FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1994
( ) 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 1-5212
TELEDYNE, INC.
______________________________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-2282626
________________________________________ __________________________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1901 Avenue of the Stars
Los Angeles, California 90067-6046
________________________________________ ___________________________________
(Address of Principal Executive Offices) (Zip Code)
(310) 277-3311
____________________________________________________
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (l) 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 __________
-----------
At April 21, 1994, Registrant had outstanding 55,442,048 shares of its
Common Stock.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In millions except share and per share amounts)
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
ASSETS
- ------
Current Assets:
Cash and marketable securities $ 121.2 $ 155.0
Receivables 400.3 332.4
Inventories 193.6 172.6
Deferred income taxes 122.2 123.0
Prepaid expenses 18.4 20.5
-------- --------
Total current assets 855.7 803.5
Property and Equipment 311.4 318.8
Prepaid Pension Cost 298.1 280.3
Deferred Income Taxes 27.5 24.0
Other Assets 50.7 51.2
-------- --------
$1,543.4 $1,477.8
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 97.9 $ 106.9
Accrued liabilities 445.6 341.4
-------- --------
Total current liabilities 543.5 448.3
Long-Term Debt 357.3 356.6
Accrued Postretirement Benefits 277.7 277.5
Other Long-Term Liabilities 138.6 114.9
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1,317.1 1,197.3
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Shareholders' Equity:
Common stock, $1.00 par value, 100,000,000 shares
authorized, 55,442,048 shares at March 31, 1994
and 55,439,048 shares at December 31, 1993
issued and outstanding 55.4 55.4
Additional paid-in capital 35.0 34.9
Retained earnings 131.6 186.7
Currency translation adjustment 3.1 3.5
Net unrealized appreciation 1.2 -
-------- --------
Total shareholders' equity 226.3 280.5
-------- --------
$1,543.4 $1,477.8
======== ========
The accompanying notes are an integral part of these statements.
<PAGE>
TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In millions except per share amounts)
(Unaudited)
Three Months Ended
March 31,
------------------
1994 1993
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Sales $ 572.9 $ 636.5
Costs and Expenses*:
Cost of sales 435.1 491.9
Selling and administrative expenses 220.4 119.7
Interest expense 10.5 13.2
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666.0 624.8
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Earnings (Loss) Before Other Income (93.1) 11.7
Other Income 2.0 43.9
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Income (Loss) before Income Taxes, Extraordinary Loss and
Cumulative Effect of Accounting Change (91.1) 55.6
Provision (Credit) for Income Taxes (36.0) 21.8
------- -------
Income (Loss) before Extraordinary Loss and Cumulative Effect of
Accounting Change (55.1) 33.8
Extraordinary Loss on Redemption of Debt - (3.7)
Cumulative Effect of Accounting Change - (185.6)
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Net Loss $ (55.1) $(155.5)
======= =======
Income (Loss) Per Share:
Before extraordinary loss and cumulative effect of
accounting change $ (0.99) $ 0.61
Extraordinary loss on redemption of debt - (0.07)
Cumulative effect of accounting change - (3.35)
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Net Loss Per Share $ (0.99) $(2.81)
======= =======
Cash Dividends Per Share $ - $ 0.20
======= =======
* Includes a credit of non-cash pension income of $19.0 million in 1994 and
$16.8 million in 1993.
The accompanying notes are an integral part of these statements.
<PAGE>
TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In millions)
(Unaudited)
Three Months Ended
March 31,
------------------
1994 1993
------- -------
Operating Activities:
Net loss $ (55.1) $(155.5)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Increase in accounts payable and accrued liabilities 116.7 45.4
Decrease (increase) in receivables (68.5) 21.0
Increase in other long-term liabilities 25.2 3.0
Decrease (increase) in inventories (22.0) 7.8
Depreciation and amortization of property and equipment 19.2 20.1
Increase in deferred pension cost (17.8) (14.6)
Increase in deferred income taxes (2.7) (116.1)
Increase in accrued postretirement benefits 0.3 302.3
Gain on sale of Litton common stock - (40.4)
Other, net 3.7 5.0
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Net cash provided by (used in) operating activities (1.0) 78.0
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Investing activities:
Net decrease (increase) in short-term investments 25.0 (18.0)
Proceeds from the sale of marketable securities 5.0 85.5
Purchases of marketable securities - (35.6)
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Net proceeds from sale of marketable securities 30.0 31.9
Purchases of property and equipment (12.0) (16.5)
Collection of notes receivable from the sales of businesses - 15.0
Other, net 0.6 (3.6)
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Net cash provided by investing activities 18.6 26.8
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Financing activities:
Increase (decrease) in outstanding checks (19.4) 8.0
Reduction of long-term debt (2.2) (100.5)
Cash dividends - (11.0)
Other, net 0.1 -
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Net cash used in financing activities (21.5) (103.5)
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Increase (decrease) in cash $ (3.9) $ 1.3
======= =======
The accompanying notes are an integral part of these statements.
<PAGE>
TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1. Consolidated Financial Statements -
The interim consolidated financial statements of Teledyne, Inc. and
subsidiaries have not been examined by independent public accountants; however,
in the opinion of the Company, all adjustments (which include only recurring
normal adjustments and the adjustments discussed below) required for a fair
presentation of the financial position as of March 31, 1994 and the results of
operations and cash flows for the three months ended March 31, 1994 and 1993,
have been made. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's December 31, 1993 annual report to shareholders. The
results of operations for these interim periods are not necessarily indicative
of the operating results for a full year. Certain amounts for 1993 have been
reclassified to conform with the 1994 presentation.
Note 2. Inventories -
Inventories were as follows (in millions):
March 31, December 31,
1994 1993
-------- ------------
Raw materials and work-in process $ 295.5 $ 257.1
Finished goods 49.7 49.0
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345.2 306.1
Progress payments (151.6) (133.5)
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$ 193.6 $ 172.6
======= =======
Note 3. Long-term Debt -
On March 31, 1993, the Company redeemed at par $100 million of its 10%
Subordinated Debentures due 2004, Series C resulting in an extraordinary loss of
$6.0 million or $3.7 million, net of tax.
<PAGE>
Note 4. Supplemental Balance Sheet Information -
Cash and marketable securities were as follows (in millions):
March 31, December 31,
1994 1993
-------- ------------
Cash $ 10.8 $ 14.7
United States Treasury notes, at amortized
cost 110.0 115.3
Gross unrealized gains on United States Treasury notes 0.4 -
Repurchase agreements, at cost, which
approximates market - 25.0
------ ------
$121.2 $155.0
====== ======
On January 1, 1994, the Company changed its accounting for investments in
debt and equity securities to comply with the provisions of Statement of
Financial Accounting Standards No. 115. The statement requires that these
investments be classified as either held-to-maturity, trading or
available-for-sale. The Company's investments in debt and equity securities are
classified as available-for-sale and are reported at fair value, with unrealized
gains and losses reported as a separate component of shareholders' equity. As
of March 31, 1994, the Company's investments in debt securities mature within
six years.
Property and equipment is presented net of accumulated depreciation and
amortization of $524.8 million at March 31, 1994 and $508.5 million at
December 31, 1993.
Accounts payable included $2.7 million at March 31, 1994 and $22.1 million at
December 31, 1993 for checks outstanding in excess of cash balances.
Accrued liabilities at March 31, 1994 included $84.4 million and other
long-term liabilities included $28.1 million related to the agreement in
principle with the government discussed in Note 8.
Note 5. Shareholders' Equity -
In 1994, the Company's Board of Directors approved, subject to shareholder
approval, the Teledyne, Inc. 1994 Long-Term Incentive Plan which allows for
issuance of restricted stock, stock options and stock appreciation rights
covering 2,500,000 shares of the Company's common stock. In addition, the Board
rescinded its 1993 amendment to the 1990 Stock Option Plan increasing by
2,500,000 the number of shares available for exercise.
<PAGE>
Note 6. Business Segments -
Information on the Company's business segments for the three months ended
March 31, 1994 and 1993 was as follows (in millions):
Three Months Ended
March 31,
------------------
1994 1993
------ -------
Sales:
Aviation and electronics:
Continuing $ 253.7 $ 293.9
Discontinued - 5.3
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253.7 299.2
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Specialty metals:
Continuing 163.0 167.4
Discontinued 0.3 2.9
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163.3 170.3
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Industrial:
Continuing 75.7 76.4
Discontinued 7.7 13.1
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83.4 89.5
------- -------
Consumer:
Continuing 72.5 77.5
Discontinued - -
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72.5 77.5
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Total:
Continuing 564.9 615.2
Discontinued 8.0 21.3
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$ 572.9 $ 636.5
======= =======
<PAGE>
Note 6. Business Segments - (Continued)
Three Months Ended
March 31,
------------------
1994 1993
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Income (Loss) before Income Taxes, Extraordinary Loss and
Cumulative Effect of Accounting Change:
Aviation and electronics:
Continuing $(101.9) $ 12.3
Discontinued (0.2) (0.4)
Pension income 3.8 3.2
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(98.3) 15.1
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Specialty metals:
Continuing 13.1 10.5
Discontinued 3.8 (0.2)
Pension income 3.7 2.3
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20.6 12.6
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Industrial:
Continuing 1.0 1.7
Discontinued 0.5 -
Pension income 10.5 10.3
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12.0 12.0
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Consumer:
Continuing 3.7 2.3
Discontinued (2.1) -
Pension income 0.1 0.1
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1.7 2.4
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Total:
Continuing (84.1) 26.8
Discontinued 2.0 (0.6)
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(82.1) 26.2
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Corporate expense (19.5) (18.1)
Interest expense (10.5) (13.2)
Pension income 19.0 16.8
Other income 2.0 43.9
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$ (91.1) $ 55.6
======= ======
Operating profit for the three months ended March 31, 1994 for the aviation
and electronics segment was adversely affected by the charge of $112.5 million
based on agreement in principle with the U.S. government (see Note 8). The
charge based on the agreement in principle is included in general and
administrative expenses.
Operating profit for the three months ended March 31, 1994 for the industrial
segment was adversely affected by a $1.8 million one-time nonoperational
charge for postretirement health care and life insurance benefits.
Operating profit for the three months ended March 31, 1993 for the aviation
and electronics segment was adversely affected by a charge of $10.0 million,
included in general and administrative expenses, recorded in connection with the
government investigation of the Company's Teledyne Electronics unit. Other
income for the three months ended March 31, 1993 included a gain on sale of
Litton Industries, Inc. common stock of $40.4 million.
Teledyne's non-cash pension income results from the amortization into income
of the excess of plan assets over the estimated obligation. The amount recorded
reflects the extent to which this non-cash income exceeds the current year's net
cost of providing benefits.
Note 7. Net Income Per Share -
The weighted average number of shares of common stock used in the computation
of net income per share for the three months ended March 31, 1994 and 1993 was
55,441,455 and 55,412,889, respectively.
Note 8. Commitments and Contingencies -
The Company is subject to ongoing examination of its federal tax returns by
the Internal Revenue Service (IRS). The IRS has proposed the disallowance of
deductions claimed by the Company of $48.7 million in 1984 and $38.2 million in
1985 for contributions to the Company's pension plans. The IRS may take the
same position in its audit of tax years 1986 and 1987, where the claimed
deductions for contributions to the pension plans totaled $37.7 million. The
Company believes the IRS position on this issue is without merit and will defend
the matter vigorously.
The IRS had also proposed the disallowance of deductions claimed by the
Company on behalf of a former wholly-owned insurance subsidiary with respect to
insurance loss reserves of $269 million in 1984 and $115 million in 1985. The
Company has reached a settlement with the IRS providing for no disallowance with
respect to 1984 insurance loss reserves, and a disallowance of $22 million with
respect to 1985 insurance loss reserves, subject to execution of a final
agreement. This reserve adjustment is a timing adjustment which will result in
the realization of offsetting tax benefits subsequent to the tax year at issue.
Accordingly, pursuant to the tax agreement between the Company and its former
subsidiary, the Company will bear only the interim interest cost and any costs
resulting from a difference in tax rates with respect to the adjustment.
The Company has been and is subject from time to time to various audits,
reviews and investigations relating to the Company's compliance with federal and
state laws. Should any unit involved be charged with wrongdoing, or should the
U.S. government determine that the unit is not a "presently responsible
contractor," that unit, and conceivably the Company, could be temporarily
suspended or, in the event of a conviction, could be debarred for up to three
years from receiving new government contracts or government-approved
subcontracts. A suspension or debarment of the Company would have a material
adverse effect on the future operating results and consolidated financial
condition of the Company. However, except as otherwise discussed below, the
Company does not possess sufficient information to determine whether it will
sustain a loss as a result of any of the investigations discussed below, or to
reasonably estimate the amount of any such loss, and has not been able to
identify the existence of a material loss contingency arising therefrom.
On August 15, 1990, federal agents executed a search warrant on and removed
a number of documents relating to government-furnished materials from the
Company's former Teledyne Neosho unit. In addition, several Teledyne Neosho
employees received subpoenas to testify before a federal grand jury.
On October 26, 1990, the Company's Teledyne Electronics unit sought admission
into the Department of Defense Voluntary Disclosure Program, and was accepted
into the program on March 5, 1991. Teledyne Electronics subsequently filed
a Voluntary Disclosure Report with the U.S. government disclosing material
handling practices at variance with military requirements in one of its
military transponder programs. On November 15, 1991, Teledyne Electronics
filed an Ancillary Report to its Voluntary Disclosure Report disclosing
allegations relating to product quality in other transponder programs for the
military. On February 14, 1992, Teledyne Electronics received three grand
jury subpoenas for production of documents relating to Department of Defense
programs for the supply of military transponders, one of which was
subsequently withdrawn. On October 5, 1992, Teledyne Electronics received a
fourth grand jury subpoena relating to a military program for the supply of
a transponder programming device. On July 28, 1993, the Company concluded a
settlement with the U.S. government of claims arising out of the initial
Voluntary Disclosure Report; the government's investigation of the issues
raised in the Ancillary Report is pending.
By letters dated November 12 and November 30, 1992, the Company's Teledyne
Electro-Mechanisms unit sought admission into the Department of Defense
Voluntary Disclosure Program. Teledyne Electro-Mechanisms was accepted into
the program on January 28, 1993, and subsequently submitted a Voluntary
Disclosure Report disclosing design and test practices at variance from
military specifications. On February 9, 1994, the Company concluded its
agreement with the U.S. government to settle all claims arising from this
matter for $400,000.
On January 13, 1993, the Company's Teledyne Thermatics unit sought admission
into the Department of Defense Voluntary Disclosure Program. Teledyne
Thermatics was accepted into the program on April 2, 1993. On April 5, 1993
and August 13, 1993, the Company submitted interim Voluntary Disclosure
Reports which describe a number of testing practices at variance from
military specifications.
On February 16, 1993, the Company received a subpoena from the National
Aeronautics and Space Administration, Office of Inspector General, requesting
documents relating to all aspects of the manufacture, test, sale and
reliability of solid state relays at the Company's Solid State unit.
On February 22, 1993, the Company's Teledyne Electronics unit received a
subpoena from the Department of Defense, Office of Inspector General, for
production of documents relating to contract pricing and labor charging
practices.
On March 19, 1993, the Company's Teledyne Wah Chang Albany unit received a
subpoena for documents from a federal grand jury impaneled in Washington,
D.C. investigating alleged violations of the U.S. export control laws. The
subpoena relates to Teledyne Wah Chang Albany's sale of zirconium to a Greek
business entity. Should the U.S. government bring criminal charges in this
matter, Teledyne Wah Chang Albany and conceivably the Company could be
temporarily suspended from receiving licenses for export of products and
services on the munitions list. In the event of a conviction, Teledyne Wah
Chang Albany and conceivably the Company would be subject to debarment for a
period of up to three years from receiving such licenses, and could be
suspended for up to ten years from eligibility for commercial export
licenses.
On May 19, 1993, the Company and its Teledyne Electronics unit each received
a subpoena from the Air Force Office of Special Investigations. One
requested documents relating to military transponder contracts for the
governments of Egypt and Saudi Arabia, and the second requested documents
relating to a military transponder program for the Egyptian government.
The government has agreed in principle to settle two civil actions filed
pursuant to the False Claims Act against the Company's Teledyne Systems and
Teledyne Relays units upon the Company's agreement to pay $112.5 million.
As part of the proposed settlement, a third civil action brought pursuant to the
False Claims Act relating to the Company's Teledyne Solid State unit also will
be dismissed. The Company has established a reserve in connection with this
proposed settlement of $112.5 million. The proposed settlement contemplates
payment of $56.25 million 30 days from the date of execution of the settlement
documents or upon dismissal of both the Teledyne Systems and Teledyne Relays
cases, whichever is earlier. One half of the remaining $56.25 million will be
due nine months after the first payment, but not in any case before dismissal of
the Teledyne Systems and Teledyne Relays cases; the balance will be due fifteen
months after the first payment, but again in no event before dismissal of both
the Teledyne Systems and Teledyne Relays cases. In addition, the deferred
payments will be secured by real property and will incur interest at 6.75% per
annum, commencing with dismissal of both the Teledyne Systems and Teledyne
Relays cases.
The government intervened in the Teledyne Systems case in November of 1990.
That case concerned the cost estimating practices of the Company's Teledyne
Systems unit, which the government claimed in its Memorandum of Contentions of
Fact and Law filed on January 10, 1994, totaled $40.9 million. The government
sought treble the damages allegedly sustained by the United States, together
with civil penalties of up to $10,000 for any false claim made.
In the Teledyne Relays case, the government charged that the Company's
Teledyne Relays unit falsified test certifications for relays supplied to the
United States. The government intervened in the action on April 22, 1992, and
the complaint and first amended complaint were served on the Company on
August 19, 1992. In addition to the claims alleged under the False Claims Act,
the first amended complaint alleged various statutory and common law causes of
action, including claims for trademark infringement, unfair competition, breach
of contract and fraud. The government sought treble the damages allegedly
sustained by the United States (the government had estimated such damages at
$76.2 million), profits of not less than $41.6 million allegedly derived by
Teledyne Relays from the sales at issue, and civil penalties of up to $10,000
for any false claim made.
The government had declined to intervene in the third action encompassed by
the settlement, which alleged that the Company's Teledyne Solid State unit
falsified test certifications for solid state relays supplied to the United
States. The complaint was served on the Company on October 29, 1993.
Plaintiffs sought treble the damages allegedly sustained by the United States,
and civil penalties of up to $10,000 for any false claim made.
The Company is defending a civil action filed on behalf of the U.S.
government pursuant to the False Claims Act concerning the procurement and
quality control systems of the Company's Teledyne Controls unit. The U.S.
government intervened in this matter on June 18, 1991, but withdrew following
the Company's February 18, 1993 agreement to pay $2.15 million in partial
settlement of the matter without admission of wrongdoing. The allegations of
this suit gave rise to an investigation of Teledyne Controls by a federal grand
jury, the Defense Criminal Investigative Service and other federal agencies.
The settlement resolves all outstanding investigations regarding the claims
encompassed by the agreement. The plaintiff was granted leave to pursue the
remaining allegations in the case alone, and on April 23, 1993, filed a second
amended complaint. On March 29, 1994, the Court dismissed the second amended
complaint with leave to amend; plaintiff filed a third amended complaint on
April 14, 1994. Plaintiff continues to allege that the actual damages to the
United States cannot be ascertained, but estimates that the total damages to the
United States exceed $120 million. Plaintiff seeks treble the damages
allegedly sustained by the United States together with civil penalties of up to
$10,000 for any false claim made. Based on an internal review, and after
consultation with counsel, the Company does not possess sufficient information
to determine whether the Company will sustain a further loss in this matter, or
to reasonably estimate the amount of any such loss. Consequently, the Company
has not been able to identify the existence of a material loss contingency
arising from this matter.
On May 26, 1993, a grand jury impaneled by the United States District Court
for the Southern District of Florida returned an indictment in connection with
a U.S. government investigation of alleged violations of the U.S. export control
laws. The indictment includes charges against the Company's Teledyne Wah Chang
Albany unit and two of its employees relating to the sale of zirconium to a
South American industrialist. On March 22, 1994, the Court dismissed five of
the seven charges brought against Teledyne Wah Chang Albany. The Company
believes that the government's evidence does not support the balance of the
allegations contained in the indictment, and is vigorously defending itself.
At an arraignment on June 14, 1993, the Company entered a plea of not guilty.
If the Company were found guilty of the remaining two charges, it could face
fines totalling up to $3.55 million.
As a result of the indictment, the United States Department of State
temporarily suspended Teledyne Wah Chang Albany, effective July 26, 1993, from
receiving licenses for export of products and services on the munitions list.
This suspension will not have a material adverse affect on the financial
condition of the Company. However, in the event of a conviction, Teledyne Wah
Chang Albany and conceivably the Company would be subject to debarment for a
period of up to three years from receiving such export licenses, and could be
suspended for up to ten years from eligibility for commercial export licenses.
In addition, should the U.S. government determine that Teledyne Wah Chang Albany
is not a "presently responsible contractor," Teledyne Wah Chang Albany and
conceivably the Company could be temporarily suspended or, in the event of a
conviction, could be debarred for up to three years from receiving new
government contracts or government-approved subcontracts. Based on an ongoing
internal review, and after consultation with counsel, the Company does not
possess sufficient information to determine whether the Company will sustain a
loss in this matter, or to reasonably estimate the amount of any such loss.
Consequently, the Company has not been able to identify the existence of a
material loss contingency arising therefrom.
The Company is informed that it has been named as a defendant in three civil
actions filed pursuant to the False Claims Act in the U.S. District Court for
the Central District of California. Two of these cases concern the Company's
Teledyne Electronics unit, of which one reportedly alleges damages in a material
amount. The third concerns the Company's Teledyne Solid State and Teledyne
Relays units. The Company is further informed that it has been named as a
defendant in a fourth action filed pursuant to the False Claims Act in the U.S.
District Court for the Western District of Missouri concerning the Company's
former Teledyne Neosho unit. All of these cases remain under seal. The Company
does not possess sufficient information to determine whether the Company will
sustain a loss in these matters, or to reasonably estimate the amount of any
such loss. Consequently, the Company has not been able to identify the
existence of a material loss contingency arising therefrom.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Teledyne is a diversified manufacturing corporation serving customers
worldwide through 21 operating companies focused in four business segments:
Aviation and Electronics; Specialty Metals; Industrial; and Consumer.
AGREEMENT IN PRINCIPLE WITH GOVERNMENT
Teledyne has reached agreement in principle with the U.S. government to
settle two pending civil cases relating to Teledyne Relays and Systems, two
Teledyne business units, through payment of $112.5 million to the U.S.
government. Teledyne has agreed to settle to avoid the risk and expense of
litigation. As part of the agreement in principle, an additional case filed by
former employees and relating to Teledyne's Solid State unit will also be
dismissed. The government declined to join in the prosecution of that suit.
Under the agreement in principle, Teledyne will pay the government $56.25
million within 30 days after execution of the definitive settlement documents.
The remaining balance of $56.25 million will be paid in two additional
installments within approximately nine and fifteen months, depending on when the
court actually dismisses both cases. The deferred payments will be secured by
real property and will incur interest at 6.75% per annum commencing with the
dismissal of the Teledyne Systems and Relays cases.
The Relays case alleged discrepancies in the testing of miniature electro-
mechanical switches known as relays during the period 1980-1990. There were no
allegations of damage from any field failures of Teledyne relays installed in
equipment delivered to the government. During the period, Teledyne Relays
received awards for quality from the Department of Defense.
The Systems case related to cost estimating practices in pricing government
contract proposals.
Teledyne Relays, Solid State and Systems were formerly separate Teledyne
operating companies until Teledyne's realignment in July 1993 when the first two
became business units of Teledyne Electronic Technologies and the third became
part of Teledyne Electronic Systems.
RESULTS OF OPERATIONS
Sales and operating profit for the Company's four business segments are
discussed below.
Aviation and Electronics
- ------------------------
Sales from continuing operations decreased $40.2 million to $253.7 million
from $293.9 million for the first quarter of 1994 compared to 1993. Sales
decreases were the result of declining orders due to reduced defense spending
and winding down of certain military programs, primarily unmanned aerial
vehicles and airframe structures.
Operating loss from continuing operations was $101.9 million for the first
quarter of 1994 compared to operating profit of $12.3 million for the first
quarter of 1993. The 1994 result was adversely affected by the $112.5 million
charge discussed above, higher costs related to other government contracting
issues, estimated costs due to the Northridge earthquake and the decrease in
sales discussed above. Operating profit for the first quarter of 1993 included
a charge of $10.0 million for the settlement of certain issues raised by the
Company's initial Voluntary Disclosure Report to the government relating to its
Teledyne Electronics unit.
Specialty Metals
- ----------------
Sales from continuing operations decreased $4.4 million to $163.0 million
from $167.4 million for the first quarter of 1994, compared to the same period
of 1993 primarily due to reduced sales of nickel based products and formed metal
structural shapes due to softness in the aerospace market. The decline in sales
was partially offset by increases in forged products.
Operating profit from continuing operations was $13.1 million for the first
quarter of 1994 compared to $10.5 million for the same period of 1993. The
increase was primarily due to higher margins on zirconium products and improved
performance of forged products.
Industrial
- ----------
Sales from continuing operations decreased $0.7 million to $75.7 million from
$76.4 million for the first quarter of 1994 compared to the same period of 1993.
Sales related to military vehicle development declined, offset by increased
sales of tank engines and nitrogen cylinder systems for the metal stamping
industry.
Operating profit from continuing operations was $1.0 million for the first
quarter of 1994 compared to $1.7 million for the same period of 1993. The 1994
result includes a $1.8 million one-time nonoperational charge for
postretirement health care and life insurance benefits.
Consumer
- --------
Sales from continuing operations decreased $5.0 million to $72.5 million from
$77.5 million for the first quarter of 1994 compared to 1993 primarily
as a result of a distribution arrangement related to an operation sold in 1992
but which arrangement continued into 1993. In addition, sales of heating
elements to original equipment manufacturers and metal tube products to the
pharmaceutical industry declined in 1994. The decrease in sales was partially
offset by strong performance of shower products due to restocking by retailers
as a result of a strong holiday season and improved sales of pool heaters due to
improved economic conditions.
Despite the decline in sales, operating profit from continuing operations
increased $1.4 million to $3.7 million from $2.3 million for the first quarter
of 1994 compared to 1993 primarily as a result of improved performance of shower
products and pool heaters.
CORPORATE EXPENSE
Corporate expense increased $1.4 million to $19.5 million from $18.1 million
for the first quarter of 1994 compared to the same period of 1993 primarily as
a result of insurance recoveries received in 1993 related to environmental
matters, partially offset by a decline in insurance costs and salaries and
benefits for 1994.
PENSION INCOME
Teledyne's non-cash pension income results from the amortization into income
of the excess of plan assets over the estimated obligation. The amount recorded
reflects the extent to which this non-cash income exceeds the current year's net
cost of providing benefits. Pension income before tax increased to $19.0
million in the first quarter of 1994 from $16.8 million for the same period of
1993. This increase in pension income was a result of a reduction in the number
of employees during 1993 and a better than expected return on pension assets,
partially offset by a decrease in the discount rate, to seven from eight
percent, used to calculate the pension benefit obligation in accordance with
Financial Accounting Standards Board guidelines.
LITTON GAIN
In 1993, the Company sold its investment in Litton common stock resulting in
a $40.4 million gain, included in other income.
POSTRETIREMENT BENEFITS
Effective January 1, 1993, the Company changed its method of accounting for
postretirement health care and life insurance benefits, as required by SFAS No.
106. This statement requires that the expected cost of providing postretirement
health care and life insurance benefits be charged to expense during the years
that the employees render service. Prior to 1993, the Company expensed the cost
of these benefits as they were paid. As a result of adopting SFAS No. 106, the
Company recorded a charge of $301.7 million or $185.6 million, net of tax, to
recognize the accumulated postretirement benefit obligation at the date of
adoption. The new accounting method will have no effect on the Company's cash
outlays for postretirement health care and life insurance benefits.
FINANCIAL CONDITION
The Company has been able to meet all cash requirements for the three months
ended March 31, 1994 and 1993 with cash generated from operations and except for
the potential effects of the matters discussed below, is not aware of any
impending cash requirement or capital commitments which could not be met by
internally generated funds or, if needed, the utilization of credit lines. The
Company has uncommitted domestic credit lines with various banks totaling $125.0
million at March 31, 1994; no amounts were borrowed under these lines during the
three months ended March 31, 1994 and 1993. The Company redeemed at par $100
million in the first quarter of 1993 of its 10% Subordinated Debentures.
OTHER MATTERS
The Company is subject to ongoing examination of its federal tax returns by
the Internal Revenue Service (IRS). The IRS has proposed the disallowance of
deductions claimed by the Company of $48.7 million in 1984 and $38.2 million in
1985 for contributions to the Company's pension plans. The IRS may take the
same position in its audit of tax years 1986 and 1987, where the claimed
deductions for contributions to the pension plans totaled $37.7 million. The
Company believes the IRS position on this issue is without merit and will defend
the matter vigorously.
The IRS had also proposed the disallowance of deductions claimed by the
Company on behalf of a former wholly-owned insurance subsidiary with respect to
insurance loss reserves of $269 million in 1984 and $115 million in 1985. The
Company has reached a settlement with the IRS providing for no disallowance with
respect to 1984 insurance loss reserves, and a disallowance of $22 million with
respect to 1985 insurance loss reserves, subject to execution of a final
agreement. This reserve adjustment is a timing adjustment which will result in
the realization of offsetting tax benefits subsequent to the tax year at issue.
Accordingly, pursuant to the tax agreement between the Company and its former
subsidiary, the Company will bear only the interim interest cost and any costs
resulting from a difference in tax rates with respect to the adjustment.
Company subsidiaries perform work on a substantial number of defense
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. There is substantial risk on such contracts 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 annual nature of
the government appropriations and allocations process. A material reduction in
U.S. government appropriations for defense programs may have an adverse effect
on the Company's business, depending upon the specific defense programs affected
by any such reduction.
The Company has been and is subject from time to time to various audits,
reviews and investigations relating to the Company's compliance with federal and
state laws, including those discussed in Note 8 to the accompanying consolidated
financial statements. Should any unit involved be charged with wrongdoing, or
should the U.S. government determine that the unit is not a "presently
responsible contractor," that unit, and conceivably the Company, could be
temporarily suspended or, in the event of a conviction, could be debarred for up
to three years from receiving new government contracts or government-approved
subcontracts. A suspension or debarment of the Company would have a material
adverse effect on the future operating results and consolidated financial
condition of the Company. However, except as otherwise discussed in Note 8 to
the accompanying consolidated financial statements, the Company does not possess
sufficient information to determine whether it will sustain a loss as a result
of any of the investigations discussed in Note 8, or to reasonably estimate the
amount of any such loss, and has not been able to identify the existence of a
material loss contingency arising therefrom.
The Company is defending a civil action filed on behalf of the U.S.
government pursuant to the False Claims Act concerning the procurement and
quality control systems of the Company's Teledyne Controls unit. The U.S.
government intervened in this matter on June 18, 1991, but withdrew following
the Company's February 18, 1993 agreement to pay $2.15 million in partial
settlement of the matter without admission of wrongdoing. The allegations of
this suit gave rise to an investigation of Teledyne Controls by a federal grand
jury, the Defense Criminal Investigative Service and other federal agencies.
The settlement resolves all outstanding investigations regarding the claims
encompassed by the agreement. The plaintiff was granted leave to pursue the
remaining allegations in the case alone, and on April 23, 1993, filed a second
amended complaint. On March 29, 1994, the Court dismissed the second amended
complaint with leave to amend; plaintiff filed a third amended complaint on
April 14, 1994. Plaintiff continues to allege that the actual damages to the
United States cannot be ascertained, but estimates that the total damages to
the United States exceed $120 million. Plaintiff seeks treble the damages
allegedly sustained by the United States together with civil penalties of up to
$10,000 for any false claim made. Based on an internal review, and after
consultation with counsel, the Company does not possess sufficient information
to determine whether the Company will sustain a further loss in this matter, or
to reasonably estimate the amount of any such loss. Consequently, the Company
has not been able to identify the existence of a material loss contingency
arising from this matter.
On May 26, 1993, a grand jury impaneled by the United States District Court
for the Southern District of Florida returned an indictment in connection with
a U.S. government investigation of alleged violations of the U.S. export control
laws. The indictment includes charges against the Company's Teledyne Wah Chang
Albany unit and two of its employees relating to the sale of zirconium to a
South American industrialist. On March 22, 1994, the Court dismissed five of
the seven charges brought against Teledyne Wah Chang Albany. The Company
believes that the government's evidence does not support the balance of the
allegations contained in the indictment, and is vigorously defending itself.
At an arraignment on June 14, 1993, the Company entered a plea of not guilty.
If the Company were found guilty of the remaining two charges, it could face
fines totalling up to $3.55 million.
As a result of the indictment, the United States Department of State
temporarily suspended Teledyne Wah Chang Albany, effective July 26, 1993, from
receiving licenses for export of products and services on the munitions list.
This suspension will not have a material adverse affect on the financial
condition of the Company. However, in the event of a conviction, Teledyne Wah
Chang Albany and conceivably the Company would be subject to debarment for a
period of up to three years from receiving such export licenses, and could be
suspended for up to ten years from eligibility for commercial export licenses.
In addition, should the U.S. government determine that Teledyne Wah Chang Albany
is not a "presently responsible contractor," Teledyne Wah Chang Albany and
conceivably the Company could be temporarily suspended or, in the event of a
conviction, could be debarred for up to three years from receiving new
government contracts or government-approved subcontracts. Based on an ongoing
internal review, and after consultation with counsel, the Company does not
possess sufficient information to determine whether the Company will sustain a
loss in this matter, or to reasonably estimate the amount of any such loss.
Consequently, the Company has not been able to identify the existence of a
material loss contingency arising therefrom.
The Company is informed that it has been named as a defendant in three civil
actions filed pursuant to the False Claims Act in the U.S. District Court for
the Central District of California. Two of these cases concern the Company's
Teledyne Electronics unit, of which one reportedly alleges damages in a material
amount. The third concerns the Company's Teledyne Solid State and Teledyne
Relays units. The Company is further informed that it has been named as a
defendant in a fourth action filed pursuant to the False Claims Act in the U.S.
District Court for the Western District of Missouri concerning the Company's
former Teledyne Neosho unit. All of these cases remain under seal. The Company
does not possess sufficient information to determine whether the Company will
sustain a loss in these matters, or to reasonably estimate the amount of any
such loss. Consequently, the Company has not been able to identify the
existence of a material loss contingency arising therefrom.
The Company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in administrative
proceedings at a number of sites under these laws. Many of these proceedings
are at a preliminary stage, and it is difficult to estimate with any certainty
the total cost of remediation, the timing and extent of remedial actions
required by governmental authorities, and the amount of the Company's liability,
if any, in proportion to that of any other responsible parties. As further
discussed in Note 1 to the Company's consolidated financial statements in the
December 31, 1993, annual report to shareholders, when it is possible to
reasonably estimate the Company's liability with respect to these matters,
provisions are made as appropriate. Based on facts presently known to it, the
Company does not believe that the outcome of any one of these administrative
proceedings will have a material adverse effect on its financial condition.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
The IRS had proposed the disallowance of deductions claimed by Registrant
on behalf of a former wholly-owned insurance subsidiary with respect to
insurance loss reserves of $269 million in 1984 and $115 million in 1985.
Registrant has reached a settlement with the IRS providing for no disallowance
with respect to 1984 insurance loss reserves, and a disallowance of $22 million
with respect to 1985 insurance loss reserves, subject to execution of a final
agreement. This reserve adjustment is a timing adjustment which will result in
the realization of offsetting tax benefits subsequent to the tax year at issue.
Accordingly, pursuant to the tax agreement between Registrant and its former
subsidiary, Registrant will bear only the interim interest cost and any
costs resulting from a difference in tax rates with respect to the adjustment.
On February 11, 1993, Moise Katz and Harry Lewis, shareholders purporting to
act derivatively on behalf of Registrant, commenced an action in the Superior
Court of the State of California, County of Los Angeles, against certain of
Registrant's directors and Registrant as a "nominal" defendant. The complaint
alleges, among other things, gross negligence and breaches of fiduciary duty in
connection with the management and administration of the affairs of Registrant
with respect to its Teledyne Controls, Teledyne Relays and Teledyne Systems
units, each of which has been subject to investigation by the U.S. government,
and with respect to Registrant's foreign military sales effort in Egypt and
Saudi Arabia. The complaint seeks damages sustained by Registrant as a result
of the alleged conduct, plaintiffs' costs and expenses, including attorneys'
fees, and other appropriate relief. On February 28, 1994, the Court entered an
order dismissing the complaint with prejudice; plaintiffs filed a notice of
appeal from the order on March 25, 1994. Registrant does not believe that the
outcome of this action will have a material adverse effect on its financial
condition.
Registrant has been and is subject from time to time to various audits,
reviews and investigations relating to Registrant's compliance with federal and
state laws, including those discussed in Note 8 to the accompanying consolidated
financial statements. Should any unit involved be charged with wrongdoing, or
should the U.S. government determine that the unit is not a "presently
responsible contractor," that unit, and conceivably Registrant, could be
temporarily suspended or, in the event of a conviction, could be debarred for up
to three years from receiving new government contracts or government-approved
subcontracts. A suspension or debarment of Registrant would have a material
adverse effect on the future operating results and consolidated financial
condition of Registrant. However, except as otherwise discussed in Note 8 to
the accompanying consolidated financial statements, Registrant does not possess
sufficient information to determine whether it will sustain a loss as a result
of any of the investigations discussed in Note 8, or to reasonably estimate the
amount of any such loss, and has not been able to identify the existence of a
material loss contingency arising therefrom.
The government has agreed in principle to settle two civil actions filed
pursuant to the False Claims Act against Registrant's Teledyne Systems and
Teledyne Relays units upon Registrant's agreement to pay $112.5 million.
As part of the proposed settlement, a third civil action brought pursuant to the
False Claims Act relating to Registrant's Teledyne Solid State unit also
will be dismissed. Registrant has established a reserve in connection with
this proposed settlement of $112.5 million. The proposed settlement
contemplates payment of $56.25 million 30 days from the date of execution of the
settlement documents or upon dismissal of both the Teledyne Systems and Teledyne
Relays cases, whichever is earlier. One half of the remaining $56.25 million
will be due nine months after the first payment, but not in any case before
dismissal of the Teledyne Systems and Teledyne Relays cases; the balance
will be due fifteen months after the first payment, but again in no event
before dismissal of both the Teledyne Systems and Teledyne Relays cases.
In addition, the deferred payments will be secured by real property and will
incur interest at 6.75% per annum, commencing with dismissal of both the
Teledyne Systems and Teledyne Relays cases.
The Teledyne Systems case, entitled United States of America, ex rel.,
----------------------------------
Taxpayers Against Fraud, Klaus Kirchhoff and Max Killingsworth v. Teledyne
- --------------------------------------------------------------------------
Industries, Inc. and Teledyne Systems Company, Inc., was filed in the United
- ---------------------------------------------------
States District Court for the Central District of California. The government
intervened in the case on November 28, 1990. The action alleged that
Registrant's Teledyne Systems unit violated the False Claims Act in connection
with proposals for twenty-seven sole source, fixed-price contracts, which the
government claimed in its Memorandum of Contentions of Fact and Law filed on
January 10, 1994, totaled $40.9 million. The government sought treble the
damages allegedly sustained by the United States, together with civil penalties
of up to $10,000 for any false claim made.
The Teledyne Relays case was also filed in the United States District Court
for the Central District of California. In that case, entitled United States of
----------------
America, ex rel., Taxpayers Against Fraud, Almon Muelhausen II and Emil Stache
- ------------------------------------------------------------------------------
v. Teledyne Industries, Inc., plaintiffs alleged that Registrant's Teledyne
- ----------------------------
Relays unit falsified test certifications for relays supplied to the government.
The government intervened in the action on April 22, 1992, and the complaint and
first amended complaint were served on Registrant on August 19, 1992. In
addition to the claims alleged under the False Claims Act, the first amended
complaint alleged various statutory and common law causes of action, including
claims for trademark infringement, unfair competition, breach of contract and
fraud. The government sought treble the damages allegedly sustained by the
United States (the government had preliminarily estimated such damages at $76.2
million), profits of not less than $41.6 million allegedly derived by Teledyne
Relays from the sales at issue, and civil penalties of up to $10,000 for any
false claim made.
The third action encompassed by the settlement, also filed in the United
States District Court for the Central District of California, is entitled United
------
States of America, ex rel., Almon Muelhausen II and Emil Stache v. Teledyne,
- ----------------------------------------------------------------------------
Inc., Teledyne Industries, Inc. and Teledyne Solid State. The government
- --------------------------------------------------------
declined to intervene in the action on August 23, 1993, and the complaint was
served on Registrant on October 29, 1993. Plaintiffs alleged that Registrant's
Teledyne Solid State unit falsified test certifications for solid state relays
supplied to the government. Plaintiffs sought treble the damages allegedly
sustained by the United States, and civil penalties of up to $10,000 for any
false claim made.
Registrant is defending a civil action filed on behalf of the U.S. government
pursuant to the False Claims Act in the United States District Court for the
Central District of California, entitled United States of America, ex rel.,
----------------------------------
Marianne D. Gendron v. Teledyne Controls and Teledyne, Inc. The action alleges
- -----------------------------------------------------------
defects in the procurement and quality control systems of Registrant's Teledyne
Controls unit. The U.S. government intervened in this matter on June 18, 1991,
but withdrew following Registrant's February 18, 1993, agreement to pay $2.15
million in partial settlement of the matter without admission of wrongdoing.
The allegations of this suit gave rise to an investigation of Teledyne Controls
by a federal grand jury, the Defense Criminal Investigative Service and other
federal agencies. The settlement resolves all outstanding investigations
regarding the claims encompassed by the agreement. The plaintiff was granted
leave to pursue the remaining allegations in the case alone, and on April 23,
1993, filed a second amended complaint. On March 29, 1994, the Court
dismissed the second amended complaint with leave to amend; plaintiff filed a
third amended complaint on April 14, 1994. Plaintiff continues to allege that
the actual damages to the United States cannot be ascertained, but estimates
that the total damages to the United States exceed $120 million. Plaintiff
seeks treble the damages allegedly sustained by the United States together with
civil penalties of up to $10,000 for any false claim made. Based on an internal
review, and after consultation with counsel, Registrant does not possess
sufficient information to determine whether Registrant will sustain a further
loss in this matter, or to reasonably estimate the amount of any such loss.
Consequently, Registrant has not been able to identify the existence of a
material loss contingency arising from this matter.
On May 26, 1993, a grand jury impaneled by the United States District Court
for the Southern District of Florida returned an indictment in connection with
a U.S. government investigation of alleged violations of the U.S. export control
laws. The indictment includes charges against Registrant's Teledyne Wah Chang
Albany unit and two of its employees relating to the sale of zirconium to a
South American industrialist. On March 22, 1994, the Court dismissed five of
the seven counts brought against Teledyne Wah Chang Albany. Registrant believes
that the government's evidence does not support the balance of the allegations
contained in the indictment, and is vigorously defending itself. At an
arraignment on June 14, 1993, Registrant entered a plea of not guilty. If
Registrant were found guilty of the remaining two charges, it could face fines
totalling up to $3.55 million.
On August 3, 1993, the United States of America filed an action against
Registrant in the United States District Court for the Southern District of
California alleging that Registrant's Teledyne Ryan Aeronautical unit violated
its wastewater discharge permit by exceeding its discharge limitations from
August 1, 1988 to February 22, 1991, and by diluting its wastewater on numerous
occasions from 1988 through 1992. The government sought civil penalties of up
to $25,000 per day for each alleged violation. On April 12, 1994, the Court
entered a consent decree providing for settlement of this matter upon payment of
$500,000 to the United States.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Not applicable.
(b) Registrant did not file any reports on Form 8-K during the quarter ended
March 31, 1994.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELEDYNE, INC.
----------------------------------------
(Registrant)
Date: April 22, 1994 By /S/ Donald B. Rice
________________________________________
Donald B. Rice
President and
Chief Operating Officer
Date: April 22, 1994 By /S/ Douglas J. Grant
________________________________________
Douglas J. Grant
Treasurer
