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 June 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _______ to ______
Commission File Number 1-5212
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)
N/A
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
At July 25, 1994, Registrant had outstanding 55,442,048 shares of its
Common Stock.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In millions except share and per share amounts)
June 30, December 31,
1994 1993
----------- ------------
(Unaudited)
ASSETS
- ------
Current Assets:
Cash and marketable securities $ 80.3 $ 155.0
Receivables 363.0 332.4
Inventories 187.0 172.6
Deferred income taxes 138.3 123.0
Prepaid expenses 21.1 20.5
-------- --------
Total current assets 789.7 803.5
Property and Equipment 301.0 318.8
Prepaid Pension Cost 314.6 280.3
Deferred Income Taxes 4.9 24.0
Other Assets 90.0 51.2
-------- --------
$1,500.2 $1,477.8
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 107.2 $ 106.9
Accrued liabilities 394.6 341.4
-------- --------
Total current liabilities 501.8 448.3
Long-Term Debt 383.7 356.6
Accrued Postretirement Benefits 277.1 277.5
Other Long-Term Liabilities 102.1 114.9
-------- --------
1,264.7 1,197.3
-------- --------
Shareholders' Equity:
Common stock, $1.00 par value, 100,000,000 shares
authorized, 55,442,048 shares at June 30, 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 142.6 186.7
Currency translation adjustment 2.7 3.5
Net unrealized depreciation (0.2) -
-------- --------
Total shareholders' equity 235.5 280.5
-------- --------
$1,500.2 $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 Six Months Ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
Sales $ 595.8 $ 624.4 $1,168.7 $1,260.9
Costs and Expenses*:
Cost of sales 451.5 478.2 886.6 970.1
Selling and administrative
expenses 120.7 119.1 343.4 238.8
Interest expense 10.5 10.9 21.0 24.1
Realignment/restructure - 8.2 (2.3) 8.2
-------- -------- -------- --------
582.7 616.4 1,248.7 1,241.2
-------- -------- -------- --------
Earnings (Loss) Before Other Income 13.1 8.0 (80.0) 19.7
Other Income 5.4 5.0 7.4 48.9
-------- -------- -------- --------
Income (Loss) before Income Taxes,
Extraordinary Loss and Cumulative
Effect of Accounting Change 18.5 13.0 (72.6) 68.6
Provision (Credit) for Income Taxes 7.5 4.9 (28.5) 26.7
Income (Loss) before Extraordinary
Loss and Cumulative Effect of
Accounting Change 11.0 8.1 (44.1) 41.9
Extraordinary Loss on
Redemption of Debt - - - (3.7)
Cumulative Effect of
Accounting Change - - - (185.6)
-------- -------- -------- --------
Net Income (Loss) $ 11.0 $ 8.1 $ (44.1) $ (147.4)
======== ======== ======== ========
Income (Loss) Per Share:
Before extraordinary loss and
cumulative effect of
accounting change $ 0.19 $ 0.15 $ (0.80) $ 0.76
Extraordinary loss on
redemption of debt - - - (0.07)
Cumulative effect of
accounting change - - - (3.35)
-------- -------- -------- --------
Net Income (Loss) Per Share $ 0.19 $ 0.15 $ (0.80) $ (2.66)
======== ======== ======== ========
Cash Dividends Per Share $ - $ 0.20 $ - $ 0.40
======== ======== ======== ========
* Includes a credit of non-cash pension income of $18.7 million and $37.7
million for the second quarter and first half of 1994 and $16.8 million and
$33.6 million for the same periods 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)
Six Months Ended
June 30,
-----------------
1994 1993
------- -------
Operating Activities:
Net loss $ (44.1) $(147.4)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of property and equipment 38.2 39.9
Increase in prepaid pension cost (34.4) (29.0)
Decrease (increase) in receivables (34.1) 9.3
Decrease (increase) in inventories (16.8) 9.6
Increase (decrease) in other long-term liabilities (6.5) 4.3
Decrease (increase) in deferred income taxes 3.9 (81.2)
Increase in accounts payable and accrued liabilities 1.6 18.4
Increase (decrease) in accrued postretirement benefits (0.4) 302.2
Gain on sale of Litton common stock - (40.4)
Other, net (17.2) (7.6)
------- -------
Net cash provided by (used in) operating activities (109.8) 78.1
------- -------
Investing Activities:
Proceeds from the sale of marketable securities 73.5 115.5
Net decrease (increase) in short-term investments 13.0 (9.5)
Purchases of marketable securities (8.0) (45.8)
------- -------
Net proceeds from sale of marketable securities 78.5 60.2
Purchases of property and equipment (26.9) (34.9)
Proceeds from the sale of businesses 7.2 -
Collection of notes receivable from
the sales of businesses - 17.0
Other, net 5.3 2.4
------- -------
Net cash provided by investing activities 64.1 44.7
------- -------
Financing Activities:
Increase in long-term debt 56.3 -
Reduction of long-term debt (2.9) (101.0)
Decrease in checks outstanding (2.4) 7.1
Cash dividends - (22.2)
Other, net - 0.1
------- -------
Net cash provided by (used) in financing activities 51.0 (116.0)
------- -------
Increase in cash $ 5.3 $ 6.8
======= =======
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 June 30, 1994 and the results of
operations and cash flows for the six months ended June 30, 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):
June 30, December 31,
1994 1993
-------- ------------
Raw materials and work-in process $309.1 $ 257.1
Finished goods 48.7 49.0
------ --------
357.8 306.1
Progress payments (170.8) (133.5)
------ --------
$187.0 $ 172.6
====== ========
<PAGE>
Note 3. Long-term Debt -
Long-term debt at June 30, 1994 and December 31, 1993 was as follows
(in millions):
June 30, December 31,
1994 1993
-------- ------------
10% Subordinated Debentures, due 2004, Series A
and C (net of unamortized discount of $29.3 in
1994 and $30.9 in 1993) $ 330.7 $ 329.1
6 3/4% Promissory Notes, due 1995 56.3 -
7% Subordinated Debentures, due 1999, $1.9 payable
annually 24.6 26.7
Other 3.2 4.1
------- -------
414.8 359.9
Current portion (31.1) (3.3)
------- --------
$ 383.7 $ 356.6
======= ========
In 1994, the Company settled with the U.S. government two civil cases
relating to its Teledyne Relays and Teledyne Systems units. In connection with
the settlement, the Company paid the U.S. government $56.25 million in the
second quarter of 1994 and agreed to pay an additional $56.25 million in two
installments within approximately nine and fifteen months. The deferred
payments, evidenced by promissory notes, incur interest at 6.75% and are secured
by irrevocable letters of credit.
In 1993, the Company redeemed at par $100 million of its 10% Subordinated
Debenture due 2004, Series C resulting in an extraordinary loss of $6.0 million
($3.7 million, net of tax).
The Company's domestic credit lines with various banks were replaced with
a revolving credit agreement as discussed in Note 9.
<PAGE>
Note 4. Supplemental Balance Sheet Information -
Cash and marketable securities were as follows (in millions):
June 30, December 31,
1994 1993
-------- ------------
Cash $ 20.0 $ 14.7
United States Treasury notes, at amortized
cost 49.2 115.3
Gross unrealized losses on
United States Treasury notes (0.9) -
Repurchase agreements, at cost, which
approximates market 12.0 25.0
------ -------
$ 80.3 $ 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
June 30, 1994, the Company's investments in debt securities mature within four
years.
Property and equipment is presented net of accumulated depreciation and
amortization of $536.3 million at June 30, 1994 and $508.5 million at
December 31, 1993.
Accounts payable included $19.7 million at June 30, 1994 and $22.1 million
at December 31, 1993 for checks outstanding in excess of cash balances.
Note 5. Shareholders' Equity -
In 1994, the Company's Board of Directors approved 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 and six months
ended June 30, 1994 and 1993 was as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1994 1993 1994 1993
------- ------- ------- --------
Sales:
Aviation and electronics:
Continuing $ 260.2 $ 273.0 $ 513.9 $ 566.9
Discontinued - 6.0 - 11.3
------- ------- -------- --------
260.2 279.0 513.9 578.2
------- ------- -------- --------
Specialty metals:
Continuing 175.0 156.8 338.0 324.2
Discontinued 0.6 1.9 0.9 4.8
------- ------- -------- --------
175.6 158.7 338.9 329.0
------- ------- -------- --------
Industrial:
Continuing 74.3 95.4 150.0 171.8
Discontinued 5.0 13.6 12.7 26.7
------- ------- -------- --------
79.3 109.0 162.7 198.5
------- ------- -------- --------
Consumer:
Continuing 80.7 77.7 153.2 155.2
Discontinued - - - -
------- ------- -------- --------
80.7 77.7 153.2 155.2
------- ------- -------- --------
Total:
Continuing 590.2 602.9 1,155.1 1,218.1
Discontinued 5.6 21.5 13.6 42.8
------- ------- -------- --------
$ 595.8 $ 624.4 $1,168.7 $1,260.9
======= ======= ======== ========
<PAGE>
Note 6. Business Segments - (Continued)
Income (Loss) before Income Taxes, Extraordinary Loss and
Cumulative Effect of Accounting Change:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1994 1993 1994 1993
------ ------ ------- -------
Aviation and electronics:
Continuing $ 3.7 $ 16.1 $ (98.2) $ 28.4
Discontinued (1.8) (9.9) (2.0) (10.3)
Pension income 4.1 3.7 7.9 6.9
------ ------ ------- -------
6.0 9.9 (92.3) 25.0
------ ------ ------- -------
Specialty metals:
Continuing 11.0 6.8 24.1 17.3
Discontinued 1.5 0.1 5.3 (0.1)
Pension income 3.3 2.6 7.0 4.9
------ ------ ------- -------
15.8 9.5 36.4 22.1
------ ------ ------- -------
Industrial:
Continuing (1.0) 4.8 - 6.5
Discontinued 1.5 3.6 2.0 3.6
Pension income 10.5 9.6 21.0 19.9
------ ------ ------- -------
11.0 18.0 23.0 30.0
------ ------ ------- -------
Consumer:
Continuing 6.9 6.6 10.6 8.9
Discontinued (0.9) (0.9) (3.0) (0.9)
Pension income - 0.2 0.1 0.3
------ ------ ------- -------
6.0 5.9 7.7 8.3
------ ------ ------- -------
Total:
Continuing 20.6 34.3 (63.5) 61.1
Discontinued 0.3 (7.1) 2.3 (7.7)
------ ------ ------- -------
20.9 27.2 (61.2) 53.4
------ ------ ------- -------
Corporate expense:
Salaries and benefits (6.0) (7.0) (12.2) (14.3)
Other (10.0) (18.1) (23.3) (28.9)
Interest expense (10.5) (10.9) (21.0) (24.1)
Pension income 18.7 16.8 37.7 33.6
Other income 5.4 5.0 7.4 48.9
------ ------ ------- -------
$ 18.5 $ 13.0 $ (72.6) $ 68.6
====== ====== ======= =======
<PAGE>
Note 6. Business Segments - (Continued)
Discontinued results include the estimated realignment/restructure cost
before pension income and results of operations sold at a gain, as well as those
gains.
Operating results for the second quarter and six months of 1994 for the
aviation and electronics segment were adversely impacted by a charge of $11.3
million with respect to preliminary agreements to resolve four separate U.S.
government contracting matters, three concerning the Company's Teledyne
Electronics unit and one at its Teledyne Thermatics unit (see Note 8). The
charge is included in selling and administrative expenses.
Operating results for the first half of 1994 for the aviation and
electronics segment was adversely affected by the charge of $112.5 million for
an agreement with the U.S. government settling two civil cases relating to the
Company's Teledyne Relays and Teledyne Systems units. The charge is included in
selling and administrative expenses.
Operating profit in the aviation and electronics segment included a charge
of $10.0 million for the first half of 1993 for the settlement of certain U.S.
government contracting matters relating to its Teledyne Electronics unit. The
charge is included in selling and administrative expenses. Other income for the
first half of 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 and six months ended
June 30, 1994 was 55,442,048 and 55,441,751, respectively, and 55,413,845 and
55,413,367, respectively, for the same periods in 1993.
Note 8. Commitments and Contingencies -
In its examination of the Company's federal tax returns, the Internal
Revenue Service (IRS) had 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 could have taken 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 has reached a settlement
of all four years with the IRS, subject to execution of a final agreement.
Management does not believe that final resolution of this matter will have a
material adverse effect on the Company's financial condition.
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. As
previously reported, 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. Management does not believe that final
resolution of this matter will have a material adverse effect on the Company's
financial condition.
On May 31, 1994, the Company concluded the previously reported settlement
for $112.5 million of two civil actions filed pursuant to the False Claims Act
against the Company's Teledyne Systems and Teledyne Relays units. As part of the
settlement, a third civil action brought pursuant to the False Claims Act
relating to the Company's Teledyne Solid State unit has also been dismissed.
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, and
on May 10, 1994, submitted a final Voluntary Disclosure Report, describing a
number of testing practices at variance from military specifications. On May 26,
1994, the Company agreed to pay $3.8 million to settle this matter. However,
final resolution is subject to completion of the government's review and to the
negotiation and execution of a mutually acceptable settlement agreement. The
Company has established a reserve in connection with this matter of $3.8
million. Management does not believe that final resolution of this matter
will have a material adverse effect on the Company's financial condition.
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. As
previously reported, on July 28, 1993, the Company concluded a settlement with
the U.S. government of claims arising out of the initial Voluntary Disclosure
Report. On July 7, 1994, the Company reached an agreement in principle to settle
for a total of $1.5 million the issues raised in the Ancillary Report together
with those raised in one of two previously reported civil actions filed under
seal pursuant to the False Claims Act in the U.S. District Court for the Central
District of California concerning Teledyne Electronics. On July 19, 1994, the
Company reached an agreement in principle with the U.S. government to settle for
$6.0 million those issues raised in the second of the two previously reported
civil actions filed under seal pursuant to the False Claims Act in the U.S.
District Court for the Central District of California concerning Teledyne
Electronics. Final agreement in each case is subject to government approvals and
execution of a mutually acceptable settlement agreement. The Company has
established a reserve in connection with these matters of $7.5 million.
Management does not believe that final resolution of these matters will have a
material adverse effect on the Company's financial condition.
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. As
previously reported, the Company is further informed that it has been named as
a defendant in a civil action filed pursuant to the False Claims Act in the U.S.
District Court for the Western District of Missouri concerning Teledyne Neosho.
The case remains 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.
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 Teledyne Solid State unit. As previously
reported, the Company is further informed that it has been named as a defendant
in a civil action filed pursuant to the False Claims Act in the U.S. District
Court for the Central District of California concerning the Company's Teledyne
Solid State unit as well as the Company's Teledyne Relays unit. The case remains
under seal. The Company does not possess sufficient information to determine
whether the Company will sustain a material 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 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 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. Management does not
believe that final resolution of this matter will have a material adverse effect
on the Company's financial condition.
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. Management
believes that the government's evidence does not support the balance of the
allegations contained in the indictment, and will contest the matter vigorously.
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.
On July 13, 1994, a grand jury impaneled by the United States District
Court for the District of Columbia returned an indictment against four
corporations and two individuals, including the Company's Teledyne Wah Chang
Albany unit and one of its employees. The indictment stems from a U.S.
government investigation of alleged violations of the U.S. export control laws
relating to a 1988 sale of zirconium to Extraco, Ltd., a Greek company.
Management believes the indictment is unwarranted and will contest the matter
vigorously. According to a press release issued by the government, "the
corporate defendants face fines in excess of $20 million" if convicted of all
charges.
As a result of the May 26, 1993, 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 in
either of the two cases, Teledyne Wah Chang Albany and conceivably the Company
would be subject to debarment for a period of up to three years from receiving
licenses for the export of products and services on the munitions list, and
could be suspended for up to ten years from eligibility for commercial export
licenses. The Company does not possess sufficient information to determine
whether the Company will sustain a loss in either of 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 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, management is not presently aware of any such
audit, review or investigation which it expects will have a material adverse
effect on the Company's business or financial condition.
<PAGE>
Note 9. Subsequent Event -
Effective July 13, 1994, the Company entered into a revolving credit
agreement providing a total commitment of $135 million for three years which the
Company may use for borrowings or letters of credit ($75 million letters of
credit sublimit). Borrowings under the credit agreement, at the Company's
election, bear interest at either a floating rate generally based on a defined
prime rate or a fixed rate based on an interbank offered rate. A fee is charged
on the amount of the unused commitment. The agreement contains restrictive
covenants relating to net worth, investments, asset sales and material changes
in lines of business. On July 18, 1994, the Company placed existing letters of
credit of $56.25 million, which secure the principal amount of the promissory
notes to the U.S. government (see Note 3), under the revolving credit agreement.
<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.
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 $12.8 million to $260.2 million
from $273.0 million for the second quarter of 1994 compared to 1993 and
decreased $53.0 million to $513.9 million from $566.9 million for the first half
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,
including unmanned aerial vehicles, airframe structures and electronics.
Operating profit from continuing operations was $3.7 million for the second
quarter of 1994 compared to $16.1 million for the same period of 1993. Operating
loss from continuing operations was $98.2 million for the first half of 1994
compared to operating profit of $28.4 million for the first half of 1993.
Operating results for the second quarter and six months of 1994 were adversely
impacted by a charge of $11.3 million with respect to preliminary agreements to
resolve four separate U.S. government contracting matters, three concerning the
Company's Teledyne Electronics unit and one at its Teledyne Thermatics unit. In
addition, operating results for 1994 were adversely affected by the decline in
sales, the $112.5 million charge for an agreement with the U.S. government
settling two civil cases relating to the Company's Teledyne Relays and Teledyne
Systems units, and by approximately $3.5 million in charges taken for the
Northridge, California earthquake. Operating profit for the first half of 1993
included a charge of $10.0 million for the settlement of certain U.S. government
contracting matters relating to its Teledyne Electronics unit.
Specialty Metals
- ----------------
Sales from continuing operations increased $18.2 million to $175.0 million
from $156.8 million for the second quarter of 1994 compared to the same period
of 1993 and increased $13.8 million to $338.0 million from $324.2 million for
the first half of 1994 compared to 1993. These increases were due to improved
sales of zirconium for a naval ship propulsion program and increased sales to
the power generation and forged products markets, partially offset by reduced
sales of nickel based products in the first quarter of 1994.
Operating profit from continuing operations was $11.0 million for the
second quarter of 1994 compared to $6.8 million for the same period of 1993 and
$24.1 million for the first half of 1994 compared to $17.3 million for the same
period of 1993. These increases in 1994 operating profit were due to higher
margins on zirconium products and the improved sales performances discussed
above.
Industrial
- ----------
Sales from continuing operations decreased $21.1 million to $74.3 million
from $95.4 million for the second quarter of 1994 compared to the same period of
1993 and decreased $21.8 million to $150.0 million from $171.8 million for the
first half of 1994 compared to the same period of 1993. Sales related to
military vehicle development declined, partially offset by increased sales of
tank engines and crash fire rescue vehicles. In addition, sales of nitrogen
cylinder systems for the metal stamping industry provided strong performance
throughout the first half of 1994.
Operating results from continuing operations decreased $5.8 million for the
second quarter of 1994 compared to the same period of 1993 and $6.5 million for
the first half of 1994 compared to the same period of 1993. The decreases in
operating results were due to the decline in sales discussed above, cost
overruns on the crash fire rescue vehicle program and bid and proposal costs on
new land vehicle programs. In addition, the first half of 1994 includes a
$1.8 million one-time nonoperational charge for postretirement health care and
life insurance benefits.
Consumer
- --------
Sales from continuing operations were $80.7 million for the second quarter
of 1994 compared to $77.7 million for the same period of 1993 and $153.2 million
for the first half of 1994 compared to $155.2 million for the same period of
1993. Sales increases for the second quarter and six months of 1994 reflected
strong performances of shower and pool heater products. Sales of heating
elements to original equipment manufacturers declined during the same periods.
Year over year, segment sales for the first half of 1994 would have increased
but for the completion in 1993 of a distribution arrangement to sell engines for
an operation sold in 1992.
Operating profit from continuing operations was $6.9 million for the second
quarter of 1994 compared to $6.6 million for the same period of 1993 and $10.6
million for the first half of 1994 compared to $8.9 million for the same period
of 1993. Operating profit increases were due to the improved product
performances discussed above partially offset by new product development costs
and declining sales of heating elements.
CORPORATE EXPENSE
Corporate expense for salaries and benefits decreased $1.0 million to $6.0
million from $7.0 million for the second quarter of 1994 compared to the same
period of 1993 and decreased $2.1 million to $12.2 million from $14.3 million
for the first half of 1994 compared to the same period of 1993.
Other corporate expense decreased $8.1 million to $10.0 million from $18.1
million for the second quarter of 1994 compared to the same period of 1993 and
decreased $5.6 million to $23.3 million from $28.9 million for the first half of
1994 compared to the same period of 1993 primarily due to a decline in insurance
costs for 1994, partially offset by insurance recoveries received in 1993
related to environmental matters.
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
$18.7 million in the second quarter of 1994 from $16.8 million for the same
period of 1993 and $37.7 million in the first half of 1994 from $33.6 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 Standards Board guidelines.
LITTON GAIN
In 1993, the Company sold its investment in Litton common stock resulting
in a $40.4 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 six months
ended June 30, 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 a revolving credit
agreement. Effective July 13, 1994, the Company entered into a revolving credit
agreement providing a total commitment of $135 million for three years which the
Company may use for borrowings or letters of credit ($75 million letters of
credit sublimit).
In connection with the $112.5 million settlement discussed above, the
Company paid the U.S. government $56.25 million in the second quarter of 1994
and agreed to pay an additional $56.25 million in two installments within
approximately nine and fifteen months. The deferred payments, evidenced by
promissory notes, incur interest at 6.75%. On July 18, 1994, the Company placed
existing letters of credit of $56.25 million, which secure the principal amount
of the promissory notes, under the revolving credit agreement.
OTHER MATTERS
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.
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. As
previously reported, the Company is further informed that it has been named as
a defendant in a civil action filed pursuant to the False Claims Act in the U.S.
District Court for the Western District of Missouri concerning Teledyne Neosho.
The case remains 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.
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 Teledyne Solid State unit. As previously
reported, the Company is further informed that it has been named as a defendant
in a civil action filed pursuant to the False Claims Act in the U.S. District
Court for the Central District of California concerning the Company's Teledyne
Solid State unit as well as the Company's Teledyne Relays unit. The case remains
under seal. The Company does not possess sufficient information to determine
whether the Company will sustain a material 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.
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. Management
believes that the government's evidence does not support the balance of the
allegations contained in the indictment, and will contest the matter vigorously.
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.
On July 13, 1994, a grand jury impaneled by the United States District
Court for the District of Columbia returned an indictment against four
corporations and two individuals, including the Company's Teledyne Wah Chang
Albany unit and one of its employees. The indictment stems from a U.S.
government investigation of alleged violations of the U.S. export control laws
relating to a 1988 sale of zirconium to Extraco, Ltd., a Greek company.
Management believes the indictment is unwarranted and will contest the matter
vigorously. According to a press release issued by the government, "the
corporate defendants face fines in excess of $20 million" if convicted of all
charges.
As a result of the May 26, 1993, 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 in
either of the two cases, Teledyne Wah Chang Albany and conceivably the Company
would be subject to debarment for a period of up to three years from receiving
licenses for the export of products and services on the munitions list, and
could be suspended for up to ten years from eligibility for commercial export
licenses. The Company does not possess sufficient information to determine
whether the Company will sustain a loss in either of 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 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, management is not presently aware of any
such audit, review or investigation which it expects will have a material
adverse effect on the Company's business or financial condition.
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, management does not believe
that the outcome of any one of these administrative proceedings will have a
material adverse effect on the Company's financial condition.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
In its examination of the Company's federal tax returns, the Internal
Revenue Service (IRS) had 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 could have taken 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 has reached a settlement
of all four years with the IRS, subject to execution of a final agreement.
Management does not believe that final resolution of this matter will have a
material adverse effect on the Company's financial condition.
The Company has been in negotiation with the Commonwealth of Pennsylvania
Department of Environmental Resources (DER) for resolution of alleged violations
of Pennsylvania's Solid Waste Management Act and Clean Streams Law at the
Company's Scottdale, Pennsylvania facility. By letter dated April 26, 1994, the
DER submitted a proposed Consent Order and Agreement which requires the Company
to undertake an investigation and remediation of the site. By letter dated
May 3, 1994, the DER proposed a civil penalty in connection with the matter of
$900,000. Management does not believe a penalty of the magnitude proposed by
the DER is warranted and will contest the matter vigorously.
On May 31, 1994, the Company concluded the previously reported settlement
for $112.5 million of two civil actions filed pursuant to the False Claims Act
against the Company's Teledyne Systems and Teledyne Relays units. As part of the
settlement, a third civil action brought pursuant to the False Claims Act
relating to the Company's Teledyne Solid State unit has also been dismissed.
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, and
on May 10, 1994, submitted a final Voluntary Disclosure Report, describing a
number of testing practices at variance from military specifications. On May 26,
1994, the Company agreed to pay $3.8 million to settle this matter. However
final resolution is subject to completion of the government's review and to the
negotiation and execution of a mutually acceptable settlement agreement. The
Company has established a reserve in connection with this matter of
$3.8 million. Management does not believe that final resolution of this
matter will have a material adverse effect on the Company's financial condition.
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. As
previously reported, on July 28, 1993, the Company concluded a settlement with
the U.S. government of claims arising out of the initial Voluntary Disclosure
Report. On July 7, 1994, the Company reached an agreement in principle to settle
for a total of $1.5 million the issues raised in the Ancillary Report together
with those raised in one of two previously reported civil actions filed under
seal pursuant to the False Claims Act in the U.S. District Court for the Central
District of California concerning Teledyne Electronics. On July 19, 1994, the
Company reached an agreement in principle with the U.S. government to settle for
$6.0 million those issues raised in the second of the two previously reported
civil actions filed under seal pursuant to the False Claims Act in the U.S.
District Court for the Central District of California concerning Teledyne
Electronics. Final agreement in each case is subject to government approvals and
execution of a mutually acceptable settlement agreement. The Company has
established a reserve in connection with these matters of $7.5 million.
Management does not believe that final resolution of these matters will have a
material adverse effect on the Company's financial condition.
On July 13, 1994, a grand jury impaneled by the United States District
Court for the District of Columbia returned an indictment against four
corporations and two individuals, including the Company's Teledyne Wah Chang
Albany unit and one of its employees. The indictment stems from a U.S.
government investigation of alleged violations of the U.S. export control laws
relating to a 1988 sale of zirconium to Extraco, Ltd., a Greek company.
Management believes the indictment is unwarranted and will contest the matter
vigorously. According to a press release issued by the government, "the
corporate defendants face fines in excess of $20 million" if convicted of all
charges.
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 licenses for the export of products and services on the munitions
list, and could be suspended for up to ten years from eligibility for
commercial export licenses. 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 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, management is not presently aware of any
such audit, review or investigation which it expects will have a material
adverse effect on the Company's business or financial condition.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At Teledyne's Annual Meeting of Shareholders held on April 27, 1994, the
following proposals were adopted showing the final vote tabulation:
Votes For Votes Against Abstained No Vote
--------- ------------- --------- -------
1. To elect a Board of Directors
Nominee
- -------------------
George Kozmetsky 45,397,809 635,928 - -
Donald B. Rice 45,373,605 660,132 - -
George A. Roberts 45,392,057 641,680 - -
William P. Rutledge 45,379,055 654,682 - -
Fayez Sarofim 45,404,577 629,160 - -
Henry E. Singleton 45,385,694 648,043 - -
2. To adopt the Company's
1994 Long-term
Incentive Plan 40,638,982 4,456,095 894,052 44,608
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 June 30, 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: July 25, 1994 By /S/ Donald B. Rice
-------------------------------------------
Donald B. Rice
President and
Chief Operating Officer
Date: July 25, 1994 By /S/ Douglas J. Grant
-------------------------------------------
Douglas J. Grant
Treasurer
