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 September 30, 1995
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)
2049 Century Park East
Los Angeles, California 90067-3101
________________________________________ ___________________________________
(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 October 16, 1995, Registrant had outstanding 55,774,673 shares of its
Common Stock.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In millions except share and per share amounts)
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
ASSETS
- ------
Current Assets:
Cash and marketable securities $ 85.6 $ 29.7
Receivables 368.2 409.8
Inventories 230.9 196.9
Deferred income taxes 86.4 104.9
Prepaid expenses 15.8 16.5
-------- --------
Total current assets 786.9 757.8
Property and Equipment 287.4 304.3
Prepaid Pension Cost 386.2 332.7
Other Assets 120.5 82.9
-------- --------
$1,581.0 $1,477.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 125.9 $ 162.0
Accrued liabilities 277.2 303.6
-------- --------
Total current liabilities 403.1 465.6
Long-Term Debt 372.0 356.6
Accrued Postretirement Benefits 275.8 275.9
Deferred Income Taxes 20.7 -
Other Long-Term Liabilities 102.3 106.6
-------- --------
1,173.9 1,204.7
-------- --------
Preferred Stock, $1.00 par value,
2,500,000 shares authorized, 1,655,604 shares
at September 30, 1995 issued and outstanding 24.8 -
-------- --------
Shareholders' Equity:
Common stock, $1.00 par value, 100,000,000 shares
authorized, 55,768,673 shares at September 30,
1995 and 55,462,298 shares at December 31, 1994
issued and outstanding 55.8 55.5
Additional paid-in capital 40.5 35.3
Retained earnings 267.3 178.3
Other 18.7 3.9
-------- --------
Total shareholders' equity 382.3 273.0
-------- --------
$1,581.0 $1,477.7
======== ========
The accompanying notes are an integral part of these statements.
TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In millions except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1995 1994 1995 1994
-------- -------- -------- --------
Sales $ 593.0 $ 578.1 $1,925.2 $1,746.8
Costs and Expenses*:
Cost of sales 439.0 431.8 1,435.3 1,318.4
Selling and administrative
expenses 103.2 106.5 320.0 449.9
Interest expense 10.5 11.3 31.5 32.3
-------- -------- -------- --------
552.7 549.6 1,786.8 1,800.6
-------- -------- -------- --------
Earnings (Loss) Before Other Income 40.3 28.5 138.4 (53.8)
Other Income 7.5 2.3 64.4 12.0
-------- -------- -------- --------
Income (Loss) before Income Taxes 47.8 30.8 202.8 (41.8)
Provision (Credit) for Income Taxes 13.3 11.5 71.4 (17.0)
-------- -------- -------- --------
Net Income (Loss) 34.5 19.3 131.4 (24.8)
Preferred Stock Dividends 0.4 - 0.9 -
-------- -------- -------- --------
Net Income (Loss) Applicable to
Common Shareholders $ 34.1 $ 19.3 $ 130.5 $ (24.8)
======== ======== ======== ========
Net Income (Loss) Per Common Share $ 0.61 $ 0.35 $ 2.35 $ (0.45)
======== ======== ======== ========
Dividends Per Common Share $ 0.25 $ - $ 0.75 $ -
======== ======== ======== ========
* Includes a credit of non-cash pension income of $18.3 million and $60.5
million for the third quarter and nine months of 1995 and $18.9 million and
$56.6 million for the same periods in 1994.
The accompanying notes are an integral part of these statements.
TELEDYNE, INC. AND SUBSIDIARIES
-------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In millions)
(Unaudited)
Nine Months Ended
September 30,
------------------
1995 1994
-------- --------
Operating Activities:
Net income (loss) $ 131.4 $ (24.8)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 54.2 56.5
Increase in prepaid pension cost (53.5) (51.1)
Gain on sale of businesses (51.1) -
Increase in inventories (32.1) (34.5)
Decrease in deferred income taxes 30.6 15.2
Decrease (increase) in receivables 15.3 (52.2)
Increase in accrued income taxes 10.0 -
Increase in accounts payable and accrued liabilities 5.6 71.5
Other, net (6.3) (36.1)
-------- --------
Net cash provided by (used in) operating activities 104.1 (55.5)
-------- --------
Investing Activities:
Net decrease (increase) in short-term investments (52.0) 12.5
Sale of marketable securities - 88.6
Purchase of marketable securities - (8.0)
-------- --------
Net proceeds (purchases) from sale of marketable
securities
(52.0) 93.1
Proceeds from the sale of businesses 69.0 7.2
Purchases of property and equipment (45.0) (41.1)
Purchase of business (9.5) -
Other, net (2.6) 7.6
-------- --------
Net cash provided by (used in) investing activities (40.1) 66.8
-------- --------
Financing Activities:
Decrease in checks outstanding (58.1) (6.5)
Increase in long-term debt 15.8 0.5
Cash dividends (17.6) -
Reduction of long-term debt (5.7) (3.3)
Proceeds from issuance of common stock 5.5 0.1
-------- --------
Net cash used in financing activities (60.1) (9.2)
-------- --------
Increase in cash $ 3.9 $ 2.1
======== ========
Non cash transactions:
Preferred stock dividend on common stock $ 24.8 $ -
======== ========
Long-term debt assumed with the purchase of business $ 3.0 $ -
======== ========
The accompanying notes are an integral part of these statements.
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 September 30, 1995, and the results
of operations and cash flows for the nine months ended September 30, 1995 and
1994, 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, 1994 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 prior periods have
been reclassified to conform with the 1995 presentation.
Note 2. Inventories -
Inventories were as follows (in millions):
September 30, December 31,
1995 1994
------------- ------------
Raw materials and work-in-process $ 219.0 $ 301.9
Finished goods 63.2 47.2
------- -------
282.2 349.1
Progress payments (51.3) (152.2)
------- -------
$ 230.9 $ 196.9
======= =======
Note 3. Supplemental Balance Sheet Information -
Cash and marketable securities were as follows (in millions):
September 30, December 31,
1995 1994
------------- ------------
Cash $ 19.6 $ 15.7
Repurchase agreements, at cost, which
approximates market 66.0 14.0
------- -------
$ 85.6 $ 29.7
======= =======
Property and equipment is presented net of accumulated depreciation and
amortization of $557.7 million at September 30, 1995 and $551.6 million at
December 31, 1994.
In 1995, Statement of Financial Accounting Standards No. 121 was issued
which establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets. This
statement, which will be effective in 1996, addresses when impairment losses
should be recognized and how impairment losses should be measured. The adoption
of this statement by the Company is not expected to have a material effect on
the consolidated financial statements.
Accounts payable included $15.7 million at September 30, 1995 and $73.8
million at December 31, 1994 for checks outstanding in excess of cash balances.
Note 4. Preferred Stock -
During the nine months of 1995, dividends consisting in part of cash and
in part of redeemable preferred stock were paid to common shareholders. The
redeemable preferred stock is a new issue of Series E Cumulative Preferred
Stock, $15 stated value per share, callable by the Company at any time at $15.00
per share, with a mandatory call at $16.50 per share on change of control,
paying an annual cumulative cash dividend of $1.20 per share payable semi-
annually. For each dividend on the common stock, shareholders received one
share of the Series E Cumulative Preferred Stock for each one hundred shares of
common stock, with cash paid in lieu of fractional shares.
The Company has received a letter ruling from the Internal Revenue Service
holding that the dividend distributions of Series E Cumulative Preferred Stock
on May 24, 1995 and September 15, 1995 should be treated as taxable
distributions to the shareholder recipients in an amount equal to the fair
market value of such stock at the time of distribution. The letter ruling from
the Internal Revenue Service does not affect the non-taxable nature of the
dividend distribution of the Series E Cumulative Preferred Stock on March 8,
1995.
Note 5. Shareholders' Equity -
On January 4, 1995, the Company's Board of Directors adopted a Stockholders
Rights Plan (the Plan). In accordance with the Plan, the Board of Directors
declared a dividend of one purchase right for each outstanding common share.
These rights have no current value and their distribution is not taxable to
shareholders. If a person or group, without the prior approval of the Company's
Board of Directors, becomes the beneficial owner of 15 percent or more of the
Company's outstanding common stock, each right, except any such rights held by
the non-approved acquiror (or its affiliates or transferees), will entitle the
holder to purchase a number of shares of the Company's common stock that has a
then-current market value of twice the exercise price of the right, which is $75
(subject to adjustment). In addition, if, after such an event, the Company is
involved in a business combination with, or sells 50 percent or more of its
assets or earning power to, the non-approved acquiror (or any other person if
the transaction does not treat all shareholders alike), each right, except any
such rights held by the non-approved acquiror (or its affiliates or
transferees), will entitle the holder to buy a number of shares of the voting
stock of the other party to the transaction that has a then-current market value
of twice the exercise price. The Plan and the rights will expire January 4,
2005. The rights may be redeemed by the Board of Directors for $0.01 per right
at any time prior to the occurrence of the first triggering event described
above or prior to the expiration of the rights.
In April 1995, the 1995 Non-Employee Director Stock Option Plan was
approved by the Company's shareholders. This plan, which is available only to
non-employee directors of the Company who first become directors after
January 1, 1994, allows for the issuance of stock options covering 200,000
shares of the Company's common stock.
Note 6. Income Taxes -
The Company's effective tax rate decreased to 28 percent for the 1995 third
quarter from 37 percent for the same period of 1994 and decreased to 35 percent
for the 1995 nine months from 41 percent for the same period of 1994. These
decreases resulted from a reduction in the Company's estimate of prior year's
tax liabilities.
Note 7. Dispositions -
On January 6, 1995, the Company sold substantially all of the business and
assets of Teledyne Electronic Systems. The transaction resulted in a pretax
gain of $50.7 million, included in other income.
Note 8. Business Segments -
Information on the Company's business segments for the three and nine
months ended September 30, 1995 and 1994 was as follows (in millions):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
1995 1994 1995 1994
------- ------- -------- --------
Sales:
Aviation and electronics:
Continuing $ 224.4 $ 218.0 $ 785.7 $ 644.3
Discontinued - 29.5 - 107.2
------- ------- -------- --------
224.4 247.5 785.7 751.5
------- ------- -------- --------
Specialty metals:
Continuing 212.1 173.2 642.4 524.6
Discontinued 0.3 0.4 1.2 1.3
------- ------- -------- --------
212.4 173.6 643.6 525.9
------- ------- -------- --------
Industrial:
Continuing 72.6 77.7 250.9 225.4
Discontinued 1.7 4.1 8.1 19.1
------- ------- -------- --------
74.3 81.8 259.0 244.5
------- ------- -------- --------
Consumer:
Continuing 81.9 75.2 236.9 224.9
Discontinued - - - -
------- ------- -------- --------
81.9 75.2 236.9 224.9
------- ------- -------- --------
Total:
Continuing 591.0 544.1 1,915.9 1,619.2
Discontinued 2.0 34.0 9.3 127.6
------- ------- -------- --------
$ 593.0 $ 578.1 $1,925.2 $1,746.8
======= ======= ======== ========
Income (Loss) before Income Taxes:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -----------------
1995 1994 1995 1994
------ ------ ------- -------
Aviation and electronics:
Continuing $ 22.9 $ 20.5 $ 78.2 $ (40.2)
Discontinued - 1.4 - (38.9)
Pension income 4.6 3.1 13.6 9.6
------ ------ ------- -------
27.5 25.0 91.8 (69.5)
------ ------ ------- -------
Specialty metals:
Continuing 19.7 7.5 66.9 31.7
Discontinued - - - 5.3
Pension income 2.0 2.3 6.2 6.5
------ ------ ------- -------
21.7 9.8 73.1 43.5
------ ------ ------- -------
Industrial:
Continuing 3.0 2.7 14.0 2.5
Discontinued 0.2 0.2 0.4 2.2
Pension income 6.5 6.5 19.4 19.4
------ ------ ------- -------
9.7 9.4 33.8 24.1
------ ------ ------- -------
Consumer:
Continuing 5.6 4.0 12.2 14.4
Discontinued - - - (3.1)
Pension income - - 0.1 -
------ ------ ------- -------
5.6 4.0 12.3 11.3
------ ------ ------- -------
Total:
Continuing 51.2 34.7 171.3 8.4
Discontinued 0.2 1.6 0.4 (34.5)
------ ------ ------- -------
51.4 36.3 171.7 (26.1)
------ ------ ------- -------
Corporate expense:
Salaries and benefits (4.8) (4.8) (16.1) (14.2)
Closed businesses' expenses (5.4) (2.1) (9.9) (6.2)
Other (8.7) (8.2) (36.3) (29.0)
Interest expense (10.5) (11.3) (31.5) (32.3)
Pension income 18.3 18.9 60.5 56.6
Other income 7.5 2.0 64.4 9.4
------ ------ ------- -------
$ 47.8 $ 30.8 $ 202.8 $ (41.8)
====== ====== ======= =======
Discontinued results include the estimated realignment/restructure cost
before pension income and results of operations sold at a gain. As a result of
the sale of Teledyne Electronic Systems, sales and operating results, for the
unit have been reclassified and are presented in discontinued results of the
aviation and electronics segment. In addition, sales and operating results for
prior periods have been reclassified for realignment of certain business units.
Operating results for the nine months of 1994 for the aviation and
electronics segment were adversely impacted by charges of $88.8 million included
in continuing operations and $35.0 million included in discontinued operations
to resolve certain U.S. government contracting matters. The charges are
presented in selling and administrative expenses.
Teledyne's non-cash pension income recorded the amount by which the
amortization into income of pension surplus and estimated return on plan assets
exceeded the current year's cost of providing benefits.
Note 9. 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 nine months ended
September 30, 1995 was 55,699,922 and 55,610,035, respectively, and 55,446,334
and 55,443,279, respectively, for the same periods in 1994.
Note 10. Commitments and Contingencies -
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.
The Company has made voluntary disclosures to the U.S. government of
government contracting irregularities discovered in certain of its current or
former business units. The Company has cooperated with the government in the
investigation of these matters, and management does not believe that the outcome
of these matters is likely to have a material adverse effect on the financial
condition of the Company.
The Company learns from time to time that it has been named as a defendant
in civil actions filed under seal pursuant to the False Claims Act. Generally,
as these cases are under seal, the Company does not possess sufficient
information to determine whether the Company will sustain a material loss in
such matters, or to reasonably estimate the amount of any loss attributable to
such case or cases. Consequently, the Company has not been able to identify the
existence of a material loss contingency arising therefrom. As previously
reported, the Company was informed that it had been named as a defendant in one
such suit filed in the U.S. District Court for the Central District of
California concerning its former Teledyne Electronics unit. The Company has
reached agreement to settle the matter for a total of $2.2 million, subject to
execution of a mutually acceptable settlement agreement.
For further information concerning government contract matters, and for a
discussion of environmental matters, see Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Teledyne is a technology-based manufacturing company serving worldwide
customers with commercial and government-related aviation and electronics
products; specialty metals for consumer, industrial, and aerospace applications;
and industrial and consumer products.
Results of Operations
Sales and operating profit for the Company's four business segments are
discussed below.
Aviation and Electronics
- ------------------------
Sales from continuing operations increased to $224.4 million for the third
quarter of 1995 from $218.0 million in the same period of 1994 and increased to
$785.7 million for the nine months of 1995 from $644.3 million for the same
period of 1994. During the third quarter and nine months of 1995, sales
increased due to commencement of development work on the United States' new High
Altitude Endurance Unmanned Aerial Surveillance/Reconnaissance Vehicle, the Tier
II Plus program. Sales also improved during these periods for electronic
countermeasure equipment for the international market, microwave devices and
electromechanical relays for government and commercial customers, and avionics
for the commercial aviation market. These increases were partially offset by
a decline in aerial target sales due to use of government furnished engines that
lowered costs per target. The completion of a contract to provide ground power
generators to the U.S. Air Force increased sales $80 million for the nine months
of 1995 over the prior year period. In addition, sales of fabricated products
for the U.S. armed forces and piston engines for the general aviation market
resulted in improved sales for the nine months of 1995 over the same period of
1994.
Operating profit from continuing operations increased to $22.9 million for
the third quarter of 1995 from $20.5 million for the same period of 1994. For
the nine months of 1995, operating profit increased to $78.2 million from $48.6
million for the same period of 1994, excluding charges of $88.8 million to
resolve certain U.S. government contracting matters in 1994. Operating profit
for the 1995 third quarter and nine months increased primarily due to the
higher sales described above, improved earnings on unmanned air vehicles, aerial
targets and systems engineering services, and reduced losses on wire and cable
products. The reversal of estimated losses of $10.7 million as a result of the
completion of the ground power generator contract discussed above also
contributed to operating profit for nine months of 1995. The improvements in
operating profit for the third quarter and nine months of 1995 were partially
offset by lower margins on piston engines for the general aviation industry.
Specialty Metals
- ----------------
Sales from continuing operations increased to $212.1 million for the third
quarter of 1995 from $173.2 million for the same period of 1994 and increased
to $642.4 million for the nine months of 1995 from $524.6 million for the same
period of 1994. Sales increased primarily due to the improvement in the
worldwide markets served by Teledyne's specialty metals businesses, particularly
in the automotive, commercial aerospace, power generation, cutting tool and
other industrial markets.
Operating profit from continuing operations increased to $19.7 million for
the third quarter of 1995 from $7.5 million for the same period of 1994 and
increased to $66.9 million for the nine months of 1995 from $31.7 million for
the same period of 1994. The improvement in operating profit in the third
quarter and nine months of 1995 was primarily the result of increased sales,
improved margins in nickel and titanium-based alloys and specialty steels, and
the strong performance of thin rolled and tungsten-based products, partially
offset by lower margins on zirconium products. Operating profit for the 1995
third quarter and nine months was adversely affected by legal costs associated
with the resolution of export license cases, and decreased productivity in
zirconium products in the midst of protracted labor negotiations, which have
since been settled. Costs associated with installing a new high capacity mill
and opening a new international service center for distribution of thin rolled
products also negatively affected operating profit for both periods.
Industrial
- ----------
Sales from continuing operations decreased to $72.6 million for the third
quarter of 1995 from $77.7 million for the same period of 1994 and increased to
$250.9 million for the nine months of 1995 from $225.4 million for the same
period of 1994. For the 1995 third quarter and nine months, sales improved in
metal stamping dies and plastic compression molds for the automotive and truck
markets, and in nitrogen cylinder systems for the metal stamping industry.
Sales of material handling equipment also improved during both periods primarily
as a result of the January 1995 acquisition of the material handling business
of Kooi Beheer B.V. Kooi is a Netherlands company that is Europe's largest
supplier of truck-mountable, self-propelled material handlers. For the 1995
third quarter, sales declines related to land combat vehicle development and
tank engines exceeded the sales improvements discussed above. In addition, for
the nine months of 1995 sales of crash fire vehicles to the U.S. Air Force
increased while land combat vehicle development sales declined compared to the
same period of 1994.
Operating profit from continuing operations increased to $3.0 million for
the third quarter of 1995 from $2.7 million for the same period of 1994 and
increased to $14.0 million for the nine months of 1995 from $2.5 million for the
same period of 1994. Operating profit for the third quarter and nine months
of 1995 was affected by the changes in sales discussed above, a gain on sale in
the 1995 third quarter of an industrial valve product line, and improved
profitability of pressure relief valves. In addition, operating profit for both
periods was adversely affected by costs associated with the Kooi acquisition,
plant rationalization expenses, and decreased margins on certain machine tools
as a result of a labor dispute.
Consumer
- --------
Sales from continuing operations increased to $81.9 million for the third
quarter of 1995 from $75.2 million for the same period of 1994 and increased to
$236.9 million for the nine months of 1995 from $224.9 million for the same
period of 1994. Sales increased for the third quarter and nine months in part
due to three new product introductions; the Sensonic(tm) Plaque Removal
Instrument, the Pour-Thru Water Filter(tm) device, and the MAXX-PURE(tm) ozone
sanitizing system for swimming pools. Also, sales increased for commercial and
residential heating systems, offset by decreased sales of pool products as a
result of poor weather conditions and a slowdown in spending on consumer
durables. This slowdown is causing retailers generally to be cautious as they
consider inventory stocking levels. Housewares industry experts expect
retailers to postpone early Christmas orders in the wake of a poor third quarter
performance.
Operating profit from continuing operations increased to $5.6 million for
the third quarter of 1995 from $4.0 million for the same period of 1994 and
decreased to $12.2 million for the nine months of 1995 from $14.4 million for
the same period of 1994. The 1995 results were adversely affected by
advertising and start-up costs for the three new products discussed above and
the decrease in sales of pool products.
Corporate Expense
Corporate expense increased to $18.9 million for the third quarter of 1995
from $15.1 million for the same period of 1994 and increased to $62.3 million
for the nine months of 1995 from $49.4 million for the same period of 1994.
Corporate expense increased for the 1995 third quarter primarily due to warranty
expenses related to closed businesses. For the 1995 nine months, corporate
expense increased primarily due to legal and advisory fees associated with an
unsolicited merger proposal and ensuing proxy contest and increased warranty
expenses for closed businesses.
Pension Income
Teledyne's non-cash pension income recorded the amount by which the
amortization into income of pension surplus and estimated return on plan assets
exceeded the current year's cost of providing benefits. Pension income before
tax was $18.3 million for the third quarter of 1995 compared to $18.9 million
for the same period of 1994 and was $60.5 million for the nine months of 1995
compared to $56.6 million for the same period of 1994. The change in pension
income was a result of a higher expected return on pension assets and a change
in discount rate used to calculate the pension benefit obligation partially
offset by a change in mortality assumptions.
Other Income
In July 1995, the New Piper Aircraft Company emerged from bankruptcy with
the Company holding 25 percent ownership and an option to purchase an additional
25 percent in resolution of its major creditor position. As a result, the
Company recognized a gain of $5.9 million, included in other income, to reflect
its ownership interest in New Piper.
Provision for Income Taxes
The Company's effective tax rate decreased to 28 percent for the 1995 third
quarter from 37 percent for the same period of 1994 and decreased to 35 percent
for the 1995 nine months from 41 percent for the same period of 1994. These
decreases resulted from a reduction in the Company's prior year's tax
liabilities.
Financial Condition
The Company has been able to meet all cash requirements for the nine months
ended September 30, 1995 and 1994 with cash generated from operations, proceeds
from the sale of businesses and its credit lines and 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 its committed lines
of credit. During the nine months ended September 30, 1995, the Company
utilized a portion of its lines of credit in the acquisition of the material
handling business of Kooi Beheer B.V. At September 30, 1995, the Company's
unused lines of credit with various banks totaled $135.0 million.
Other Matters
Government Contracts
- --------------------
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, like other government contractors, 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. Generally, claims arising out
of these government inquiries are resolved without resort to litigation.
However, should the 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. Given
the extent of the Company's business with the U.S. government, a suspension or
debarment of the Company could have a material adverse effect on the future
operating results and consolidated financial condition of the Company. However,
although the outcome of government inquiries cannot be predicted with certainty,
management does not believe there is any audit, review or investigation
currently pending against the Company that is likely to result in suspension or
debarment of the Company, or that is otherwise likely to have a material adverse
effect on the Company's financial condition.
For additional discussion of government contract matters, see Note 10 to
the accompanying consolidated financial statements.
Environmental
- -------------
The Company is subject to various federal, state and local laws and
regulations concerning the environment, and is currently involved in the
investigation and remediation of a number of sites under these laws. It is
difficult to estimate the timing and ultimate amount of environmental costs
which may be incurred by the Company in connection with these proceedings due
to uncertainties with respect to the availability of information concerning each
site and the status of the law, regulations and technology. Accordingly,
estimates of probable and reasonably possible remediation costs to be incurred
by the Company are based on currently available facts, present laws and
regulations, and current technology. Such estimates take into consideration the
Company's prior experience in site investigation and remediation, the data
concerning cleanup costs available from other companies and regulatory
authorities, and the professional judgment of the Company's environmental
experts in consultation with outside environmental specialists, when necessary.
The estimates also reflect an assessment of the likelihood that other companies
which have been designated potentially responsible parties will have the
financial resources to fulfill their obligations at Superfund sites where they
and the Company may be jointly and severally liable.
As discussed in Note 1 to the Company's consolidated financial statements
in the December 31, 1994, annual report to shareholders, the Company accrues for
losses associated with environmental remediation obligations when such losses
are probable and reasonably estimable, but generally not later than completion
of the remedial feasibility study. The accruals are reviewed quarterly and, as
the investigation and remediation of each site progresses, adjustments are made
as necessary. Many of the investigations are in a preliminary stage, and future
adjustments may be substantial as more information, such as the nature and
extent of site contamination and the scope of required remediation, becomes
available. Accruals for losses from environmental remediation obligations do
not consider the effects of inflation, and the costs of future expenditures are
not discounted to their present value. Recoveries of environmental remediation
costs from other parties are recorded as assets when their receipt is deemed
probable and the amounts are reasonably estimable.
The Company is party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act, commonly
known as Superfund, or similar state statutes. The Company has been identified
as a potentially responsible party (PRP) at approximately 60 Superfund sites,
including those at which it believes it has no future liability. The Company's
involvement is very limited or de minimus at approximately 50 of these sites.
In addition, the Company is remediating, or has begun environmental engineering
studies to determine cleanup requirements at certain of its current and former
operating sites. The Company has accrued approximately $45 million in connection
with environmental investigation and remediation liabilities at Superfund sites
and at the Company's current and former operating sites. These costs will
likely be incurred over a period of several years. Based on currently available
information and analyses, management does not believe that costs in excess of
those accrued for these matters will have a material adverse effect on the
Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Registrant has been 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. Charlie J. Hill and Charlie J. Hill v. Teledyne, Inc., Teledyne Industries,
Inc., Teledyne Relays Division, Teledyne Solid State Division, Hall & Phillips,
Phillips, Cohen & Goldstein, Hall & Associates, John R. Phillips, Carlyle W.
Hall and Ann Carlson. The original complaint in the matter, filed on November
21, 1991, alleged generally that the Registrant's Teledyne Relays and Teledyne
Solid State units had used improperly calibrated test equipment in the
manufacture of switching devices. The first amended complaint, filed on
November 10, 1993, added allegations that Teledyne Relays and Teledyne Solid
State falsified test certifications for switching devices supplied to the
government, and sought treble the damages allegedly sustained by the United
States together with civil penalties of $5,000 to $10,000 for any false
certification made. In addition to the claims alleged under the False Claims
Act, the first amended complaint stated three new causes of action for wrongful
termination under federal and state laws. The government intervened in the
action on March 4, 1994, and subsequently filed a second amended complaint
alleging that Teledyne Solid State failed to conform to percent defective
allowable ("PDA") testing requirements for solid state relays delivered to the
United States, and raising several other testing issues reported by Teledyne
Solid State to the government following a self audit in 1991. On July 1, 1994,
plaintiff Charlie J. Hill filed a third amended complaint realleging the claims
alleged in the first amended complaint and the government's second amended
complaint, and raising other testing issues previously reported by Teledyne
Solid State to the government. The Court unsealed the case on July 29, 1994.
On October 4, 1994, plaintiff Charlie J. Hill and Registrant reached a
settlement for $1.125 million of the PDA claims first alleged in the second
amended complaint. The government approved the settlement and subsequently, on
December 20, 1994, withdrew from the case. On July 14, 1995, Registrant reached
agreement with plaintiff to settle this matter in its entirety for an additional
$850,000. The settlement was subsequently approved by the government, and the
case was dismissed in its entirety on or about August 31, 1995.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits -
4 Certificate of Designation, Preferences and Rights of Series E
Cumulative Preferred Stock of Teledyne, Inc. (previously filed
as Exhibit 2 to the Registrant's Form 8-A Registration Statement
dated February 9, 1995, and incorporated herein by reference).
27 Financial Data Schedule
(b) Registrant did not file any reports on Form 8-K during the quarter
ended September 30, 1995.
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: October 24, 1995 By /S/ Donald B. Rice
-----------------------------------------
Donald B. Rice
President and
Chief Operating Officer
Date: October 24, 1995 By /S/ Douglas J. Grant
------------------------------------------
Douglas J. Grant
Treasurer
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