20% 80% 40% 8%
---
Total Goals 116%
</TABLE>
With 116% of target achieved, the incentive award would be calculated as 116% of
the 20% target bonus percentage, or 23.2%. The incentive payment would, in turn,
be the product of 23.2% times the manager's base salary of $80,000, or $18,560.
2. For another example, assume that the same manager achieves:
o 100% of planned OP;
o 110% of planned RACE; and
o 75% of individual performance goals.
Again, the first step is to calculate the percent of target earned for each
goal. Since OP was achieved at 100%, the percent of target earned for that goal
will be 100%. Formula B would be used for RACE, because over 100% of that goal
was achieved. Formula A would be used for individual performance, because less
than 100% of that goal was achieved.
<TABLE>
<CAPTION>
(1) (2) (3) (4)
--- --- --- ---
FORMULA TARGET %
PERCENT OF GOAL WEIGHTING OF EARNED
GOAL TARGET ACHIEVEMENT ACHIEVEMENT (1) X (3)
- ---- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
OP 40% 100% 100% 40%
RACE 40% 110% 150% 80%
Individual Performance 20% 75% 25% 5%
---
Total Goals 105%
</TABLE>
With 105% of target achieved, the incentive award would be calculated as 105% of
the 20% target bonus percentage, or 21%. The incentive payment would, in turn,
be the product of 21% of the manager's base salary of $80,000, or $16,800.
6
<PAGE> 9
ADDITIONAL GUIDELINES FOR THE ANNUAL INCENTIVE PLAN
In any year, a minimum operating profit (OP) of 75% of plan must be achieved for
annual incentives to be paid regardless of other factors.
The total incentive award pool in any given year cannot exceed 5% of operating
profit of Allegheny Teledyne or the operating company, as the case may be. If,
in any year, awards exceed 5% of operating profit, awards of the affected
company will be reduced to eliminate the excess.
DISCRETIONARY ADJUSTMENTS
In some cases, the Plan allows for discretionary adjustments of up to +20% or
- -20% of an individual's calculated award. However, discretionary adjustments for
all eligible managers of the affected company cannot exceed +5% of the aggregate
calculated awards for that company.
SOME SPECIAL CIRCUMSTANCES
The above formulas generally determine the amount of the incentive award for the
year. Other factors that may affect the actual award follow:
o If a manager leaves the company due to retirement, death, or
disability, an award will be calculated based on the actual base salary
earned during the year in which the manager left--so long as the
manager worked at least six months of that year.
o If a manager leaves the company before the end of the plan year for any
other reason, the manager will not receive a bonus award for that year.
o If a manager voluntarily leaves the company after the end of the year
but before the award is paid, the manager would receive any bonus due
unless the employment is terminated for cause. If employment is
terminated for cause, the manager would not be entitled to receive an
award under the Plan.
o Managers who are hired mid-year may earn a pro-rated bonus for that
year, based on the salary earned during that year. However, managers
with less than two months service in a plan year (i.e. hired after
October 31) would not be eligible for an award for that year.
o If the manager received an adjustment in base salary due to a change in
job position (i.e. other than a merit increase), the manager's base
salary for plan purposes will be the sum of (1) the product of the
number of months prior to the adjustment times the rate of monthly base
salary immediately prior to the adjustment, and (2) the product of the
number of months after the adjustment times the rate of monthly base
salary as of the end of the Plan Year.
7
<PAGE> 10
MAKING PAYMENTS
All incentive award payments will generally be paid in cash, less applicable
withholding taxes, after the year-end audit is complete. This is expected to
occur by no later than March 15.
ADMINISTRATION DETAILS
This summary relates to the Annual Incentive Plan (AIP) of Allegheny Teledyne
Incorporated and its subsidiaries. The Plan is administered by the Committee.
The Committee has full authority to:
o Interpret the Plan;
o Designate eligible participants and categories of eligible
participants;
o Set the terms and conditions of incentive awards; and
o Establish and modify administrative rules for the Plan.
Plan participants may obtain additional information about the plan and the
Committee from:
Senior Vice President,
General Counsel and Secretary
Allegheny Teledyne Incorporated
1000 Six PPG Place
Pittsburgh PA 15222 5479
Phone: 412-394-2836
Fax: 412-394-2837
The Plan will remain in effect until terminated by the Committee. The Committee
may also amend the plan at its discretion.
The Plan is not subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and is not "qualified" under Section 401(a) of the
Internal Revenue Code.
8
<PAGE> 1
Exhibit 13.1
Excerpt from 1998 Annual Report to Stockholders (pages 19 through 55)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are forward-looking statements.
Actual results could differ materially from those encompassed within such
forward-looking statements as a result of various factors, certain of which are
described below.
FINANCIAL OVERVIEW
During 1998, Allegheny Teledyne Incorporated and its subsidiaries (the
"Company") continued to build upon their operational and financial strengths.
o Sales from continuing operations remained strong at $3.8 billion as
improved sales in the Aerospace and Electronics and the Industrial
Segments offset difficult economic conditions faced in the commodity
stainless steel and titanium businesses of the Specialty Metals
Segment.
o Operating profit for 1998 was $469.4 million, or 12.3 percent of
continuing sales.
o Corporate expenses continued to decline in 1998 to $36.5 million from
$40.4 million in 1997 and $43.7 million in 1996 as a result of
consolidating operations and continuing focus on cost controls.
o Pension income improved and exceeded other postemployment benefits
expense by $44.0 million as a result of favorable investment results.
o Cash flow generated by operations increased 40 percent in 1998 to
$399.4 million primarily as a result of the Company's continuing
successful efforts to reduce working capital.
o The Company completed the strategic acquisitions of the aerospace
division of Sheffield Forgemasters and Oregon Metallurgical
Corporation, and purchased certain stainless steel assets from and
entered into a long-term conversion agreement with Bethlehem Steel
Corporation. In addition, the Company increased its capital spending
to $172.6 million in 1998, up from $122.8 million in 1997, as it
completed significant investments in capital equipment including a new
electron beam melt facility, a new vacuum induction furnace and a new
Sendzimir mill for the Specialty Metals Segment.
o In the 1998 fourth quarter, the Company repurchased 2.5 million shares
of its common stock at a cost of $49.4 million.
o Even with the significant increase in acquisitions and capital
spending, the Company ended the 1998 year with a strong net debt to
total capitalization ratio of 24.7 percent.
The Company expects free cash flow to be consistently strong. This should
provide sufficient financial resources for the Company to capitalize on new
profitable growth opportunities while keeping its strong credit rating and
access to cost efficient capital markets.
STRATEGIC TRANSFORMATION
Following extensive studies and strategic analyses initiated in the summer of
1998, the Company announced in January 1999 that it intends to pursue a course
of action that would result in a significant transformation and reconfiguration
of the Company during 1999. Assuming legal, tax, financial and other
considerations can be resolved successfully, the anticipated transformation
would include a tax-free spin-off of a new public company and a public offering
of the new company's stock. The new company would be comprised of four former
Teledyne companies in the Aerospace and Electronics Segment. The four businesses
are Electronic Technologies headquartered in Los Angeles, CA; Brown Engineering
headquartered in Huntsville, AL; Continental Motors headquartered in Mobile, AL;
and Cast Parts located in southern California. Combined 1998 revenues of the
businesses in the new company were approximately $800 million. The new company
is expected to be headquartered in Los Angeles.
The Company is proceeding simultaneously with the consideration of a spin-off
and public offering of the Consumer Segment, as announced in the 1998 second
quarter, into a freestanding public company. This new company is expected to be
headquartered in the Los Angeles area. Annual revenues for the Consumer Segment
were approximately $250 million in 1998.
The Company plans to submit a request for a private letter ruling to the
Internal Revenue Service with respect to the tax-free nature of the proposed
spin-offs by the end of the 1999 first quarter.
Names for the new companies have not yet been selected.
After the spin-offs, Allegheny Teledyne, headquartered in Pittsburgh, will be
focused as one of the largest and most diversified specialty metals companies in
the world with annual revenues of approximately $2.5 billion in 1998. It would
consist of Allegheny Ludlum/Rodney -- a major flat-rolled producer of stainless
steel, specialty metals, and titanium; Allvac and Allvac-SMP -- major producers
of nickel-based superalloys, titanium alloys and specialty steels in billet,
bar, rod, wire and coil forms; Oremet-Wah Chang -- a diversified producer of
zirconium, titanium and other specialty metals including niobium, tantalum and
hafnium; Titanium Industries, a titanium distribution company, and Rome Metals,
a processor of titanium and other specialty metals; Metalworking Products -- a
major producer of tungsten mill products, tungsten carbide materials and
tungsten carbide cutting tools; Casting Service -- a foundry specializing in
large grey and ductile iron castings; and Portland Forge -- a custom impression
die forging company.
In addition, the Company is exploring the sale of Ryan Aeronautical, a
producer of unmanned aerial vehicles and target drones, which is located in San
Diego, CA. The Company intends to sell its Fluid Systems business, a
manufacturer of nitrogen gas springs, pressure relief valves and vehicle control
valves headquartered in Brecksville, Ohio, and its Specialty Equipment business
which consists of two divisions -- one division, located in Canada, is an
assembler of hydraulic attachments for mining and construction equipment and the
other is a manufacturer of transportable forklifts in the U.S. and the
Netherlands. Combined revenues of the three businesses were nearly $400 million
in 1998.
19
<PAGE> 2
ACQUISITIONS AND DIVESTITURES
AEROSPACE DIVISION OF SHEFFIELD FORGEMASTERS
In February 1998, the Company acquired the assets of the aerospace division of
Sheffield Forgemasters Limited, a private company in the United Kingdom, for
approximately $110 million in an all-cash transaction.
The acquisition of Sheffield Forgemasters' aerospace division, now known as
Allvac-SMP, provides significant support to the Company's high performance
metals businesses, primarily Allvac, and has enhanced service to customers by
improving the sales and distribution network for the Company's nickel-based
alloys, specialty steels and titanium in Europe. The acquisition also provides
additional vacuum melting, vacuum consumable remelting, electroslag remelting,
and forging capacity, which complements Allvac's facilities. Allvac-SMP's rotary
forging machine is one of the largest in the world.
OREGON METALLURGICAL CORPORATION ("OREMET")
In October 1997, the Company announced that it had entered into a definitive
merger agreement to acquire the stock of OREMET. Under the terms of the merger,
which was completed in March 1998, OREMET shareholders received 1.296 shares of
Allegheny Teledyne common stock in a tax-free exchange for each share of OREMET
common stock. A total of 21.6 million shares of Allegheny Teledyne stock were
issued in connection with the merger. The merger was accounted for under the
pooling of interests accounting method.
OREMET is an integrated producer and distributor of titanium sponge, ingot,
mill products and castings for use in the aerospace, industrial, recreational
and military markets. It operates manufacturing and finishing facilities in
Oregon, Washington and Pennsylvania and has nine service centers in the United
States, with additional service centers in the United Kingdom, Germany,
Singapore and Canada.
AGREEMENTS WITH BETHLEHEM STEEL CORPORATION
In January 1998, Bethlehem Steel Corporation ("Bethlehem") and the Company
jointly announced that they had entered into three agreements that would become
effective after Bethlehem closed its previously announced acquisition of Lukens
Inc. ("Lukens"). Bethlehem completed its acquisition of Lukens on May 29, 1998.
On November 20, 1998, the asset sale agreement previously signed by both
companies was closed and the related conversion services and hot band supply
agreements began to be implemented.
Under the asset sale agreement, Allegheny Ludlum Corporation ("Allegheny
Ludlum"), a wholly owned subsidiary of Allegheny Teledyne, acquired certain
assets which Bethlehem acquired from Lukens. These assets include the melting
and hot rolling facilities located at the Houston, PA, plant and the wide anneal
and pickle line at the Massillon, OH, plant.
Under the conversion services agreement, Bethlehem agreed, for a 20-year
period, to provide Allegheny Ludlum exclusive access to the Coatesville, PA,
melt shop and caster for the production of stainless steel slabs, and to the
Conshohocken, PA, 110-inch Steckel mill for the rolling of stainless steel slabs
and stainless precipitation hardening grades, maraging grades, and nickel and
nickel-based alloys.
After jointly conducting due diligence, Allegheny Ludlum and Bethlehem agreed
that improvements to Bethlehem's 110-inch Steckel mill would enhance performance
for the benefit of both parties, and they will share in the cost of certain of
these improvements. Using independent consultants, Allegheny Ludlum and
Bethlehem concluded that improvements to the computer control system, increasing
the power of the roughing mill and undertaking other projects to improve the
mill's capability will enhance performance of the mill for carbon, alloy and
stainless steel. Two 8,000 horsepower roughing mill motors will be installed,
and Allegheny Ludlum will share in the ownership of the motors up to a maximum
investment of $9 million. The total cost of all improvements to the 110-inch
Steckel mill is currently estimated to be about $25 million.
At the closing of the asset sale and conversion services agreement, Allegheny
Ludlum paid Bethlehem $105 million in cash of the previously announced $175
million asset purchase price, and issued a non-interest bearing promissory note
for the remaining $70 million. The note will be paid after the improvements to
the 110-inch Steckel mill are completed and the mill returns to a regularly
scheduled operating basis.
In addition, under the hot band supply agreement, Allegheny Ludlum agreed to
supply Bethlehem with up to 150,000 tons annually of stainless bands for further
processing at Lukens' stainless cold finishing facilities at its Washington, PA
and Massillon, OH plants until Bethlehem sells these facilities. Bethlehem has
announced that it plans to cease operations at these two facilities, but that it
continues to pursue the sale of the facilities.
DIVESTITURES
In 1997, the Company sold six businesses which manufactured collapsible metal
and laminate packaging tubes, thread cutting and rolling machines, electric
heating elements, metal dies and plastic compression molds and welded stainless
steel tubular products, and operated job training centers for the U.S.
government. Net after-tax proceeds from sales of these non-strategic businesses
together with proceeds from sales of investments, surplus real estate and
Company aircraft totaled $82.4 million in 1997.
RESULTS OF OPERATIONS
The Company's sales from continuing operations were $3.8 billion in 1998, 1997
and 1996. Continuing foreign sales represented approximately 20 percent of
continuing sales in 1998 and 18 percent of continuing sales in 1997 and 1996,
respectively. Continuing sales under contracts with the U.S. Government, which
included contracts with the Department of Defense, represented approximately 13
percent, 12 percent and 16 percent of continuing sales in 1998, 1997 and 1996,
respectively. Continuing defense sales represented approximately 10 percent, 9
percent and 11 percent of continuing sales in 1998, 1997, and 1996,
respectively.
Sales and operating profit for the Company's four business segments are
presented separately below and in Note 12 of the Notes to Consolidated Financial
Statements. Certain amounts for 1997 and 1996 have been reclassified to conform
with the 1998 presentation.
20
<PAGE> 3
<TABLE>
<CAPTION>
SPECIALTY METALS
(In millions) 1998 % Change 1997 % Change 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $2,053.4 (5)% $2,155.5 3% $2,096.3
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit 282.3 (12)% 320.7 3% 311.1
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 13.7% 14.9% 14.8%
- ---------------------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 16.8% 13.4% 11.7%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 COMPARED TO 1997
Sales and operating profit for the Specialty Metals Segment decreased 5 percent
and 12 percent, respectively, in 1998 compared to 1997.
Tight operating cost controls and cost reduction efforts continued throughout
the Specialty Metals Segment.
Flat-Rolled Products
- --------------------
Sales and operating profit of Allegheny Ludlum and Rodney Metals, which
consist primarily of flat-rolled products, declined 8 percent and 10 percent,
respectively, in 1998. Tons shipped remained level at 542,000 tons compared to
1997, but sales and operating profit declined primarily due to the impact on
pricing of imports of commodity stainless steel products into the U.S. market
from Europe and Asia. Average selling prices of flat-rolled specialty materials
declined to $2,184 per ton in 1998 from $2,380 in 1997.
Raw material costs were lower for flat-rolled products in 1998 as compared to
1997. Costs of nickel, a key raw material in the manufacture of stainless steel,
continued to decline during 1998.
In June 1998, Allegheny Ludlum and other domestic producers of flat-rolled
stainless steel sheet and strip products and several unions filed petitions with
the International Trade Commission ("ITC") and the U.S. Department of Commerce
("DOC") charging companies in eight foreign countries with violations of U.S.
trade laws. In response, on July 7, 1998, the DOC formally initiated antidumping
and countervailing duty cases. On July 24, 1998, the ITC found preliminarily
that imports of stainless steel sheet and strip in coils from certain countries
are materially injuring the domestic industry. As a result, the DOC conducted
countervailing duty and antidumping investigations of imports of stainless steel
sheet and strip in coils. These investigations were extended 30 days at the
request of U.S. producers, and on December 18, 1998, the DOC announced
preliminary antidumping duties on imports of stainless steel sheet and strip in
coils from companies in eight nations of up to nearly 59 percent. In addition,
on October 30, 1998, U.S. producers requested that the DOC apply the "critical
circumstances" provision of the U.S. trade laws to combat import surges. An
affirmative finding would impose antidumping duties retroactively to September
18, 1998. On November 10, 1998, the DOC announced preliminary countervailing
duty rates on imports of stainless steel sheet and strip in coils from France,
Italy and South Korea. Final antidumping duties are expected to be set by the
DOC in May 1999.
On August 5, 1998, Allegheny Ludlum announced that it would be increasing
prices for stainless steel hot rolled and cold rolled sheet, strip and coiled
plate effective with shipments on October 5, 1998. This price increase is
intended to support additional investment in the flat-rolled products business
to further improve product quality and continue the Company's position as a
low-cost world-class supplier of specialty steels. The ability to maintain price
increases depends on market conditions, including pricing by foreign producers.
The Company invested $5.2 million in 1998, and has invested $24.4 million
to-date, in a Chinese joint venture, Shanghai STAL Precision Stainless Steel
Company Limited, to produce precision rolled stainless steel strip. Allegheny
Ludlum owns 60 percent of the venture. The plant constructed by the joint
venture is expected to start commercial production in the first half of 1999.
In February 1998, an early settlement was reached on a new three-year labor
agreement covering United Steelworkers of America union members working at
Allegheny Ludlum plants in Pennsylvania, New York, Indiana, and Connecticut. The
collective bargaining agreement is effective through June 30, 2001.
High Performance Metals
- -----------------------
In 1998, sales from high-performance metals businesses increased 1 percent,
while operating profit decreased 13 percent compared to 1997. The decline in
operating results occurred primarily in titanium products as aircraft and jet
engine manufacturers continued to adjust inventory and level off production
rates. Titanium sales at Oremet-Wah Chang were also negatively impacted by the
Boeing-Timet supply agreements, and reduced demand from chemical processing and
recreational markets. In addition, start-up costs associated with Oremet-Wah
Chang's new electron beam melt facility and Allvac's new vacuum induction
furnace negatively impacted operating margins. These items were partially offset
by lower raw material costs and continuing cost reduction efforts.
Operating results for high performance metals include the results of two
acquisitions: OREMET, which was accounted for using the pooling of interests
method of accounting; and Allvac-SMP, acquired for $110 million in an all-cash
transaction in February 1998. The operating results reflect OREMET and Allegheny
Teledyne as if they had been combined for all periods presented.
21
<PAGE> 4
1997 COMPARED TO 1996
Both sales and operating profit for the Specialty Metals Segment increased 3
percent in 1997 compared to 1996, despite an increasingly difficult pricing
environment for stainless steel commodity grades and a $4.9 million charge for
environmental expenses. Tight operating cost controls remained in effect
throughout the Specialty Metals Segment.
Flat-Rolled Products
- --------------------
Sales of flat-rolled products declined 6 percent in 1997. Tons shipped
increased 1 percent in 1997, but sales declined due to the significant pricing
pressure in commodity stainless steel products. Tons shipped in 1997 were
542,000 compared to 535,000 in 1996. Operating profit declined 22 percent
reflecting the impact of pricing pressure from foreign sources, primarily in
Europe and Asia, and increased imports in the U.S. markets. Average selling
prices of flat-rolled specialty materials declined to $2,380 per ton in 1997
from $2,568 in 1996.
High Performance Metals
- -----------------------
Operating profit, excluding the environmental charge, and sales from high
performance metals businesses increased 42 percent and 20 percent, respectively,
compared to 1996. These results, which include the results of OREMET, reflected
strong demand from commercial aerospace and chemical processing industries for
specialized metals such as nickel-based superalloys, titanium, niobium and
zirconium and further acceptance of titanium for recreational product usage.
<TABLE>
<CAPTION>
AEROSPACE AND ELECTRONICS
(In millions) 1998 % Change 1997 % Change 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $1,007.0 9% $927.0 (4)% $970.0
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit 110.7 23% 90.3 (10)% 100.4
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 11.0% 9.7% 10.4%
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Sales as a Percentage of Sales 45.5% 46.2% 56.0%
- ---------------------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 19.4% 18.7% 21.0%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 COMPARED TO 1997
Sales for the Aerospace and Electronics Segment increased 9 percent and
operating profit increased 23 percent in 1998 compared to 1997. Sales and
operating profit improved in 1998 for most companies in the Segment compared to
1997. The 1998 results benefited from higher sales and improved margins at Ryan
Aeronautical due to the final deliveries on the Apache helicopter airframe
contract as well as increased development efforts on the Global Hawk High
Altitude Endurance Unmanned Aerial Surveillance/Reconnaissance Vehicle program.
With the conclusion of the Apache contract, Ryan expects lower sales and
operating income in 1999. At Brown Engineering, improvement in instrumentation
products and defense programs resulted in increased sales and operating profit.
At Electronic Technologies, improved performance in aircraft data systems and
electronic communication products for business and commuter aircraft offset the
negative impact on certain businesses resulting from the continuing economic
difficulties in Asia. At Continental Motors, sales and operating profits
increased on new piston engines and turbine engine programs, offsetting higher
costs associated with plant rationalization and new product development. At Cast
Parts, sales and operating profits declined due to production inefficiencies and
delays in shipments.
1997 COMPARED TO 1996
Sales for the Aerospace and Electronics Segment decreased 4 percent and
operating profit decreased 10 percent in 1997 compared to 1996. Ryan
Aeronautical experienced declines in sales and operating profit primarily due to
the scheduled wind-down of the initial phase of the Global Hawk program and the
completion in 1996 of a contract to supply mid-range unmanned aerial vehicles.
In September 1997, Ryan received authorization from the Pentagon to build two
additional Global Hawk vehicles and to begin procuring certain items for a fifth
vehicle. In 1997, The Boeing Company notified Ryan that it would terminate the
long-standing agreement with Ryan to fabricate the Apache helicopter fuselage.
Operating results declined at Brown Engineering in 1997 due to lower shipments
and funding levels on defense and NASA contracts and costs associated with
restructuring its operations. Nonrecurring expenses, primarily research and
development-related expenses for avionics, resulted in declines in operating
profit at Controls, a business unit of Electronic Technologies. Electronic
Technologies was the largest contributor to the segment's sales and profit for
1997. Demand for electromechanical relays, circuit board contract manufacturing,
and microelectronic hybrid products paced these results.
22
<PAGE> 5
<TABLE>
<CAPTION>
INDUSTRIAL
(In millions) 1998 % Change 1997 % Change 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $515.9 1% $511.7 3% $499.1
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit 53.0 (12)% 60.2 25% 48.3
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 10.3% 11.8% 9.7%
- ---------------------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 36.5% 36.8% 37.8%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 COMPARED TO 1997
Sales for the Industrial Segment increased 1 percent and operating profit
decreased 12 percent in 1998 compared to 1997. Decreased sales and operating
profit at Metalworking Products primarily resulted from reduced demand and lower
prices for tungsten, tungsten carbide and carbide cutting tools due to weaker
global economic conditions. Metalworking Products was also negatively impacted
by facility rationalization and related start-up costs and increased marketing
costs for business expansion. In addition, the General Motors strike negatively
impacted the results of Metalworking Products in the first half of 1998. These
negative developments were partially offset by continued improvement in results
at Casting Service, Portland Forge and Fluid Systems. Segment sales increased in
1998 due to improved sales of forged products, nitrogen gas springs and
construction and mining equipment.
1997 COMPARED TO 1996
Sales for the Industrial Segment increased 3 percent and operating profit
increased 25 percent in 1997 compared to 1996. Operating profit improved for
Metalworking Products, which was the largest revenue and profit producer in the
Segment. In addition, sales and operating profit improved at Portland Forge and
at Specialty Equipment's mining and construction equipment and material handling
businesses. These improvements in results were offset by a decline in operating
profit and sales at Casting Service due primarily to discontinuing certain
product lines and costs associated with other restructuring activities.
<TABLE>
<CAPTION>
CONSUMER
(In millions) 1998 % Change 1997 % Change 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales from Continuing Operations $247.6 (2)% $253.8 11% $228.3
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit 23.4 (32)% 34.5 141% 14.3
- ---------------------------------------------------------------------------------------------------------------------
Operating Profit as a Percentage of Sales 9.5% 13.6% 6.3%
- ---------------------------------------------------------------------------------------------------------------------
Foreign Sales as a Percentage of Sales 15.2% 18.0% 18.7%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
1998 COMPARED TO 1997
Sales for the Consumer Segment decreased 2 percent and operating profit
decreased 32 percent in 1998 compared to 1997. Sales and operating profit
decreased compared to 1997 when the Segment benefited from strong demand for a
new Water Pik showerhead product. In addition, operating results in 1998 were
adversely affected by development and product costs related to new water
filtration products. These negative developments were partially offset by
stronger sales and improved margins on Laars swimming pool products.
In August 1998, Laars acquired the assets of Trianco Heatmaker, Inc., a
manufacturer of high efficiency gas- and oil-fired boiler and water heating
products based in Randolph, MA.
1997 COMPARED TO 1996
Sales for the Consumer Segment increased 11 percent and operating profit
increased 141 percent in 1997 compared to 1996. The improvement in operating
results at Water Pik was particularly strong due to the favorable performance of
new products and cost reductions. Sales and operating profit improved at Laars
primarily due to the successful integration of the pool products of Laars and
Jandy Industries, Inc., a major United States producer of water flow control
valves and electronic control systems for the swimming pool industry which was
acquired in 1996. The introduction of a new pool heater product also contributed
to improved sales and operating profit at Laars.
23
<PAGE> 6
MERGER AND RESTRUCTURING COSTS
Merger and restructuring costs recorded by the Company were $67.8 million, $12.0
million and $57.5 million in 1998, 1997 and 1996, respectively. The Company
recorded charges of $19.1 million in 1998, $12.0 million in 1997 and $57.5
million in 1996 for severance, financial advisory, legal, accounting, and other
costs associated with the acquisition of OREMET in 1998 and the combination of
Allegheny Ludlum and Teledyne in 1996. The Company also recorded charges of
$19.3 million in 1998 resulting primarily from special termination benefits
granted to approximately 300 Allegheny Ludlum employees who were part of a
planned salaried workforce reduction completed in the 1998 third quarter. This
workforce reduction will result in pretax savings of approximately $16 million
annually. Costs associated with exiting certain product lines in the 1998 third
quarter and asset impairments resulting from new capital expenditure programs
coming on-line resulted in a charge of $29.4 million. Sales and operating
results for the business being exited were not financially material.
CORPORATE EXPENSES
Corporate expenses continued to decline to $36.5 million in 1998 from $40.4
million in 1997 and $43.7 million in 1996. The decline in 1998 resulted
primarily from the continued focus on cost controls. Corporate expenses declined
in 1997 primarily from the consolidation of the Allegheny Ludlum and Teledyne
corporate operations.
INVESTMENTS AND OPERATIONS SOLD OR HELD FOR SALE
In 1998, income from investments and operations sold or held for sale of $1.4
million included pretax gains on the sales of real estate and certain
investments offset by losses associated with asset sales activities during the
year.
Income from investments and operations sold or held for sale in 1997 included
pretax gains of $18.1 million on the divestitures of businesses which operated
job training centers for the U.S. Government and which manufactured collapsible
metal and laminate packaging tubes, thread cutting and rolling machines,
electric heating elements, metal dies and plastic compression molds, and welded
stainless steel tubular products, $27.6 million on the sale of the Company's
investment in Semtech Corporation common stock, and $17.3 million on the sale of
the Company's investment in Nitinol Development Corporation. In addition,
operating results for investments and operations sold or held for sale included
a charge of $5.3 million to write off the Company's investment in a research and
development venture in 1997 and charges of $6.8 million in 1997 and $7.7 million
in 1996 to settle certain U.S. Government contracting matters relating to former
Teledyne businesses.
Income from investments and operations sold or held for sale in 1996 included
pretax gains of $41.0 million on the sale of the Company's defense vehicle
business and $20.3 million on the sale of surplus California real estate.
These amounts are included in other income on the income statement.
INCOME TAXES
The Company's effective income tax rate was 38.3 percent, 37.3 percent and 40.5
percent in 1998, 1997 and 1996, respectively. The 1997 rate includes the effect
of favorable adjustments to prior years' tax liabilities. The 1996 rate resulted
from non-deductible business combination costs in 1996.
The Company has determined, based on its history of operating earnings,
expectations of future operating earnings and potential tax planning strategies,
that it is more likely than not that the deferred income tax assets at December
31, 1998 will be realized.
FINANCIAL CONDITION AND LIQUIDITY
In 1998, cash generated from operations of $399.4 million, borrowings on credit
lines of $113.6 million, proceeds from sales of businesses and investments and
disposals of assets of $48.2 million and proceeds from the sale of short-term
investments of $34.4 million were used to invest $401.7 million in capital
equipment and business expansion, pay dividends of $122.3 million and purchase
treasury stock of $49.4 million. Cash transactions plus cash on hand at the
beginning of the year resulted in a cash position of $74.8 million at December
31, 1998.
Working capital decreased to $742.2 million at December 31, 1998 compared to
$842.6 million at the end of 1997. The current ratio decreased to 2.2 in 1998
from 2.4 in 1997. The decrease in working capital was primarily due to
reductions in accounts receivable and inventory, even after taking into account
the working capital acquired with businesses purchased, and increased short-term
debt.
In the 1998 fourth quarter, the Company entered into three short-term credit
agreements in connection with the closing of the asset sale agreement with
Bethlehem. These agreements provide for borrowings totaling up to $185.0 million
on a revolving credit basis. At December 31, 1998, borrowings outstanding under
these agreements were $65.0 million. Allegheny Ludlum also issued a $70.0
million non-interest bearing promissory note to Bethlehem in the 1998 fourth
quarter in connection with the closing of the asset sale agreement.
The Company's debt to capitalization ratio increased to 27.8 percent in 1998
from 21.2 percent in 1997. The Company's net debt to total capitalization ratio
increased to 24.7 percent in 1998 from 16.6 percent in 1997. These increases
were primarily due to increased cash outlays for strategic acquisitions and
capital spending, primarily in the Specialty Metals Segment.
Total capital expenditures for 1999 are expected to approximate $128 million.
However, as a result of the uncertain business outlook in the U.S. and concern
about global economic conditions, the Company intends to continue to closely
monitor business conditions and hold tighter than usual reins on capital and
discretionary spending until it has a better sense of the economy's strength or
weakness.
24
<PAGE> 7
In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum
were merged with overfunded defined benefit pension plans of Teledyne. The
resulting pension plan is fully funded with assets significantly in excess of
the projected benefit obligations. As a result, for the indefinite future, the
Company does not anticipate that it will have to contribute to its defined
benefit pension plan. Under current Internal Revenue Code regulations, certain
amounts paid for retiree medical expenses may be reimbursed annually from the
excess pension plan assets. In 1998, the Company recovered the pre-tax amount of
$37.4 million under these regulations. While not affecting reported operating
profit, cash flow increased by the after-tax effect of the recovered amount.
In October 1998, the Company's Board of Directors authorized a stock
repurchase program to acquire up to 20 million shares of Allegheny Teledyne
common stock. The shares may be purchased from time-to-time in the open market
or in negotiated transactions. As of December 31, 1998, the Company had
repurchased 2.5 million shares at a cost of $49.4 million. From the inception of
the share repurchase program through February 26, 1999, the Company repurchased
3.8 million shares on the open market for a cost of $76.0 million.
In 1997, the Company repurchased 3.8 million shares of Allegheny Teledyne
common stock at a cost of $107.7 million. However, average common shares
outstanding for 1997 were slightly higher than 1996 because share issuances upon
stock option exercises exceeded share repurchases. The 12 million share
repurchase program initiated in 1997 was terminated October 31, 1997 in
connection with the announced acquisition of OREMET, which was accounted for as
a pooling of interests.
The Company believes that internally generated funds, current cash on hand
and borrowings from existing credit lines will be adequate to meet foreseeable
needs. The Company may choose, however, to issue additional debt depending on
market conditions.
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information" was issued in June
1997. This statement was adopted by the Company in 1998. It did not have a
material effect on the consolidated financial statements.
FASB Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued in February 1998. This statement revises
employers' disclosures about pension and postretirement benefit plans. It does
not change the measurement or recognition of those plans. The Company adopted
this statement in 1998.
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 its statement of financial position and measure those instruments
at fair value. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company is presently evaluating the
effect of adopting this statement.
OTHER MATTERS
COSTS AND PRICING
Although inflationary trends in recent years have been moderate, during the same
period certain critical raw material costs have been volatile. The Company
primarily uses the last-in, first-out method of inventory accounting which
reflects current costs in the cost of products sold. The Company considers these
costs, the increasing costs of equipment and other costs in establishing its
sales pricing policies and has instituted raw material surcharges on certain of
its products to the extent permitted by competitive factors in the marketplace.
The Company continues to emphasize cost containment in all aspects of its
business.
IMPACT OF THE INTRODUCTION OF THE EURODOLLAR
In 1998, the Company initiated an internal analysis to determine the 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 preliminary findings, the
Company 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, it does not anticipate
associated costs to be 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.
HEDGING
The Company uses derivative financial instruments from time to time to hedge
ordinary business risks regarding foreign currencies on product sales and to
partially hedge against volatile raw material cost fluctuations in the Specialty
Metals Segment.
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 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 and
which otherwise would expose the Company, on the basis of its aggregate net cash
flows in respective currencies, to foreign currency risk.
25
<PAGE> 8
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. Some
of these contracts can be designated as hedges of the Company's firm sales
commitments and are short-term in nature to correspond to the commitment period.
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 have any of the underlying sales transactions
for such significant contracts failed to occur which resulted in a material
adverse effect on the Company.
The Company has guaranteed the outstanding Allegheny Ludlum fixed rate 6.95
percent 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 then 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
hedging 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.
ENVIRONMENTAL
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act, commonly known as Superfund, and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws. The Company's reserves for
environmental remediation totaled approximately $33.7 million at December 31,
1998. Based on currently available information, management does not believe
future environmental costs in excess of those accrued with respect to sites with
which the Company has been identified are likely to have a material adverse
effect on the Company's financial condition or liquidity. 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 37 of such sites, excluding those at which it
believes it has no future liability. The Company's involvement is very limited
or de minimis at approximately 17 of these sites, and the potential loss
exposure with respect to any of the remaining 20 individual sites is not
considered to be material.
For additional discussion of environmental matters, see Notes 1 and 15 of the
Notes to Consolidated Financial Statements.
GOVERNMENT CONTRACTS
Several 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. Under
the False Claims Act, a person may assert the rights of the U.S. Government by
initiating a suit under seal against a contractor. For the claim to be
successful, the person must have information that the contractor falsely
submitted a claim to the U.S. Government for payment. The U.S. Government may
choose to intervene and assume control of the case.
26
<PAGE> 9
Government contracting claims may be resolved by detailed fact-finding and
negotiation. When they are not resolved in that way, 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. 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 15 of the
Notes to Consolidated Financial Statements.
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 are in process 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
approximately 90 percent complete. While the Company estimates that based on
dollars expended, about 95 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 continues to target
having substantially all internal solutions relating to Year 2000 functionality
of its computer systems developed and implemented by June 1999. This targeted
completion date depends, however, on numerous assumptions, including continued
availability of trained personnel in this area. In addition, 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 be made 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 and is working to resolve such issues.
The Company believes that it does not have any significant product-related Year
2000 issues. The Company has not conducted any review of products manufactured
and sold by discontinued businesses or businesses 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 that may be required to address Year 2000 issues associated with
some products. Substantially all costs related to the Company's Year 2000
initiatives are expensed as incurred and funded through operating cash flows.
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 worst 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 with 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. Efforts are underway to identify contingency
plans should unplanned situations arise on January 1, 2000.
27
<PAGE> 10
While the Company has been conducting a comprehensive Year 2000 review of its
computer systems and products, 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 AND OTHER STATEMENTS
From time to time, the Company has made and may continue to make "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. This annual report contains many forward looking statements.
These statements, which represent the Company's expectations or beliefs
concerning various future events, include statements concerning: anticipated
effects of the proposed strategic transformation of and dispositions by the
Company; anticipated effects of the acquisitions of OREMET and Allvac-SMP and
the agreements with Bethlehem Steel Corporation on earnings, cost savings and
operations of the Company; cash flow; aviation and aerospace industry trends;
cost reductions; certain expected capital expenditures; computer software
modification or replacement; anticipated expenditures to address the impact of
Year 2000 issues; anticipated effects of the euro currency conversion; the
outcome of any government inquiries, litigation or other proceedings related to
government contracts or other matters; and future environmental costs. These
statements are based on current expectations that involve a number of risks and
uncertainties, including those described under the captions "Other Matters --
Environmental" and "Other Matters -- Government Contracts." Actual results may
differ materially from results anticipated in forward looking statements. The
Company assumes no duty to update its forward looking statements. Other
important factors that could cause actual results to differ from those in such
forward looking statements include the following:
Uncertainties Relating to Proposed Strategic Transformation. The Company has
identified anticipated benefits expected to result from the transformation and
dispositions described under the caption "Strategic Transformation." Completing
the transactions and achieving the anticipated results involves inherent
uncertainties, including those relating to whether legal, tax, financial and
other considerations applicable to the spin-offs and public offerings can be
successfully resolved, and whether the contemplated dispositions can be
accomplished on terms acceptable to the Company, as well as business and other
risks affecting the businesses of the Company, the two new companies expected to
result from the transformation and the businesses the Company intends to sell.
Consummation of the transactions and realization of the anticipated results
could take longer than expected and implementation difficulties and market
factors could change the anticipated results. Accordingly, there can be no
assurance that the Company will be able to realize, or do so within any
particular time frame, the expected benefits anticipated to be achieved as a
result of the proposed transformation and dispositions.
Cyclical Demand for Specialty Metals. The Company's specialty metals
businesses accounted for a significant portion of the Company's 1998 total sales
and its 1998 total income. Demand for products of these businesses is cyclical
because the industries in which customers of such businesses operate are
cyclical. Various changes in general economic conditions affect these
industries, including decreases in the rate of consumption or use of their
products due to economic recessions.
Significant downturns in the domestic economy are believed to have adversely
affected the results of operations of Allegheny Ludlum, Teledyne and OREMET from
time to time during their respective histories. Other factors causing
fluctuation in market demand and volatile pricing include national and
international overcapacity, currency fluctuations, lower priced imports and
increases in use or decreases in prices of substitute materials.
The current trend of price deflation for many commodity products may also
adversely affect prices for commodity grades of specialty metals. As a result of
these factors, the Company's operating results could be subject to significant
fluctuation. For example, an adverse pricing environment for commodity grades of
stainless steel in 1998 and 1997 and an adverse pricing environment for titanium
products in 1998 negatively affected sales and operating profit of the Company's
specialty metals businesses.
Unavailability of Raw Materials for Specialty Metals. Certain important raw
materials used to produce specialty metals must be acquired from foreign
sources. Some of these sources operate in countries that may be subject to
unstable political and economic conditions. These conditions may disrupt
supplies or affect the prices of these materials. Purchase prices of certain
critical raw materials are volatile. As a result, the Company's operating
results could be subject to significant fluctuation. The Company enters into raw
material future contracts from time to time to hedge its exposure to price
fluctuation. The Company believes that it has adequate controls to monitor such
activities which are not financially material.
Risks of Export Sales. Export sales will continue to account for a
significant percentage of the Company's sales. Risks associated with export
sales include: political and economic instability, including the current
prevailing weak conditions in several of the world's economies; accounts
receivable collection; export controls; changes in legal and regulatory
requirements; policy changes affecting the markets for the Company's products;
changes in tax laws and tariffs; euro currency conversion; and exchange rate
fluctuations (which may affect sales to international customers and the value of
and profits earned on export sales when converted into dollars). Any of these
factors could materially adversely effect the Company's results.
Risks Associated with Acquisition and Disposition Strategy. The Company
intends to continue to strategically position its businesses in order to improve
its ability to compete.
28
<PAGE> 11
The Company plans to do this by seeking specialty niches, expanding its global
presence, acquiring businesses complementary to existing strengths and
continually evaluating the performance and strategic fit of existing businesses.
The Company regularly considers acquisition and business combination
opportunities as well as possible business dispositions. Its management from
time to time holds discussions with management of other companies to explore
such opportunities and possible dispositions. As a result, the relative makeup
of the businesses comprising the Company are subject to change. Acquisitions
involve various inherent risks, such as: assessing accurately the value,
strengths, weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates; the potential loss of key personnel of
an acquired business; the Company's ability to achieve identified financial and
operating synergies anticipated to result from an acquisition; and unanticipated
changes in business and economic conditions affecting an acquired business.
International acquisitions could be affected by export controls, exchange rate
fluctuations, the euro conversion, domestic and foreign political conditions and
further deterioration in domestic and foreign economic conditions.
Uncertainties Relating to Synergies. There can be no assurance that the
Company will be able to realize, or do so within any particular time frame, the
cost reductions, cash flow increases or other synergies expected to result from
acquisitions and other transactions the Company has made or may make or generate
additional revenue to offset any unanticipated inability to realize such
expected synergies. Realization of the anticipated benefits of acquisitions and
other transactions, including the OREMET and Allvac-SMP acquisitions and the
agreements with Bethlehem Steel Corporation, could take longer than expected and
implementation difficulties, market factors and further deterioration in
domestic or global economic conditions could alter the anticipated benefits.
Labor Matters. The Company employs approximately 21,500 persons, 9,400 of
whom are employed at companies in the Specialty Metals Segment. Approximately 32
percent of the Company's workforce is covered by various collective bargaining
agreements, principally with the United Steelworkers of America ("USWA"), and
certain of which are highlighted below.
Approximately 400 OREMET employees are covered by a collective bargaining
agreement with the USWA which is effective through July 31, 2000. Approximately
700 Wah Chang employees are covered by a collective bargaining agreement with
the USWA which is effective through October 1, 2000. Approximately 400 employees
of Continental Motors are covered by a collective bargaining agreement with the
United Automobile, Aerospace and Agricultural Implement Workers of America which
is effective through December 16, 2000. Approximately 400 employees at Allegheny
Ludlum's Washington Plant are covered by a collective bargaining agreement with
the USWA which is effective through September 30, 1999. Substantially all of
Allegheny Ludlum's 3,600 other production and maintenance employees are covered
by collective bargaining agreements between Allegheny Ludlum and the USWA, which
are effective through June 30, 2001.
In 1994, following the expiration of a prior collective bargaining agreement
between Allegheny Ludlum and the USWA, the USWA authorized a strike by its
members that lasted 10 weeks and materially adversely affected Allegheny
Ludlum's operating results. There can be no assurance that the Company will
succeed in concluding collective bargaining agreements with the USWA or other
unions to replace those that expire.
Additional factors are described from time to time in the Company's filings
with the Securities and Exchange Commission.
29
<PAGE> 12
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 3,923.4 $ 4,030.1 $ 4,052.6
- ---------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 2,950.2 3,039.6 3,081.0
Selling and administrative expenses 503.6 510.3 538.2
Merger and restructuring costs 67.8 12.0 57.5
Interest expense, net 19.3 16.9 35.1
- ---------------------------------------------------------------------------------------------------------------------
3,540.9 3,578.8 3,711.8
- ---------------------------------------------------------------------------------------------------------------------
Earnings before other income 382.5 451.3 340.8
Other income 8.7 72.9 77.6
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 391.2 524.2 418.4
Provision for income taxes 150.0 195.4 169.6
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY LOSS 241.2 328.8 248.8
Extraordinary loss on redemption
of debt, net of income tax benefit -- -- (13.5)
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME 241.2 328.8 235.3
Dividends on preferred stock -- -- 2.0
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 241.2 $ 328.8 $ 233.3
- ---------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income before extraordinary loss $ 1.23 $ 1.67 $ 1.29
Extraordinary loss -- -- (0.07)
- ---------------------------------------------------------------------------------------------------------------------
BASIC NET INCOME PER COMMON SHARE $ 1.23 $ 1.67 $ 1.22
- ---------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income before extraordinary loss $ 1.22 $ 1.64 $ 1.27
Extraordinary loss -- -- (0.07)
- ---------------------------------------------------------------------------------------------------------------------
DILUTED NET INCOME PER COMMON SHARE $ 1.22 $ 1.64 $ 1.20
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 13
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 74.8 $ 53.7
Short-term investments available for sale -- 34.4
Accounts receivable 534.7 576.0
Inventories 659.9 697.9
Deferred income taxes 59.3 40.3
Tax refund 5.9 9.4
Prepaid expenses and other current assets 29.9 32.3
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,364.5 1,444.0
Property, plant and equipment 1,003.6 753.8
Prepaid pension cost 418.6 379.7
Cost in excess of net assets acquired 256.0 186.5
Other assets 132.8 134.2
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 3,175.5 $ 2,898.2
- ---------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Accounts payable $ 227.0 $ 267.9
Accrued liabilities 327.1 328.8
Short-term debt and current portion of long-term debt 68.2 4.7
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 622.3 601.4
Long-term debt 446.8 330.4
Accrued postretirement benefits 582.6 574.5
Other 183.9 147.3
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,835.6 1,653.6
- ---------------------------------------------------------------------------------------------------------------------
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 in 1998 and 197,730,720 in 1997; outstanding - 194,873,151
shares in 1998 and 195,713,604 shares in 1997 19.8 19.8
Additional paid-in capital 467.3 463.5
Retained earnings 923.9 822.6
Treasury stock: 3,064,513 shares in 1998 and 2,017,116 shares in 1997 (67.6) (60.2)
Foreign currency translation losses (5.9) (2.4)
Unrealized gains on securities 2.4 1.3
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,339.9 1,244.6
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,175.5 $ 2,898.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE> 14
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 241.2 $ 328.8 $ 235.3
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 109.0 104.4 109.7
Non-cash restructuring costs 50.9 -- --
Deferred income taxes (7.3) (4.3) 19.1
Gains on sales of businesses and investments (1.6) (69.2) (64.5)
Extraordinary loss on redemption of debt -- -- 13.5
Change in operating assets and liabilities:
Accounts payable (57.4) 11.1 26.6
Accounts receivable 57.0 (25.5) 1.6
Prepaid pension cost (50.2) (24.7) (41.8)
Inventories 49.5 (64.8) (120.6)
Accrued liabilities 7.0 (48.6) (3.1)
Tax refund 6.1 37.7 --
Accrued income taxes 0.1 36.4 17.9
Other (4.9) 3.3 27.2
- ---------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 399.4 284.6 220.9
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Short-term investments - sales 34.4 31.5 6.1
Short-term investments - purchases -- (2.5) (73.8)
- ---------------------------------------------------------------------------------------------------------------------
Net (increase) decrease in short-term investments 34.4 29.0 (67.7)
Purchases of businesses and investment in ventures (229.1) (40.4) (23.6)
Purchases of property, plant and equipment (172.6) (122.8) (92.2)
Proceeds from the sales of businesses and investments 28.9 112.1 124.8
Disposals of property, plant and equipment 19.3 30.7 16.0
Other (9.4) (5.8) (9.1)
- ---------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (328.5) 2.8 (51.8)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in long-term debt 123.3 4.4 290.7
Payments on long-term debt and capital leases (9.7) (117.6) (456.0)
- ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in long-term debt 113.6 (113.2) (165.3)
Dividends paid (122.3) (112.2) (106.1)
Purchases of common stock (49.4) (107.7) (23.7)
Exercises of stock options 8.3 35.4 13.9
Issuance of OREMET common stock -- -- 103.2
Redemption of Teledyne preferred stock -- -- (41.4)
Other -- -- 1.1
- ---------------------------------------------------------------------------------------------------------------------
CASH USED IN FINANCING ACTIVITIES (49.8) (297.7) (218.3)
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21.1 (10.3) (49.2)
Cash and cash equivalents at beginning of year 53.7 64.0 113.2
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 74.8 $ 53.7 $ 64.0
- ---------------------------------------------------------------------------------------------------------------------
NON-CASH TRANSACTIONS:
Assets acquired under promissory note $ 65.9 $ -- $ --
Preferred stock dividends on common stock -- -- 8.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts presented on the Consolidated Statements of Cash Flows may not agree to
the corresponding changes in balance sheet items due to the accounting for
purchases and sales of businesses and the effects of foreign currency
translation.
The accompanying notes are an integral part of these statements.
32
<PAGE> 15
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Treasury Comprehensive Stockholders'
Stock Capital Earnings Stock Income Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 18.8 $303.8 $514.6 $ -- $ 14.5 $ 851.7
- ---------------------------------------------------------------------------------------------------------------------
Net income -- -- 235.3 -- -- 235.3
Other comprehensive income, net of tax:
Foreign currency translation losses -- -- -- -- (1.7) (1.7)
Unrealized holding losses arising
during period -- -- -- -- (1.6) (1.6)
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- 235.3 -- (3.3) 232.0
Cash dividends on common and preferred
stock (Allegheny Teledyne $0.16 per
common share, Allegheny Ludlum $0.42
per common share, Teledyne $0.44 per
common share and $1.20 per
preferred share) -- -- (106.1) -- -- (106.1)
OREMET common stock offering 0.6 102.6 -- -- -- 103.2
Employee stock plans 0.1 26.5 -- -- -- 26.6
Purchase and cancellation
of common stock -- (23.7) -- -- -- (23.7)
Preferred stock dividends on common
stock (Teledyne $0.08 per share) -- -- (8.3) -- -- (8.3)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 19.5 409.2 635.5 -- 11.2 1,075.4
- ---------------------------------------------------------------------------------------------------------------------
Net income -- -- 328.8 -- -- 328.8
Other comprehensive income, net of tax:
Foreign currency translation losses -- -- -- -- (5.0) (5.0)
Unrealized losses on securities:
Unrealized holding gains arising
during period -- -- -- -- 9.7 9.7
Less: realized gain included
in net income -- -- -- -- (17.0) (17.0)
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- 328.8 -- (12.3) 316.5
Cash dividends on common stock
($0.64 per common share) -- -- (112.2) -- -- (112.2)
Purchase of common stock -- -- -- (107.7) -- (107.7)
Employee stock plans 0.3 54.3 (29.5) 47.5 -- 72.6
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 19.8 463.5 822.6 (60.2) (1.1) 1,244.6
- ---------------------------------------------------------------------------------------------------------------------
Net income -- -- 241.2 -- -- 241.2
Other comprehensive income, net of tax:
Foreign currency translation losses -- -- -- -- (3.5) (3.5)
Unrealized gains on securities:
Unrealized holding gains arising
during period -- -- -- -- 2.2 2.2
Less: realized gain included
in net income -- -- -- -- (1.1) (1.1)
- ---------------------------------------------------------------------------------------------------------------------
Comprehensive income -- -- 241.2 -- (2.4) 238.8
Cash dividends on common stock
($0.64 per common share) -- -- (122.3) -- -- (122.3)
Purchase of common stock -- -- -- (49.4) -- (49.4)
Employee stock plans -- 3.8 (17.6) 42.0 -- 28.2
- ---------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 19.8 $467.3 $923.9 $(67.6) $ (3.5) $1,339.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE> 16
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS
ALLEGHENY TELEDYNE INCORPORATED
We have audited the accompanying consolidated balance sheets of Allegheny
Teledyne Incorporated and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1997 and 1996 financial statements of Oregon
Metallurgical Corporation, a wholly owned subsidiary, which statements reflect
total assets constituting 10.1 percent of the consolidated total as of December
31, 1997, and total revenues constituting 7.1 percent and 5.8 percent of the
related consolidated totals for the years ended December 31, 1997 and 1996,
respectively. Those statements were audited by other auditors whose report dated
January 23, 1998 has been furnished to us and our opinion, insofar as it relates
to data included for Oregon Metallurgical Corporation, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Allegheny Teledyne Incorporated at
December 31, 1998 and 1997, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
January 26, 1999
34
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES --
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Allegheny Teledyne
Incorporated ("Allegheny Teledyne") and its subsidiaries. As described in Note
2, on August 15, 1996, Allegheny Ludlum Corporation ("Allegheny Ludlum") and
Teledyne, Inc. ("Teledyne") combined to form Allegheny Teledyne. As described in
Note 3, on March 24, 1998, Allegheny Teledyne acquired the stock of Oregon
Metallurgical Corporation ("OREMET") in a merger transaction. Both of these
combinations were accounted for under the pooling of interests method of
accounting and the consolidated financial statements reflect the combined
financial position, operating results and cash flows of Allegheny Ludlum,
Teledyne and OREMET as if they had been combined for all periods presented.
Significant intercompany accounts and transactions have been eliminated. Unless
the context requires otherwise, the "Company" refers to Allegheny Teledyne and
its subsidiaries.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from those estimates. Management believes that the estimates are reasonable.
CASH EQUIVALENTS
Marketable securities with original maturities of three months or less are
included in cash equivalents. The carrying amounts approximate market.
ACCOUNTS RECEIVABLE
Receivables are presented net of a reserve for doubtful accounts of $13.3
million at December 31, 1998 and $18.4 million at December 31, 1997. The Company
markets its products to a diverse customer base, principally throughout the
United States. Trade credit is extended based upon evaluations of each
customer's ability to perform its obligations, which are updated periodically.
INVENTORIES
Inventories are stated at the lower of cost (last-in, first-out; first-in,
first-out and average cost methods) or market, less progress payments. Costs
include direct material, direct labor and applicable manufacturing and
engineering overhead, and other direct costs.
PROPERTY AND EQUIPMENT
Property, plant and equipment are carried at cost. The principal method of
depreciation adopted for all property placed into service after July 1, 1996 is
the straight-line method. For buildings and equipment acquired prior to July 1,
1996, depreciation is computed using a combination of accelerated and
straight-line methods. The Company believes the straight-line method more
appropriately reflects its financial results by better allocating costs of new
property over the useful lives of these assets. In addition, the method more
closely conforms with that prevalent in the industries in which the Company
operates and with that used by Allegheny Ludlum. The effect of this change on
net income for 1996 was not material.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired related to businesses purchased after
November 1970 is being amortized on a straight-line basis over periods not
exceeding 40 years. Goodwill amortization expense was $8.1 million, $7.0 million
and $5.5 million in 1998, 1997 and 1996, respectively.
FINANCIAL INSTRUMENTS
The fair values of financial instruments approximated their carrying values at
December 31, 1998. Fair values have been determined through information obtained
from quoted market sources and management estimates.
The Company's investments in debt and equity securities are classified as
available-for-sale and are reported at fair values, with net unrealized
appreciation and depreciation on investments reported as a component of
accumulated other comprehensive income. The Company's short-term investments
available for sale at December 31, 1997 consisted of corporate debt securities
and certificates of deposit which had maturities of less than one year.
ENVIRONMENTAL
Costs that mitigate or prevent future environmental contamination or extend the
life, increase the capacity or improve the safety or efficiency of property
utilized in current operations are capitalized. Other costs that relate to
current operations or an existing condition caused by past operations are
expensed. Environmental liabilities are recorded when the Company's liability is
probable and the costs are reasonably estimable, but generally not later than
the completion of the feasibility study or the Company's recommendation of a
remedy or commitment to an appropriate plan of action. The accruals are reviewed
periodically and, as investigations and remediations proceed, adjustments are
made as necessary. Accruals for losses from environmental remediation
obligations do not consider the effects of inflation, and anticipated
expenditures are not discounted to their present value. The accruals are not
reduced by possible recoveries from insurance carriers or other third parties,
but do reflect anticipated allocations among potentially responsible parties at
federal Superfund sites or similar state-managed sites and an assessment of the
likelihood that such parties will fulfill their obligations at such sites. The
measurement of environmental liabilities by the Company is based on currently
available facts, present laws and regulations, and current technology. Such
estimates take into consideration the Company's prior experience in site
investigation and remediation, the data concerning cleanup costs available from
other companies and regulatory authorities, and the professional judgment of the
Company's environmental experts in consultation with outside environmental
specialists, when necessary.
35
<PAGE> 18
REVENUE RECOGNITION
Commercial sales and revenue from U.S. Government fixed-price type contracts are
generally recorded as deliveries are made or as services are rendered. For
certain fixed-price type contracts that require substantial performance over a
long time period before deliveries begin, sales are recorded based upon
attainment of scheduled performance milestones. Sales under cost-reimbursement
contracts are recorded as costs are incurred and fees are earned.
Since certain contracts extend over a long period of time, all revisions in
cost and funding estimates during the progress of work have the effect of
adjusting the current period earnings on a cumulative catch-up basis. When the
current contract estimate indicates a loss, provision is made for the total
anticipated loss.
RESEARCH AND DEVELOPMENT
Company-funded research and development costs ($57.5 million in 1998, $63.1
million in 1997 and $68.1 million in 1996), which include bid and proposal
costs, are expensed as incurred. Costs related to customer-funded research and
development contracts are charged to costs and expenses as the related sales are
recorded. A portion of the costs incurred for Company-funded research and
development is recoverable through overhead cost allowances on government
contracts.
INCOME TAXES
Provision for income taxes includes deferred taxes resulting from temporary
differences in income for financial and tax purposes using the liability method.
Such temporary differences result primarily from differences in the carrying
value of assets and liabilities.
NET INCOME PER COMMON SHARE
Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average of common shares outstanding during
the year. Diluted earnings per share is calculated by using the weighted average
of common shares outstanding adjusted to include the potentially dilutive effect
of outstanding stock options.
NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board ("FASB") Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," was issued in June
1997. This statement was adopted by the Company in 1998. It did not have a
material effect on the consolidated financial statements.
FASB Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued in February 1998. This statement revises
employers' disclosures about pension and postretirement benefit plans. It does
not change the measurement or recognition of those plans. The Company adopted
this statement in 1998.
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. This statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company is presently evaluating the
effect of adopting this statement.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified to conform with the 1998
presentation.
NOTE 2.
COMBINATION OF
ALLEGHENY LUDLUM AND TELEDYNE --
On August 15, 1996, Allegheny Ludlum and Teledyne became wholly owned
subsidiaries of Allegheny Teledyne. Allegheny Ludlum shareholders received one
share of Allegheny Teledyne common stock for each one of their Allegheny Ludlum
common shares. Teledyne stockholders received 1.925 shares of Allegheny Teledyne
common stock for each one of their Teledyne common shares. There were 174.2
million shares of Allegheny Teledyne common stock issued in the tax-free
combination of the two companies.
The Company recorded merger and restructuring costs of $11.2 million ($6.8
million net of tax) and $57.5 million ($42.9 million net of tax) in 1997 and
1996, respectively, for financial advisory, legal, accounting, severance and
other costs associated with the combination of the companies.
NOTE 3.
ACQUISITION OF OREMET --
On March 24, 1998, Allegheny Teledyne completed its acquisition of the stock of
OREMET. Under the terms of the merger agreement, OREMET shareholders received
1.296 shares of Allegheny Teledyne common stock in a tax-free exchange for each
share of OREMET common stock. A total of 21.6 million shares of Allegheny
Teledyne stock were issued in the merger. The merger was accounted for under the
pooling of interests accounting method. Revenues and net income for the year
ended December 31, 1997 (the most recent period prior to the pooling) were
$3,745.1 million and $297.6 million, respectively, for Allegheny Teledyne and
$285.0 million and $31.2 million, respectively, for OREMET. Intercompany
transactions prior to the merger were not material. The effect of conforming
accounting policies was not material.
The Company recorded merger and restructuring charges of $19.1 million ($15.7
million net of tax) in 1998 for financial advisory, legal, accounting, severance
and other costs associated with the merger.
OREMET is an integrated producer and distributor of titanium sponge, ingot,
mill products and castings for use in the aerospace, industrial, recreational
and military markets. It operates manufacturing and finishing facilities in
Oregon, Washington and Pennsylvania and has nine service centers in the United
States, with additional service centers in the United Kingdom, Germany,
Singapore and Canada.
36
<PAGE> 19
NOTE 4.
INVENTORIES --
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 196.1 $ 212.8
Work-in-process 471.6 561.2
Finished goods 133.4 145.5
- ---------------------------------------------------------------------------------------------------------------------
Total inventories at current cost 801.1 919.5
Less allowances to reduce current cost values to LIFO basis (128.7) (206.4)
Progress payments (12.5) (15.2)
- ---------------------------------------------------------------------------------------------------------------------
Total inventories $ 659.9 $ 697.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventories, before progress payments, determined on the last-in, first-out
method were $456.4 million at December 31, 1998 and $531.4 million at December
31, 1997. The remainder of the inventory was determined using the first-in,
first-out and average cost methods. These inventory values do not differ
materially from current cost.
During 1997 and 1996, inventory usage resulted in liquidations of last-in,
first-out inventory quantities. These inventories were carried at the lower
costs prevailing in prior years as compared with the cost of current purchases.
The effect of these last-in, first-out liquidations was to increase net income
by $7.3 million in 1997 and $4.9 million in 1996.
The Company enters into raw material (principally nickel) future contracts
from time to time to hedge its exposure to price fluctuations. Gains and losses
on hedged contracts are deferred and recognized in cost of sales upon expiration
of the contract period. These contracts are not significant to the Company's
total raw material purchases and are not material to the Company from a
financial point of view.
Inventories, before progress payments, related to long-term contracts were
$2.0 million and $16.2 million at December 31, 1998 and 1997, respectively.
Progress payments related to long-term contracts were $0.1 million and $5.7
million at December 31, 1998 and 1997, respectively.
NOTE 5.
LONG-TERM DEBT --
CREDIT AGREEMENTS
The Company has entered into a credit agreement with a group of banks that
provides for borrowings of up to $500 million on a revolving credit basis. The
agreement, as extended, is scheduled to expire in August 2002. Interest is
payable at prime or other alternative interest rate bases, at the Company's
option. The agreement provides for an annual facility fee of 0.075 percent. The
agreement has various covenants that limit the Company's ability to dispose of
properties and merge with another corporation. The Company is also required to
maintain certain financial ratios as defined in the agreement that can limit the
amount of dividend payments and share repurchases. Under the most restrictive
requirement, approximately 64 percent of the Company's retained earnings is
currently free of restrictions pertaining to cash dividend distributions and
share repurchases.
In the 1998 fourth quarter, the Company entered into three short-term credit
agreements that provide for borrowings totaling up to $185.0 million on a
revolving credit basis. One of these agreements is a committed line of $75.0
million with an annual facility fee of 0.07 percent. The remaining two credit
agreements are uncommitted lines with no annual facility fees. The agreements
have terms for up to one year. Interest rates are determined at the time of
borrowing based on current market conditions. At December 31, 1998, borrowings
under the agreements were $65.0 million at a weighted average annual interest
rate of 6.3 percent.
The Company's subsidiaries also maintain credit agreements with various
foreign banks which provide for additional borrowings of up to $69.5 million.
These agreements provide for annual facility fees of up to 0.15 percent.
Borrowings outstanding under the credit agreements are unsecured.
Commitments under separate standby letters of credit outstanding were $46.1
million at December 31, 1998 and $45.4 million at December 31, 1997.
PROMISSORY NOTE
In November 1998, Allegheny Ludlum issued a $70.0 million non-interest bearing
promissory note to Bethlehem Steel Corporation ("Bethlehem") in conjunction with
the acquisition of certain of its stainless steel assets. This note is due after
the improvements to Bethlehem's 110-inch Steckel mill are completed and the mill
returns to a regularly scheduled operating basis, which must be accomplished
prior to December 31, 2000.
DEBENTURES
In 1997, Allegheny Teledyne redeemed the Teledyne 7 percent subordinated
debentures. Payment was made in an amount equal to 100 percent of the principal
amount of the debentures, in the aggregate amount of $19.5 million, plus accrued
interest to the redemption date.
In 1996, Allegheny Teledyne guaranteed the outstanding Allegheny Ludlum 6.95
percent debentures. In addition, utilizing $250 million from the credit
agreement discussed above and $107 million from cash on hand, the Company
redeemed Teledyne's 10 percent subordinated debentures. As a result, an
extraordinary loss of $13.5 million, net of a tax benefit of $8.8 million, was
recognized to write off the unamortized original issue discount.
37
<PAGE> 20
Debt at December 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit agreements $ 270.9 $ 150.4
Allegheny Ludlum 6.95% debentures, due 2025 150.0 150.0
Allegheny Ludlum promissory note 65.9 --
Industrial revenue bonds, due 1999 through 2007 14.0 15.2
Capitalized leases and other 14.2 19.5
- ---------------------------------------------------------------------------------------------------------------------
515.0 335.1
Short-term debt and current portion of long-term debt (68.2) (4.7)
- ---------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 446.8 $ 330.4
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average interest rate of borrowings outstanding under the credit
agreements was 5.3 percent at December 31, 1998 and 5.5 percent at December 31,
1997.
Scheduled maturities of long-term borrowings during the next five years are
$3.2 million in 1999, $67.2 million in 2000, $1.4 million in 2001, $13.3 million
in 2002, and $1.8 million in 2003. Scheduled repayments under revolving credit
agreements are $65.0 million in 1999, $45.9 million in 2000 and $160.0 million
in 2002.
Interest expense was $29.9 million in 1998, $29.4 million in 1997 and $50.5
million in 1996. Interest and commitment fees paid were $30.0 million in 1998,
$30.9 million in 1997 and $50.5 million in 1996.
NOTE 6.
SUPPLEMENTAL BALANCE SHEET INFORMATION --
Cash and cash equivalents were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash (gross of outstanding checks: 1998 - $16.1; 1997 - $22.5) $ 54.8 $ 14.5
Other short-term investments, at cost which approximates market 20.0 39.2
- ---------------------------------------------------------------------------------------------------------------------
Total cash and cash equivalents $ 74.8 $ 53.7
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Property, plant and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 43.5 $ 38.6
Buildings 293.5 330.8
Equipment and leasehold improvements 1,685.6 1,339.5
- ---------------------------------------------------------------------------------------------------------------------
2,022.6 1,708.9
Accumulated depreciation and amortization (1,019.0) (955.1)
- ---------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment $1,003.6 $ 753.8
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Accrued liabilities included salaries and wages of $89.4 million and $91.4
million in 1998 and 1997, respectively, and accrued severance costs of $4.5
million and $5.6 million in 1998 and 1997, respectively.
38
<PAGE> 21
NOTE 7.
COMPREHENSIVE INCOME --
On January 1, 1998, the Company adopted FASB Statement No. 130, "Reporting
Comprehensive Income." This statement establishes new rules for the reporting
and display of comprehensive income and its components. This statement requires
unrealized gains or losses on the Company's available-for-sale securities and
foreign currency translation gains or losses, which are reported separately in
stockholders' equity, to be included in other comprehensive income. The adoption
of this statement had no impact on the Company's net income or stockholders'
equity.
The components of comprehensive income, net of tax, for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (net of taxes of $150.0, $195.4 and $160.8, respectively) $241.2 $328.8 $235.3
Foreign currency translation losses (3.5) (5.0) (1.7)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period
(net of taxes of $1.4, $6.0 and $(1.0), respectively) 2.2 9.7 (1.6)
Less: realized gain included in net income
(net of taxes of $0.7 and $10.6 in 1998 and 1997, respectively) (1.1) (17.0) --
- ---------------------------------------------------------------------------------------------------------------------
1.1 (7.3) (1.6)
Comprehensive income $238.8 $316.5 $232.0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8.
STOCKHOLDERS' EQUITY --
PREFERRED STOCK
Authorized preferred stock may be issued in one or more series, with
designations, powers and preferences as shall be designated by the Board of
Directors. At December 31, 1998, there were no shares of preferred stock issued.
OREMET COMMON STOCK OFFERING
On August 26, 1996, OREMET completed a public offering of shares of its common
stock. Proceeds from the offering, net of underwriting fees and expenses,
amounted to $103.2 million. All of the outstanding shares of OREMET common stock
were exchanged for Allegheny Teledyne common stock on March 24, 1998 using a
conversion factor of 1.296.
COMMON STOCK
In connection with the combination of Allegheny Ludlum and Teledyne and the
acquisition of OREMET, Allegheny Teledyne assumed stock options and awards, as
well as purchase and designation rights and related awards outstanding under
stock-based compensation plans maintained by Allegheny Ludlum and Teledyne prior
to the 1996 combination, and by OREMET prior to the 1998 acquisition. In
addition, in 1996, Allegheny Teledyne's Board of Directors adopted the Allegheny
Teledyne Incorporated Incentive Plan and the Non-Employee Director Stock
Compensation Plan, which were approved by the stockholders on August 15, 1996.
The Incentive Plan provides for awards of up to 9,000,000 shares of Allegheny
Teledyne common stock to officers and key employees of the Company.
The Company accounts for its stock option plans in accordance with APB
Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretations. Under APB Opinion 25, no compensation expense is recognized
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock at the date of the grant. If compensation
cost for these plans had been determined using the fair-value method prescribed
by FASB Statement No. 123, "Accounting for Stock-based Compensation," net income
would have been reduced by $3.8 million, or $0.02 per diluted share, $3.0
million, or $0.01 per diluted share, and $2.1 million, or $0.01 per diluted
share, for the years ended December 31, 1998, 1997 and 1996, respectively. Under
FASB Statement No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 2.8% 2.5% 3.6%
Expected volatility 31% 31% 31%
Risk-free interest rate 5.0% 6.4% 6.5%
Expected lives 8.0 8.0 8.0
Weighted-average fair value of options granted during year $7.27 $8.26 $5.45
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 22
Stock option transactions under the Company's employee plans are summarized
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
NUMBER OF AVERAGE Number of Average Number of Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of year 4,730,915 $15.18 8,869,182 $12.81 7,937,884 $10.90
Granted 3,442,500 $22.93 174,022 $23.03 2,384,792 $17.50
Exercised (700,400) $10.67 (3,626,713) $10.21 (1,074,512) $ 9.35
Cancelled (317,180) $17.56 (685,576) $12.83 (378,982) $12.07
- ----------------------------------------------------------------------------------------------------------------------
Outstanding end of year 7,155,835 $19.23 4,730,915 $15.18 8,869,182 $12.81
Exercisable at end of year 2,458,803 $14.57 1,987,947 $12.47 4,003,054 $10.49
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$8.51 to $28.25. The weighted-average remaining contractual life of those
options is 7.9 years.
In addition to the Company's stock option plans, at December 31, 1998, a
maximum of 113,200 shares were issuable to 41 employees under the Allegheny
Ludlum Performance Share Plan based on units awarded to such participants for
the 1995-1996 award period, which were payable in three annual installments
beginning in 1997.
Compensation expense related to the various stock-based plans was $7.8
million in 1998, $10.9 million in 1997 and $11.1 million in 1996.
STOCKHOLDERS' RIGHTS PLAN
On March 12, 1998, the Company's Board of Directors unanimously adopted a
stockholder rights plan under which preferred share purchase rights were
distributed as a dividend on shares of Allegheny Teledyne common stock.
The rights will be exercisable only if a person or group acquires 15 percent
or more of the Company's common stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15
percent or more of the common stock. Each right will entitle stockholders to
then buy one one-hundredth of a share of a new series of junior participating
preferred stock at an exercise price of $100.
The dividend distribution was made on March 23, 1998, payable to stockholders
of record on that date. The rights will expire on March 12, 2008, subject to
earlier redemption or exchange by Allegheny Teledyne as described in the plan.
The rights distribution is not taxable to stockholders.
REDEMPTION OF PREFERRED STOCK
On August 14, 1996, all of the outstanding shares of the Teledyne Series E
Cumulative Preferred Stock were redeemed at $15.60 per share.
NOTE 9.
INCOME TAXES --
Provision for income taxes was as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
- Federal $119.6 $149.5 $124.0
- State 14.3 26.8 19.6
- Foreign 10.2 9.7 6.9
- ---------------------------------------------------------------------------------------------------------------------
- Total 144.1 186.0 150.5
- ---------------------------------------------------------------------------------------------------------------------
Deferred
- Federal 4.2 2.3 11.9
- State 0.7 6.7 7.0
- Foreign 1.0 0.4 0.2
- ---------------------------------------------------------------------------------------------------------------------
- Total 5.9 9.4 19.1
- ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes $150.0 $195.4 $169.6
- ---------------------------------------------------------------------------------------------------------------------
Income taxes paid $142.3 $131.1 $118.6
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 23
Income before income taxes and extraordinary loss included income from
domestic operations of $363.1 million in 1998, $498.1 million in 1997 and $397.7
million in 1996.
The following is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Federal tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit 3.2 4.3 4.6
Capitalization of merger and restructuring costs 1.1 -- 1.7
Other (1.0) (2.0) (0.8)
- ---------------------------------------------------------------------------------------------------------------------
Effective income tax rate 38.3% 37.3% 40.5%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Deferred income taxes result from temporary differences in the recognition of
income and expense for financial and income tax reporting purposes, and
differences between the fair value of assets acquired in business combinations
accounted for as purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future tax benefits or
costs to be recognized when those temporary differences reverse. The categories
of assets and liabilities that have resulted in differences in the timing of the
recognition of income and expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Income Tax Assets
- ---------------------------------------------------------------------------------------------------------------------
Postretirement benefits other than pensions $228.0 $226.5
Deferred compensation and other benefit plans 30.4 34.1
Self-insurance reserves 20.1 21.9
Inventory valuation 4.8 --
Long-term contracts 4.5 3.3
Other items 97.4 83.5
- ---------------------------------------------------------------------------------------------------------------------
Total deferred income tax assets 385.2 369.3
- ---------------------------------------------------------------------------------------------------------------------
Deferred Income Tax Liabilities
- ---------------------------------------------------------------------------------------------------------------------
Pension asset 161.4 154.7
Bases of property, plant and equipment 121.5 119.0
Inventory valuation -- 15.8
Other items 57.5 10.1
- ---------------------------------------------------------------------------------------------------------------------
Total deferred income tax liabilities 340.4 299.6
- ---------------------------------------------------------------------------------------------------------------------
Net deferred income tax asset $ 44.8 $ 69.7
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10.
PENSION PLANS AND
OTHER POSTEMPLOYMENT BENEFITS --
FASB Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," was issued in February 1998. This statement revises
employers' disclosures about pension and postretirement benefit plans. It does
not change the measurement or recognition of those plans. The Company adopted
this statement in 1998.
In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum
were merged with overfunded defined benefit pension plans of Teledyne, and
Allegheny Teledyne became the plan sponsor.
The Company has defined benefit pension plans and defined contribution plans
covering substantially all of its employees. Benefits under the defined benefit
pension plans are generally based on years of service and/or final average pay.
The Company funds the pension plans in accordance with the requirements of the
Employee Retirement Income Security Act of 1974, as amended, and the Internal
Revenue Code.
The Company also sponsors several defined benefit postretirement plans
covering certain salaried and hourly employees. The plans provide health care
and life insurance benefits for eligible retirees. In certain plans, Company
contributions towards premiums are capped based on the cost as of a certain date
thereby creating a defined contribution.
41
<PAGE> 24
Components of pension expense (income) for the Company's defined benefit
plans and components of postretirement benefit expense included the following:
<TABLE>
<CAPTION>
EXPENSE (INCOME)
- ---------------------------------------------------------------------------------------------------------------------
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- ---------------------------------------------------------------------------------------------------------------------
(In millions) 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost - benefits earned during the year $ 37.3 $ 37.0 $ 34.4 $ 8.9 $ 7.8 $ 7.9
Interest cost on benefits earned in prior years 132.2 131.9 125.1 44.5 43.5 46.2
Expected return on plan assets (230.8) (207.8) (203.7) (12.8) (8.4) (6.5)
Amortization of prior service cost 12.5 10.4 9.5 (2.3) (2.3) 1.2
Amortization of unrecognized transition asset (30.5) (30.5) (30.5) -- -- --
Amortization of net actuarial (gain) loss (2.0) 0.4 (1.2) 1.4 1.6 1.1
Recognition of curtailment gain -- -- -- (2.4) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total benefit (income) expense $ (81.3) $ (58.6) $ (66.4) $ 37.3 $ 42.2 $ 49.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition, the Company recorded charges of $17.0 million in 1998 resulting
from special termination benefits granted to approximately 300 Allegheny Ludlum
employees who were part of a planned salaried workforce reduction completed in
the 1998 third quarter.
Actuarial assumptions used to develop the components of pension expense
(income) and postretirement benefit expense were as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.0% 7.25% 7.5% 7.0% 7.25% 7.25%
Rate of Increase in future compensation levels 3%-4.5% 3%-4.5% 3%-4.5% -- -- --
Expected long-term rate of return on assets 9.0% 9.0% 8.6% 9%-15% 9%-15% 9%-15%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Discount rates of 7.0 percent at December 31, 1998 and 1997 were used for the
valuation of pension and postretirement obligations.
42
<PAGE> 25
The prepaid (accrued) benefit cost at December 31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
(In millions) PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $1,940.3 $1,851.5 $ 669.8 $ 637.4
Service cost 37.3 37.0 8.9 7.8
Interest cost 132.2 131.9 44.5 43.5
Benefits paid (218.3) (133.1) (41.0) (37.6)
Special termination benefits 15.0 -- 2.0 --
Net actuarial losses 103.2 53.0 16.7 18.7
- -----------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year 2,009.7 1,940.3 700.9 669.8
- -----------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year 2,631.8 2,372.9 79.6 52.5
Actual return on plan assets 444.5 426.7 25.0 21.7
Section 420 transfer (37.4) (31.9) -- --
Benefits paid (217.0) (133.1) -- --
Other -- (2.8) -- 5.4
- -----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year 2,821.9 2,631.8 104.6 79.6
- -----------------------------------------------------------------------------------------------------------------------
Funded status of the plan 812.2 691.5 (596.3) (590.2)
Unrecognized net actuarial (gain) loss (403.5) (278.0) 26.8 32.4
Unrecognized transition asset (100.7) (131.2) -- --
Unrecognized prior service cost 90.9 86.2 (13.1) (16.7)
- -----------------------------------------------------------------------------------------------------------------------
PREPAID (ACCRUED) BENEFIT COST $ 398.9 $ 368.5 $ (582.6) $ (574.5)
- -----------------------------------------------------------------------------------------------------------------------
Amounts recognized in the balance sheet consist of:
(In millions) PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
Prepaid pension cost $ 418.6 $ 379.7 $ --) $ --)
Accrued postretirement benefits -- -- (582.6) (574.5)
Other long-term liabilities (19.7) (11.2) -- --
- -----------------------------------------------------------------------------------------------------------------------
Net amount recognized $ 398.9 $ 368.5 $ (582.6) $ (574.5)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The plan assets for the pension plan at December 31, 1998 include 1.7 million
shares of Allegheny Teledyne common stock with a fair value of $33.8 million.
Dividends of $0.2 million were received by the plan in 1998 on the Allegheny
Teledyne common shares held by the plan. No shares of Allegheny Teledyne common
stock were held by the plan in 1997.
At the end of 1998, approximately 75 percent of the plan assets for the
postretirement benefit plans were invested in marketable securities and 25
percent in limited partnership funds. The Company's Chairman, President and
Chief Executive Officer serves on the advisory boards of the limited partnership
funds.
Any reversion of pension plan assets to the Company would be subject to
federal and state income taxes, substantial excise tax and other possible
claims.
Pension costs for defined contribution plans were $24.5 million in 1998,
$20.7 million in 1997 and $20.3 million in 1996.
On behalf of OREMET's union employees, OREMET contributes to a pension plan
which is administered by the USWA and funded pursuant to a collective bargaining
agreement. Pension expense and contributions to this plan were $1.4 million in
1998, $1.5 million in 1997 and $1.1 million in 1996.
43
<PAGE> 26
The annual assumed rate of increase in the per capita cost of covered
benefits (the health care cost trend rate) for health care plans was 8.5 percent
in 1999 and was assumed to decrease to 5.0 percent in the year 2005 and remain
at that level thereafter. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plans. A one
percentage point change in assumed health care cost trend rates would have the
following effects:
<TABLE>
<CAPTION>
One Percentage One Percentage
(In millions) Point Increase Point Decrease
- --------------------------------------------------------------
<S> <C> <C>
Effect on total of service
and interest cost
components for the
year ended
December 31, 1998 $ 7.8 $ (6.1)
Effect on postretirement
benefit obligation at
December 31, 1998 $85.6 $(71.5)
- --------------------------------------------------------------
</TABLE>
Cash from excess pension assets of $37.4 million in 1998, $31.9 million in
1997 and $30.5 million in 1996 was transferred pre-tax under Section 420 of the
Internal Revenue Code from the Company's defined benefit pension plans to the
Company. The Internal Revenue Code permits transfers annually of an amount not
to exceed the Company's actual expenditures on retiree health care benefits.
While not affecting reported operating profit, cash flow increased by the
after-tax effect of the transferred amount.
The Company intends to make transfers of excess pension assets to the extent
and for each year permitted under Section 420 of the Internal Revenue Code.
Under the assumptions set forth above and assuming that the expiration date of
Section 420 of the Internal Revenue Code is deferred, the present value of
excess pension assets available for transfer under Section 420 is sufficient to
fund more than 50 percent of the present value of the accumulated postretirement
benefit cost of the Company as a whole including those attributable to each of
its subsidiaries.
NOTE 11.
ACQUISITIONS AND DIVESTITURES --
In February 1998, the Company acquired the assets of the aerospace division of
Sheffield Forgemasters Limited, a private company in the United Kingdom, for
approximately $110 million in an all-cash transaction.
The acquisition of Sheffield Forgemasters' aerospace division, now known as
Allvac-SMP, provides significant support to the Company's high performance
metals businesses, primarily Allvac, and has enhanced service to customers by
improving the sales and distribution network for the Company's nickel-based
alloys, specialty steels and titanium in Europe. The acquisition provides
additional vacuum melting, vacuum consumable remelting, electroslag remelting,
and forging capacity, which complements Allvac's facilities. Allvac-SMP's rotary
forging machine is one of the largest in the world.
In January 1998, Bethlehem and the Company entered into three agreements that
would become effective after Bethlehem closed its previously announced
acquisition of Lukens Inc. ("Lukens"). Bethlehem completed its acquisition of
Lukens on May 29, 1998.
On November 20, 1998, the asset sale agreement previously signed by both
companies was closed and the related conversion services and hot band supply
agreements began to be implemented.
Under the asset sale agreement, Allegheny Ludlum acquired certain assets
which Bethlehem acquired from Lukens. These assets include the melting and hot
rolling facilities located at the Houston, PA, plant and the wide anneal and
pickle line at the Massillon, OH, plant.
Under the conversion services agreement, Bethlehem agreed, for a 20-year
period, to provide Allegheny Ludlum exclusive access to the Coatesville, PA,
melt shop and caster for the production of stainless steel slabs, and to the
Conshohocken, PA, 110-inch Steckel mill for the rolling of stainless steel slabs
and stainless precipitation hardening grades, maraging grades, and nickel and
nickel-based alloys.
After jointly conducting due diligence, Allegheny Ludlum and Bethlehem agreed
that improvements to Bethlehem's 110-inch Steckel mill would enhance performance
for the benefit of both parties, and they will share in the cost of certain of
these improvements. Using independent consultants, Allegheny Ludlum and
Bethlehem concluded that improvements to the computer control system, increasing
the power of the roughing mill and undertaking other projects to improve the
mill's capability will enhance performance of the mill for carbon, alloy and
stainless steel. Two 8,000 horsepower roughing mill motors will be installed,
and Allegheny Ludlum will share in the ownership of the motors up to a maximum
investment of $9 million. The total cost of all improvements to the 110-inch
Steckel mill is currently estimated to be about $25 million.
At the closing of the asset sale and conversion services agreement, Allegheny
Ludlum paid Bethlehem $105 million in cash of the previously announced $175
million asset purchase price, and issued a non-interest bearing promissory note
for the remaining $70 million. The note will be paid after the improvements to
the 110-inch Steckel mill are completed and the mill returns to a regularly
scheduled operating basis.
In addition, under the hot band supply agreement, Allegheny Ludlum agreed to
supply Bethlehem with up to 150,000 tons of stainless bands for further
processing at Lukens' stainless cold finishing facilities at its Washington, PA
and Massillon, OH plants until Bethlehem sells these facilities. Bethlehem has
announced that it plans to cease operations at these two facilities, but that it
continues to pursue the sale of the facilities.
In 1997, the Company sold businesses which manufactured collapsible metal and
laminate packaging tubes, thread cutting and rolling machines, electric heating
elements, metal dies and plastic compression molds and welded stainless steel
tubular products, and operated job training centers for the U.S. government. In
addition, the Company sold its equity interest in Nitinol Development
Corporation. The pretax gain recognized on the sales of these non-strategic
businesses was $35.4 million. The pretax proceeds from these sales totaled $77.2
million in 1997.
In July 1997, OREMET acquired substantially all of the assets and business of
Rome Metals, Inc. ("Rome"), a privately owned corporation for approximately $25
million. Rome, with operations in Western Pennsylvania, is a leading provider of
finishing services to the titanium, zirconium and specialty metals flat products
industries. The acquisition of
44
<PAGE> 27
Rome was accounted for as a purchase and Rome's results are included in the
consolidated financial statements since the date of acquisition.
In 1996, the Company sold its defense vehicle business. The pretax gain and
proceeds on the sale of this business were $41.0 million and $59.2 million,
respectively. In May 1996, the Company acquired Jandy Industries, Inc., a United
States producer of water flow control valves and electronic control systems for
the swimming pool industry. The business was purchased for $13.5 million in
cash.
NOTE 12.
BUSINESS SEGMENTS --
Allegheny Teledyne is a diversified manufacturing company serving global markets
with specialty metals, aerospace, electronic, industrial and consumer products.
Information on the Company's business segments was as follows:
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Specialty metals $2,053.4 $2,155.5 $2,096.3
Aerospace and electronics 1,007.0 927.0 970.0
Industrial 515.9 511.7 499.1
Consumer 247.6 253.8 228.3
- ---------------------------------------------------------------------------------------------------------------------
Total continuing operations 3,823.9 3,848.0 3,793.7
Operations sold or held for sale 99.5 182.1 258.9
- ---------------------------------------------------------------------------------------------------------------------
Total sales $3,923.4 $4,030.1 $4,052.6
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's backlog of confirmed orders was approximately $1.2 billion at
December 31, 1998 and $1.4 billion at December 31, 1997. Backlog of the
Specialty Metals Segment was $618.7 million at December 31, 1998 and $760.4
million at December 31, 1997.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to the U.S. Government including direct sales
as prime contractor and indirect sales as subcontractor:
Specialty metals $ 46.1 $ 50.1 $ 69.5
Aerospace and electronics 458.5 428.1 543.1
Industrial and consumer 1.5 2.1 2.3
Operations sold or held for sale -- 32.6 70.4
- ---------------------------------------------------------------------------------------------------------------------
Total sales to U.S. Government $ 506.1 $ 512.9 $ 685.3
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Sales to the U.S. Government included sales to the Department of Defense of
$375.2 million in 1998, $346.4 million in 1997 and $453.2 million in 1996.
Total foreign sales were $768.3 million in 1998, $710.8 million in 1997 and
$698.2 million in 1996. Of these amounts, sales by operations in the United
States to customers in other countries were $489.7 million in 1998, $510.5
million in 1997 and $462.5 million in 1996. Sales between business segments,
which were not material, generally were priced at prevailing market prices.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating profit:
Specialty metals $ 282.3 $ 320.7 $ 311.1
Aerospace and electronics 110.7 90.3 100.4
Industrial 53.0 60.2 48.3
Consumer 23.4 34.5 14.3
- --------------------------------------------------------------------------------------------------------------------
Total operating profit 469.4 505.7 474.1
Merger and restructuring costs (67.8) (12.0) (57.5)
Corporate expenses (36.5) (40.4) (43.7)
Interest expense, net (19.3) (16.9) (35.1)
Investments and operations sold or held for sale 1.4 71.4 64.1
Excess pension income 44.0 16.4 16.5
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary loss $ 391.2 $ 524.2 $ 418.4
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 28
Operating results for investments and operations sold or held for sale
included pretax gains on the divestiture of certain non-strategic businesses and
the related operating profit of those businesses. Also included was a gain in
1997 of $27.6 million on the sale of the Company's investment in Semtech
Corporation common stock and a gain of $20.3 million in 1996 on the sale of
surplus real estate in California. These amounts are included with other income
in the statements of income for the respective periods. In addition, operating
results for investments and operations sold or held for sale included a charge
of $5.3 million to write off the Company's investment in a research and
development venture in 1997 and charges of $6.8 million in 1997 and $7.7 million
in 1996 to settle certain U.S. Government contracting matters relating to former
Teledyne businesses.
The Company recorded charges of $19.1 million in 1998, $12.0 million in 1997
and $57.5 million in 1996 for severance, financial advisory, legal, accounting,
and other costs associated with the acquisition of OREMET in 1998 and the
combination of Allegheny Ludlum and Teledyne in 1996. The Company also recorded
charges of $19.3 million in 1998 resulting primarily from special termination
benefits granted to approximately 300 Allegheny Ludlum employees who were part
of a planned salaried workforce reduction completed in the 1998 third quarter.
Costs associated with exiting certain product lines in the 1998 third quarter
and asset impairments resulting from new capital expenditure programs coming
on-line resulted in a charge of $29.4 million. Sales and operating results for
the business being exited were not financially material.
Excess pension income represents the amount of pension income in excess of
amounts allocated to business segments to offset pension and other
postretirement benefit expenses.
<TABLE>
<CAPTION>
(In millions) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization:
Specialty metals $ 72.2 $ 66.0 $ 69.2
Aerospace and electronics 14.6 12.2 13.5
Industrial 11.9 12.4 13.7
Consumer 7.3 5.9 4.5
Corporate and operations sold or held for sale 3.0 7.9 8.8
- --------------------------------------------------------------------------------------------------------------------
$ 109.0 $ 104.4 $ 109.7
- --------------------------------------------------------------------------------------------------------------------
Capital expenditures:
Specialty metals $ 119.8 $ 74.7 $ 46.2
Aerospace and electronics 18.5 15.2 16.1
Industrial 24.0 20.7 16.5
Consumer 9.4 7.4 7.0
Corporate and operations sold or held for sale 0.9 4.8 6.4
- --------------------------------------------------------------------------------------------------------------------
$ 172.6 $ 122.8 $ 92.2
- --------------------------------------------------------------------------------------------------------------------
Identifiable assets:
Specialty metals $1,806.2 $1,556.0 $1,479.6
Aerospace and electronics 289.0 274.5 276.6
Industrial 241.6 245.5 246.1
Consumer 123.9 116.8 120.5
Corporate:
Pension asset 418.6 379.7 352.5
Other 272.8 272.3 301.2
Operations sold or held for sale 23.4 53.4 87.9
- --------------------------------------------------------------------------------------------------------------------
$3,175.5 $2,898.2 $2,864.4
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
46
<PAGE> 29
NOTE 13.
SUMMARIZED FINANCIAL INFORMATION OF ALLEGHENY LUDLUM AND TELEDYNE --
Summarized financial information for Allegheny Ludlum and Teledyne is presented
below:
<TABLE>
<CAPTION>
Balance Sheets:
Allegheny Ludlum Teledyne
December 31, December 31,
(In millions) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current assets $ 403.2 $ 450.8 $ 822.6 $ 796.5
Non-current assets 1,220.7 945.0 506.2 371.2
Current liabilities 164.4 171.1 376.9 383.5
Non-current liabilities 599.6 491.1 669.7 572.8
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS:
Allegheny Ludlum Teledyne
(In millions) 1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales $1,072.2 $1,194.9 $1,277.8 $2,598.9 $2,554.5 $2,551.5
Gross profit 171.9 168.9 223.5 715.7 730.8 676.6
Net income before extraordinary loss on
redemption of debt 29.4 62.0 73.2 170.0 222.9 144.1
Net income 29.4 62.0 73.2 170.0 222.9 130.6
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1996, the underfunded defined benefit pension plans of Allegheny Ludlum
were merged with overfunded defined benefit pension plans of Teledyne, and
Allegheny Teledyne became the plan sponsor. As a result, the summarized balance
sheet information presented for Allegheny Ludlum and Teledyne does not include
the Allegheny Teledyne net prepaid pension asset or the related deferred taxes.
Solely for purposes of this presentation, pension income has been allocated to
Allegheny Ludlum and Teledyne to offset pension and postretirement expenses
which may be funded with pension assets. This allocated pension income has not
been recorded in the financial statements of Allegheny Ludlum or of Teledyne.
47
<PAGE> 30
NOTE 14.
EARNINGS PER SHARE --
The following table sets forth the computation of basic and diluted net income
per common share:
<TABLE>
<CAPTION>
(In millions except per share amounts)
For the Years Ended December 31, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Income before extraordinary loss $241.2 $328.8 $248.8
Extraordinary loss on redemption of debt -- -- (13.5)
Dividends on preferred stock -- -- (2.0)
- ----------------------------------------------------------------------------------------------------------------------
Numerator for basic and diluted net income per common share --
Net income available to common
stockholders $241.2 $328.8 $233.3
- ----------------------------------------------------------------------------------------------------------------------
Denominator:
Weighted average shares 196.5 196.4 190.9
Contingent issuable stock 0.3 0.2 0.3
- ---------------------------------------------------------------------------------------------------------------------
Denominator for basic net income per common share 196.8 196.6 191.2
Effect of dilutive securities:
Employee stock options 1.4 3.3 3.7
- ---------------------------------------------------------------------------------------------------------------------
Dilutive potential common shares 1.4 3.3 3.7
Denominator for diluted net income per
common share - adjusted weighted
average shares and assumed conversions 198.2 199.9 194.9
- ---------------------------------------------------------------------------------------------------------------------
Basic net income per common share:
Income before extraordinary loss $ 1.23 $ 1.67 $ 1.29
Extraordinary loss -- -- (0.07)
- ---------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ 1.23 $ 1.67 $ 1.22
- ---------------------------------------------------------------------------------------------------------------------
Diluted net income per common share:
Income before extraordinary loss $ 1.22 $ 1.64 $ 1.27
Extraordinary loss -- -- (0.07)
- ---------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 1.22 $ 1.64 $ 1.20
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
For additional disclosures regarding the employee stock options and
contingent stock-acquisition arrangements, see Note 8.
Weighted average shares issuable upon the exercise of stock options which
were not included in the calculation were
2.2 million in 1998 and 0.9 million in 1996 because they were antidilutive.
48
<PAGE> 31
Note 15.
Commitments and Contingencies --
Rental expense under operating leases was $35.4 million in 1998, $30.4 million
in 1997 and $32.1 million in 1996. Future minimum rental commitments under
operating leases with non-cancelable terms of more than one year as of December
31, 1998, were as follows: $17.5 million in 1999, $13.3 million in 2000, $11.4
million in 2001, $10.2 million in 2002, $7.3 million in 2003 and $26.8 million
thereafter.
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws.
In accordance with the Company's accounting policy disclosed in Note 1,
environmental liabilities are recorded when the Company's liability is probable
and the costs are reasonably estimable. In many cases, however, investigations
are not yet at a stage where the Company has been able to determine whether it
is liable or, if liability is probable, to reasonably estimate the loss or range
of loss, or certain components thereof. Estimates of the Company's liability are
further subject to uncertainties regarding the nature and extent of site
contamination, the range of remediation alternatives available, evolving
remediation standards, imprecise engineering evaluations and estimates of
appropriate cleanup technology, methodology and cost, the extent of corrective
actions that may be required, and the number and financial condition of other
potentially responsible parties, as well as the extent of their responsibility
for the remediation. Accordingly, as investigation and remediation of these
sites proceeds, it is likely that adjustments in the Company's accruals will be
necessary to reflect new information. The amounts of any such adjustments could
have a material adverse effect on the Company's results of operations in a given
period, but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available information,
however, management does not believe that future environmental costs in excess
of those accrued with respect to sites with which the Company has been
identified are likely to have a material adverse effect on the Company's
financial condition or liquidity. However, there can be no assurance that
additional future developments, administrative actions or liabilities relating
to environmental matters will not have a material adverse effect on the
Company's financial condition or results of operations.
At December 31, 1998, the Company's reserves for environmental remediation
obligations totaled approximately $33.7 million, of which approximately $9.2
million were included in other current liabilities. The reserve includes
estimated probable future costs of $13.1 million for federal Superfund and
comparable state-managed sites; $4.2 million for formerly owned or operated
sites for which the Company has remediation or indemnification obligations; $8.3
million for owned or controlled sites at which Company operations have been
discontinued; and $8.1 million for sites utilized by the Company in its ongoing
operations. The Company is evaluating whether it may be able to recover a
portion of future costs for environmental liabilities from its insurance
carriers and from third parties other than participating potentially responsible
parties.
The timing of expenditures depends on a number of factors that vary by site,
including the nature and extent of contamination, the number of potentially
responsible parties, the timing of regulatory approvals, the complexity of the
investigation and remediation, and the standards for remediation. The Company
expects that it will expend present accruals over many years, and will complete
remediation of all sites with which it has been identified in up to thirty
years.
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.
49
<PAGE> 32
In October 1996, the Company reached an agreement in principle with the U.S.
Government for a joint settlement of two cases (one involving the Company's
former Teledyne Neosho unit, divested in 1992 and the other involving the
Company's former Thermatics unit, divested in 1996) for an aggregate of $11.5
million. The settlement was finalized and the Company made payment in December
1996. The matter involving the former Neosho unit involved an action brought in
1991 under the False Claims Act in the U.S. District Court for the Western
District of Missouri and related to alleged misappropriations of
government-owned aircraft parts and falsification of inventory control
documents. The matter involving the former Thermatics unit commenced in 1993
when Thermatics sought admission into the Department of Defense Voluntary
Disclosure Program with respect to testing practices at variance from military
specifications. Established reserves for these matters in 1994 amounted to $3.8
million.
The Company learns from time to time that it has been named as a defendant in
civil actions filed under seal pursuant to the False Claims Act. Generally,
since such cases are under seal, the Company does not in all cases possess
sufficient information to determine whether the Company could sustain a material
loss in connection with such cases, or to reasonably estimate the amount of any
loss attributable to such cases. A number of other lawsuits, claims and
proceedings have been or may be asserted against the Company relating to the
conduct of its business, including those pertaining to product liability, patent
infringement, commercial, employment, employee benefits and stockholder matters.
While the outcome of litigation cannot be predicted with certainty, and some of
these lawsuits, claims or proceedings may be determined adversely to the
Company, management does not believe that the disposition of any such pending
matters is likely to have a material adverse effect on the Company's financial
condition or liquidity, although the resolution in any reporting period of one
or more of these matters could have a material adverse effect on the Company's
results of operations for that period.
NOTE 16.
SUBSEQUENT EVENTS --
Following extensive studies and strategic analyses initiated in the summer of
1998, the Company announced in January 1999 that it intends to pursue a course
of action that would result in a significant transformation and reconfiguration
of the Company during 1999. Assuming legal, tax, financial and other
considerations can be resolved successfully, the anticipated transformation
would include a tax-free spin-off of a new public company and a public offering
of the new company's stock. The new company would be comprised of four former
Teledyne companies in the Aerospace and Electronics Segment. The four businesses
are Electronic Technologies headquartered in Los Angeles, CA; Brown Engineering
headquartered in Huntsville, AL; Continental Motors headquartered in Mobile, AL;
and Cast Parts located in southern California. Combined 1998 revenues of the
businesses in the new company were approximately $800 million. The new company
is expected to be headquartered in Los Angeles.
The Company is proceeding simultaneously with the consideration of a spin-off
and public offering of the Consumer Segment, as announced in the 1998 second
quarter, into a freestanding public company. This new company is expected to be
headquartered in the Los Angeles area. Annual revenues for the Consumer Segment
were approximately $250 million in 1998.
The Company plans to submit a request for a private letter ruling to the
Internal Revenue Service with respect to the tax-free nature of the proposed
spin-offs by the end of the 1999 first quarter.
Names for the new companies have not yet been selected.
After the spin-offs, Allegheny Teledyne, headquartered in Pittsburgh, will be
focused as one of the largest and most diversified specialty metals companies in
the world with annual revenues of approximately $2.5 billion in 1998. It would
consist of Allegheny Ludlum/Rodney -- a major flat-rolled producer of stainless
steel, specialty metals, and titanium; Allvac and Allvac-SMP -- major producers
of nickel-based superalloys, titanium alloys and specialty steels in billet,
bar, rod, wire and coil forms; Oremet-Wah Chang -- a diversified producer of
zirconium, titanium and other specialty metals including niobium, tantalum and
hafnium; Titanium Industries, a titanium distribution company, and Rome Metals,
a processor of titanium and other specialty metals; Metalworking Products -- a
major producer of tungsten mill products, tungsten carbide materials and
tungsten carbide cutting tools; Casting Service -- a foundry specializing in
large grey and ductile iron castings; and Portland Forge -- a custom impression
die forging company.
In addition, the Company is exploring the sale of Ryan Aeronautical, a
producer of unmanned aerial vehicles and target drones, which is located in San
Diego, CA. The Company intends to sell its Fluid Systems business, a
manufacturer of nitrogen gas springs, pressure relief valves and vehicle control
valves headquartered in Brecksville, Ohio, and its Specialty Equipment business
which consists of two divisions -- one division, located in Canada, is an
assembler of hydraulic attachments for mining and construction equipment and the
other is a manufacturer of transportable forklifts in the U.S. and the
Netherlands. Combined revenues of the three businesses were nearly $400 million
in 1998.
50
<PAGE> 33
NOTE 17.
QUARTERLY DATA (UNAUDITED) --
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
(In millions except share and per share amounts) March 31 June 30 September 30 December 31
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 --
Sales $1,002.2 $1,019.1 $927.1 $975.0
Gross profit 228.9 251.4 219.3 273.6
Net income 26.9 75.5 65.5 73.3
- --------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ 0.14 $ 0.38 $ 0.33 $ 0.37
- --------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 0.14 $ 0.38 $ 0.33 $ 0.37
- --------------------------------------------------------------------------------------------------------------------
Average shares outstanding 196,120,442 196,685,384 197,017,983 196,036,314
- --------------------------------------------------------------------------------------------------------------------
1997 --
Sales $1,029.9 $1,024.5 $984.2 $991.5
Gross profit 244.4 258.4 231.5 256.2
Net income 71.1 94.6 73.6 89.5
- --------------------------------------------------------------------------------------------------------------------
Basic net income per common share $ 0.36 $ 0.48 $ 0.37 $ 0.46
- --------------------------------------------------------------------------------------------------------------------
Diluted net income per common share $ 0.35 $ 0.47 $ 0.37 $ 0.45
- --------------------------------------------------------------------------------------------------------------------
Average shares outstanding 196,096,468 196,883,337 196,765,735 195,728,828
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The 1998 first quarter included after-tax costs of $40.9 million related to
the acquisition of OREMET, salaried workforce reductions, costs associated with
exiting certain product lines and asset impairments resulting from new capital
expenditure programs coming on-line.
The 1998 second quarter included an after-tax charge of $4.9 million
primarily attributable to the planned salaried workforce reduction at Allegheny
Ludlum.
The 1998 fourth quarter included an after-tax charge of $4.8 million related
to losses associated with asset sales activities during the quarter.
Net income for the 1997 first quarter included an after-tax gain of $9.2
million on the sale of a Company investment partially offset by after-tax
charges of $7.9 million from merger and restructuring costs and the write-off of
a research and development venture.
The 1997 second quarter net income included after-tax gains of $17.0 million
on the sale of a Company investment. These gains were partially offset by
after-tax merger and restructuring costs of $2.6 million.
Net income for the 1997 third quarter included a net after-tax gain of $3.9
million on the sale of a business which operated job training centers for the
U.S. Government partially offset by a charge relating to legal matters.
The 1997 fourth quarter net income included a net after-tax gain of $5.8
million on divestitures of businesses which manufactured collapsible metal and
laminate packaging tubes, electric heating elements and metal dies and plastic
compression molds offset by merger and restructuring charges.
The Company paid a cash dividend of $0.16 per share on its common stock in
each of the 1998 and 1997 quarters.
51
<PAGE> 34
COMMON STOCK PRICE
<TABLE>
<CAPTION>
(Per quarter)
1998 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allegheny Teledyne Incorporated
High $29 9/16 $28 $22 15/16 $22 5/8
Low $22 5/8 $19 $14 $16 11/16
OREMET (through March 24)
High $37 7/8 -- -- --
Low $28 1/2 -- -- --
- ----------------------------------------------------------------------------------------------------------------------
1997 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
- ----------------------------------------------------------------------------------------------------------------------
Allegheny Teledyne Incorporated
High $29 1/2 $28 7/8 $32 13/16 $29 7/8
Low $21 $25 1/8 $25 7/8 $23 1/8
OREMET
High $34 1/2 $29 1/4 $28 5/8 $34 1/4
Low $17 1/2 $18 $21 $20 1/8
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
On March 24, 1998, Allegheny Teledyne Incorporated ("Allegheny Teledyne")
acquired Oregon Metallurgical Corporation ("OREMET"). OREMET shareholders
received 1.296 shares of Allegheny Teledyne common stock for each of their
OREMET common shares.
Allegheny Teledyne common stock is listed on the New York Stock Exchange,
under the symbol "ALT." As of December 31, 1998, there were approximately 9,879
record holders of Allegheny Teledyne common stock.
52
<PAGE> 35
MANAGEMENT'S REPORT
The accompanying consolidated financial statements of Allegheny Teledyne
Incorporated and subsidiaries have been prepared in accordance with generally
accepted accounting principles and include some amounts that are based upon
Management's best estimates and judgments. Management has the primary
responsibility for the information contained in the financial statements and in
other sections of this Annual Report and for their integrity and objectivity.
The Company has a system of internal controls designed to provide reasonable
assurance that assets are safeguarded and transactions are properly executed and
recorded for the preparation of financial information. The concept of reasonable
assurance is based on the recognition that there are inherent limitations in all
systems of internal accounting control and that the cost of such systems should
not exceed the benefits to be derived.
The Company maintains a staff of professional internal auditors, who assist
in audit coverage with the independent accountants and conduct operational and
special audits. The independent accountants express their opinion on the
Company's financial statements based on procedures, including an evaluation of
internal controls, which they consider to be sufficient to form their opinion.
The Audit and Finance Committee of the Board of Directors is composed of six
non-employee members. Among its principal duties, the Committee is responsible
for recommending the independent accountants to conduct the annual audit of the
Company's financial statements and for reviewing the financial reporting and
accounting practices.
/s/ R. P. Simmons
- ----------------------------
R. P. Simmons
Chairman, President and Chief Executive Officer
/s/ J. L. Murdy
- ----------------------------
J. L. Murdy
Executive Vice President,
Finance and Administration and Chief Financial Officer
/s/ D. G. Reid
- ----------------------------
D. G. Reid
Vice President,
Controller and Chief Accounting Officer
53
<PAGE> 36
SELECTED FINANCIAL DATA
(In millions except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Continuing $3,823.9 $3,848.0 $3,793.7
Operations sold or held for sale 99.5 182.1 258.9
- --------------------------------------------------------------------------------------------------------------------------------
$3,923.4 $4,030.1 $4,052.6
- --------------------------------------------------------------------------------------------------------------------------------
Income after tax, before extraordinary loss and cumulative effect of accounting change $ 241.2 $ 328.8 $ 248.8
Extraordinary loss on redemption of debt -- -- (13.5)
Cumulative effect of accounting change -- -- --
Net income (loss) $ 241.2 $ 328.8 $ 235.3
- --------------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share:
Income after tax, before extraordinary loss and cumulative effect of accounting change $ 1.23 $ 1.67 $ 1.29
Extraordinary loss on redemption of debt -- -- (0.07)
Cumulative effect of accounting change -- -- --
Basic net income (loss) per common share $ 1.23 $ 1.67 $ 1.22
- --------------------------------------------------------------------------------------------------------------------------------
Diluted income (loss) per common share:
Income after tax, before extraordinary loss and cumulative effect of accounting change $ 1.22 $ 1.64 $ 1.27
Extraordinary loss on redemption of debt -- -- (0.07)
Cumulative effect of accounting change -- -- --
Diluted net income (loss) per common share $ 1.22 $ 1.64 $ 1.20
- --------------------------------------------------------------------------------------------------------------------------------
Dividends declared:
Allegheny Teledyne $ 0.64 $ 0.64 $ 0.16
Allegheny Ludlum $ -- $ -- $ 0.42
Teledyne $ -- $ -- $ 0.52
- --------------------------------------------------------------------------------------------------------------------------------
Working capital $ 742.2 $ 842.6 $ 794.5
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $3,175.5 $2,898.2 $2,864.4
- --------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 446.8 $ 330.4 $ 447.6
- --------------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock $ -- -- $ --
- --------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity $1,339.9 $1,244.6 $1,075.4
- --------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Sales:
Continuing $3,721.2 $2,994.2 $2,967.7
Operations sold or held for sale 473.7 534.3 649.7
- -------------------------------------------------------------------------------------------------------------------------------
$4,194.9 $3,528.5 $3,617.4
- -------------------------------------------------------------------------------------------------------------------------------
Income after tax, before extraordinary loss and cumulative effect of accounting change $ 274.3 $ 7.8 $ 139.5
Extraordinary loss on redemption of debt (2.9) -- (3.7)
Cumulative effect of accounting change -- -- (185.6)
Net income (loss) $ 271.4 $ 7.8 $ (49.8)
- -------------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share:
Income after tax, before extraordinary loss and cumulative effect of accounting change $ 1.44 $ 0.04 $ 0.74
Extraordinary loss on redemption of debt (0.02) -- (0.02)
Cumulative effect of accounting change -- -- (0.99)
Basic net income (loss) per common share $ 1.42 $ 0.04 $ (0.27)
- -------------------------------------------------------------------------------------------------------------------------------
Diluted income (loss) per common share:
Income after tax, before extraordinary loss and cumulative effect of accounting change $ 1.39 $ 0.04 $ 0.74
Extraordinary loss on redemption of debt (0.01) -- (0.02)
Cumulative effect of accounting change -- -- (0.96)
Diluted net income (loss) per common share $ 1.38 $ 0.04 $ (0.24)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends declared:
Allegheny Teledyne $ -- $ -- $ --
Allegheny Ludlum $ 0.49 $ 0.48 $ 0.47
Teledyne $ 0.52 $ -- $ 0.42
- -------------------------------------------------------------------------------------------------------------------------------
Working capital $ 743.6 $ 589.2 $ 672.3
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $2,758.9 $2,590.3 $2,615.9
- -------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 587.8 $ 506.9 $ 496.9
- -------------------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock $ 33.7 $ -- $ --
- -------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 851.7 $ 722.7 $ 753.4
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The historical selected financial data reflects the results of Allegheny
Ludlum, Teledyne and OREMET as if they had been combined for all periods
presented.
Net income included after-tax gains of $34.1 million on the divestitures of
certain non-strategic businesses and the sale of investments in 1997, $37.6
million on the sale of the Teledyne defense vehicle business and surplus
California real estate in 1996, $30.3 million on the sale of the Teledyne
defense electronic systems business in 1995 and $24.2 million on the sale of an
investment in Litton Industries common stock in 1993.
Net income was adversely affected by after-tax merger and restructuring
charges of $45.8 million in 1998, $7.6 million in 1997, $42.9 million in 1996
and $3.9 million in 1995. The 1996 and 1995 amounts also include proxy contest
charges.
Results of operations included after-tax charges of $4.1 million in 1997,
$4.7 million in 1996, $88.0 million in 1994 and $10.7 million in 1993 related to
Teledyne's settlement of certain legal matters with the U.S. Government.
Results for 1994 were adversely affected by a ten-week strike at Allegheny
Ludlum called by the United Steelworkers of America.
Net losses for 1993 included charges of $185.6 million for the cumulative
effect of changing the accounting for postretirement health care and life
insurance benefits for Teledyne in 1993.
Teledyne dividends declared included $0.08 per equivalent share in 1996 and
$0.31 per equivalent share in 1995 paid in face amount of Teledyne's Series E
Cumulative Preferred Stock. The Teledyne Series E Cumulative Preferred Stock was
redeemed for cash in 1996.
54
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
The following lists the subsidiaries of Allegheny Teledyne Incorporated,
excluding those subsidiaries which, considered in the aggregate as a single
subsidiary, do not constitute a significant subsidiary. The subsidiaries listed
are all wholly owned, either directly or indirectly.
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Allegheny Ludlum Corporation Pennsylvania
Teledyne, Inc. Delaware
Teledyne Industries, Inc. California
Jessop Steel Company Pennsylvania
AII Acquisition Corp. Delaware
ALC Funding Corporation Delaware
Oregon Metallurgical Corporation Oregon
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Form 10-K of Allegheny
Teledyne Incorporated of our report dated January 26, 1999, included in the
1998 Annual Report to Stockholders of Allegheny Teledyne Incorporated.
We also consent to the incorporation by reference in Registration
Statements (as may be amended) Nos. 333-08235, 333-10225, 333-10227,
333-10229, 333-10245, 333-46695, 333-45965, 333-48649, and 333-59161 of
Allegheny Teledyne Incorporated of our report dated January 26, 1999, with
respect to the consolidated financial statements incorporated herein by
reference.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 18, 1999
<PAGE> 1
Exhibit 23.2
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Registration Statements (as may
be amended) 333-08235, 333-10225, 333-10227, 333-10229, 333-10245, 333-46695,
333-45965, 333-48649 and 333-59161 of Allegheny Teledyne Incorporated of our
report dated January 23, 1998, on the consolidated financial statements of
Oregon Metallurgical Corporation as of December 31, 1997 and for each of the two
years in the period ended December 31, 1997, which report is included in this
Form 10-K of Allegheny Teledyne Incorporated.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1998 AND CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001018963
<NAME> ALLEGHENY TELEDYNE INCORPORATED
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 75
<SECURITIES> 0
<RECEIVABLES> 548
<ALLOWANCES> 13
<INVENTORY> 660
<CURRENT-ASSETS> 1,365
<PP&E> 2,023
<DEPRECIATION> 1,019
<TOTAL-ASSETS> 3,176
<CURRENT-LIABILITIES> 622
<BONDS> 447
0
0
<COMMON> 20
<OTHER-SE> 1,320
<TOTAL-LIABILITY-AND-EQUITY> 3,176
<SALES> 3,923
<TOTAL-REVENUES> 3,923
<CGS> 2,950
<TOTAL-COSTS> 2,950
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> 391
<INCOME-TAX> 150
<INCOME-CONTINUING> 241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 241
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.22
</TABLE>
<PAGE> 1
Exhibit 99.1
[Coopers & Lybrand L.L.P. Letterhead]
Report of Independent Accountants
---------------------------------
To the Shareholders and Board of Directors of
Allegheny Teledyne Incorporated:
We have audited the consolidated balance sheets of Oregon Matallurgical
Corporation and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Oregon
Metallurgical Corporation and subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Portland, Oregon
January 23, 1998
