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, 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 July 17, 1995, Registrant had outstanding 55,686,248 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)
June 30, December 31,
1995 1994
----------- -----------
(Unaudited)
ASSETS
- ------
Current Assets:
Cash and marketable securities $ 29.4 $ 29.7
Receivables 390.3 409.8
Inventories 222.4 196.9
Deferred income taxes 78.0 104.9
Prepaid expenses 15.2 16.5
-------- --------
Total current assets 735.3 757.8
Property and Equipment 292.7 304.3
Prepaid Pension Cost 367.2 332.7
Other Assets 113.1 82.9
-------- --------
$1,508.3 $1,477.7
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 115.4 $ 162.0
Accrued liabilities 254.9 303.6
-------- --------
Total current liabilities 370.3 465.6
Long-Term Debt 372.1 356.6
Accrued Postretirement Benefits 275.8 275.9
Deferred Income Taxes 21.1 -
Other Long-Term Liabilities 96.0 106.6
-------- --------
1,135.3 1,204.7
Preferred Stock, $1.00 par value,
2,500,000 shares authorized, 1,102,835 shares
at June 30, 1995 issued and outstanding 16.5 -
-------- --------
Shareholders' Equity:
Common stock, $1.00 par value, 100,000,000 shares
authorized, 55,684,248 shares at June 30,
1995 and 55,462,298 shares at December 31, 1994
issued and outstanding 55.7 55.5
Additional paid-in capital 39.1 35.3
Retained earnings 247.4 178.3
Other 14.3 3.9
-------- --------
Total shareholders' equity 356.5 273.0
-------- --------
$1,508.3 $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 Six Months Ended
June 30, June 30,
------------------ -------------------
1995 1994 1995 1994
-------- ------- -------- --------
Sales $ 706.7 $ 595.8 $1,332.2 $1,168.7
Costs and Expenses*:
Cost of sales 539.5 451.5 996.3 886.6
Selling and administrative
expenses 107.4 120.7 216.8 343.4
Interest expense 10.4 10.5 21.0 21.0
-------- ------- -------- --------
657.3 582.7 1,234.1 1,251.0
-------- ------- -------- --------
Earnings (Loss) Before Other Income 49.4 13.1 98.1 (82.3)
Other Income 2.7 5.4 56.9 9.7
-------- ------- -------- --------
Income (Loss) before Income Taxes 52.1 18.5 155.0 (72.6)
Provision (Credit) for Income Taxes 19.5 7.5 58.1 (28.5)
-------- ------- -------- --------
Net Income (Loss) $ 32.6 $ 11.0 $ 96.9 $ (44.1)
======== ======= ======== ========
Net Income (Loss) Per Share $ 0.59 $ 0.19 $ 1.74 $ (0.80)
======== ======= ======== ========
Dividends Per Share $ 0.25 $ - $ 0.50 $ -
======== ======= ======== ========
* Includes a credit of non-cash pension income of $21.1 million and $42.2
million for the second quarter and first half of 1995 and $18.7 million and
$37.7 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)
Six Months Ended
June 30,
------------------
1995 1994
------- --------
Operating Activities:
Net income (loss) $ 96.9 $ (44.1)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Gain on sale of businesses (49.8) -
Decrease in deferred income taxes 43.5 3.9
Depreciation and amortization of property and equipment 36.4 38.2
Increase in prepaid pension cost (34.5) (34.4)
Increase in inventories (22.9) (16.8)
Increase (decrease) in accounts payable and
accrued liabilities (18.6) 84.9
Increase in receivables (4.7) (34.1)
Other, net (9.5) (51.1)
------- -------
Net cash provided by (used in) operating activities 36.8 (53.5)
------- -------
Investing Activities:
Net decrease in short-term investments 2.0 13.0
Sale of marketable securities - 73.5
Purchase of marketable securities - (8.0)
------- -------
Net proceeds from sale of marketable securities 2.0 78.5
Proceeds from the sale of businesses 63.2 7.2
Purchases of property and equipment (31.2) (26.9)
Purchase of business (11.7) -
Other, net (3.3) 5.2
------- -------
Net cash provided by investing activities 19.0 64.0
------- -------
Financing Activities:
Decrease in checks outstanding (58.3) (2.4)
Increase in long-term debt 16.7 0.1
Cash dividends (11.3) -
Reduction of long-term debt (5.3) (2.9)
Proceeds from issuance of common stock 4.0 -
------- -------
Net cash used in financing activities (54.2) (5.2)
------- -------
Increase in cash $ 1.6 $ 5.3
======= =======
Non cash transactions:
Preferred stock dividend $ 16.5 $ -
======= =======
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 June 30, 1995, and the results of
operations and cash flows for the six months ended June 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 1994 have been
reclassified to conform with the 1995 presentation.
Note 2. Inventories -
Inventories were as follows (in millions):
June 30, December 31,
1995 1994
------------- ------------
Raw materials and work-in-process $ 218.2 $ 301.9
Finished goods 57.1 47.2
------- -------
275.3 349.1
Progress payments (52.9) (152.2)
------- -------
$ 222.4 $ 196.9
======= =======
Note 3. Supplemental Balance Sheet Information -
Cash and marketable securities were as follows (in millions):
June 30, December 31,
1995 1994
------------- ------------
Cash $ 17.4 $ 15.7
Repurchase agreements, at cost, which
approximates market 12.0 14.0
------- -------
$ 29.4 $ 29.7
======= =======
Property and equipment is presented net of accumulated depreciation and
amortization of $545.9 million at June 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 $15.5 million at June 30, 1995 and $73.8 million
at December 31, 1994 for checks outstanding in excess of cash balances.
Note 4. Preferred Stock -
During the first half of 1995, dividends consisting in part of cash and in
part of redeemable preferred stock were paid to 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, 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.
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 -
Provision for income taxes for the six months ended June 30, 1995 included
a $2.1 million decrease 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 six months
ended June 30, 1995 and 1994 was as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1995 1994 1995 1994
------- ------- -------- --------
Sales:
Aviation and electronics:
Continuing $ 326.2 $ 215.1 $ 561.3 $ 426.3
Discontinued - 40.2 - 77.7
------- ------- -------- --------
326.2 255.3 561.3 504.0
------- ------- -------- --------
Specialty metals:
Continuing 216.5 181.9 430.3 351.4
Discontinued 0.5 0.6 0.9 0.9
------- ------- -------- --------
217.0 182.5 431.2 352.3
------- ------- -------- --------
Industrial:
Continuing 80.3 73.4 178.3 147.7
Discontinued 3.2 5.9 6.4 15.0
------- ------- -------- --------
83.5 79.3 184.7 162.7
------- ------- -------- --------
Consumer:
Continuing 80.0 78.7 155.0 149.7
Discontinued - - - -
------- ------- -------- --------
80.0 78.7 155.0 149.7
------- ------- -------- --------
Total:
Continuing 703.0 549.1 1,324.9 1,075.1
Discontinued 3.7 46.7 7.3 93.6
------- ------- -------- --------
$ 706.7 $ 595.8 $1,332.2 $1,168.7
======= ======= ======== ========
Income before Income Taxes:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1995 1994 1995 1994
------ ------ ------- -------
Aviation and electronics:
Continuing $ 28.0 $ 13.2 $ 54.8 $ (60.3)
Discontinued - (11.4) - (40.3)
Pension income 4.4 3.3 9.0 6.5
------ ------ ------- -------
32.4 5.1 63.8 (94.1)
------ ------ ------- -------
Specialty metals:
Continuing 23.6 11.1 46.6 24.5
Discontinued - 1.5 - 5.3
Pension income 2.2 2.1 4.2 4.2
------ ------ ------- -------
25.8 14.7 50.8 34.0
------ ------ ------- -------
Industrial:
Continuing 5.3 (0.9) 10.9 -
Discontinued - 1.4 0.2 2.0
Pension income 6.4 6.3 12.9 12.9
------ ------ ------- -------
11.7 6.8 24.0 14.9
------ ------ ------- -------
Consumer:
Continuing 4.2 6.9 6.5 10.6
Discontinued - (0.9) - (3.0)
Pension income 0.1 - 0.1 -
------ ------ ------- -------
4.3 6.0 6.6 7.6
------ ------ ------- -------
Total:
Continuing 61.1 30.3 118.8 (25.2)
Discontinued - (9.4) 0.2 (36.0)
------ ------ ------- -------
61.1 20.9 119.0 (61.2)
------ ------ ------- -------
Corporate expense:
Salaries and benefits (5.8) (6.0) (12.8) (12.2)
Other (16.6) (10.0) (29.3) (25.6)
Interest expense (10.4) (10.5) (21.0) (21.0)
Pension income 21.1 18.7 42.2 37.7
Other income 2.7 5.4 56.9 9.7
------ ------ ------- -------
$ 52.1 $ 18.5 $ 155.0 $ (72.6)
====== ====== ======= =======
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
1994 have been reclassified for realignment of certain business units.
Operating results from continuing operations for 1994 for the aviation and
electronics segment were adversely impacted by charges of $88.8 million in the
first half and $3.8 million in the second quarter included in continuing
operations and $35.0 million in the first half and $7.5 million in the second
quarter 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 six months ended
June 30, 1995 was 55,627,166 and 55,563,892, respectively, and 55,442,048 and
55,441,751, 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. The Company has
been informed that it has 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 understands that the U.S.
government has decided to intervene in the matter and file an amended complaint,
but the Company has not yet received notice from the Court that the case has
been unsealed, nor a copy of the amended complaint. However, the Company is
presently in negotiations with the government to resolve the matter. While
there is no assurance that the negotiations will be concluded satisfactorily,
based on the progress of those negotiations to date, management does not believe
that the outcome of this matter is likely to have a material adverse effect on
the financial condition of the Company.
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 $326.2 million for the second
quarter of 1995 from $215.1 million in the same period of 1994 and increased to
$561.3 million for the first half of 1995 from $426.3 million in the same period
of 1994. The completion of a contract to provide ground power generators to the
U.S. Air Force increased sales $92.0 million in the second quarter of 1995 and
$85.0 million for the first half of 1995 over prior year periods. Also during
these periods, sales increased for electronic countermeasure equipment for the
international market, microwave devices and electromechanical relays for
government and commercial customers, avionics for the commercial aviation
market, fabricated products for the U.S. armed forces, and engines for the
general aviation market.
Operating profit from continuing operations increased to $28.0 million for
the second quarter of 1995 from $17.0 million in the same period of 1994,
excluding charges of $3.8 million to resolve certain U.S. government contracting
matters in the second quarter of 1994. For the first half of 1995, operating
profit increased to $54.8 million from $28.5 million in 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 second quarter and the
first half of 1995 increased primarily due to the higher sales described above,
improved earnings on unmanned air vehicles and engineering services, reduced
losses on wire and cable products, and the reversal of estimated losses of $6.7
million in the 1995 second quarter and $10.7 million in the first half of 1995
as a result of the completion of the ground power generator contract discussed
above.
For the aviation and electronics segment, three significant business
developments occurred in the 1995 second quarter and in early July. Teledyne
Ryan Aeronautical was awarded a highly competitive $164 million 30 month
contract for the design and development of the United States' new High Altitude
Endurance Unmanned Aerial Surveillance/Reconnaissance Vehicle, the Tier II Plus.
This contract resulted from a competition among five major aerospace company
teams. If developed and produced as planned, the program could eventually be
worth more than $500 million. Teledyne Brown Engineering was awarded a
five-year U.S. Army contract, initially funded at $5.4 million, to lead a team
of companies that will demilitarize and destroy old chemical weapons stored at
sites across the United States. Assuming the government pursues the clean up
of the large number of sites, the total program value could be well in excess
of $100 million over several years. In July 1995, the New Piper Aircraft
Company emerged from bankruptcy with Teledyne holding 25 percent ownership, and
an option to purchase an additional 25 percent, in resolution of its major
creditor position.
Specialty Metals
- ----------------
Sales from continuing operations increased to $216.5 million for the second
quarter of 1995 from $181.9 million in the same period of 1994 and increased to
$430.3 million for the first half of 1995 from $351.4 million in 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 $23.6 million for
the second quarter of 1995 from $11.1 million in the same period of 1994 and
increased to $46.6 million for the first half of 1995 from $24.5 million in the
same period of 1994. The improvement in operating profit in the second quarter
and first half 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 first half was
adversely affected by increased legal costs associated with the resolution of
export license cases and decreased productivity in zirconium products in the
midst of protracted labor negotiations.
Industrial
- ----------
Sales from continuing operations increased to $80.3 million for the second
quarter of 1995 from $73.4 million in the same period of 1994 and increased to
$178.3 million for the first half of 1995 from $147.7 million in the same period
of 1994. Second quarter 1995 sales improved primarily in metal stamping dies
and plastic compression molds for the automotive and truck markets, nitrogen
cylinder systems for the metal stamping industry and material handling equipment
primarily as a result of the January 1995 acquisition of the business of Kooi
Beheer B.V. Kooi is a Netherlands company that is Europe's largest supplier of
truck-mountable, self-propelled material handlers. Sales also improved for the
first half of 1995 in crash fire rescue vehicles to the U.S. Air Force. A
decline in sales related to land combat vehicle development partially offset the
overall sales increases.
Operating profit from continuing operations increased to $5.3 million for
the second quarter of 1995 from a loss of $0.9 million for the same period of
1994 and increased to $10.9 million for the first half of 1995 compared to
break-even results for the same period of 1994. The increase in operating
profit was due primarily to improved sales, the strong performance of tank
engines for the international market, and the return to profitability of
pressure relief valves, partially offset by costs associated with the Kooi
acquisition and plant rationalization expenses.
Consumer
- --------
Sales from continuing operations increased to $80.0 million for the second
quarter of 1995 from $78.7 million in the same period of 1994 and increased to
$155.0 million for the first half of 1995 from $149.7 million in the same period
of 1994. Sales improved for the second quarter and first half 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, and a
decline in sales of other filtration systems.
During the second quarter of 1995, increased sales levels for the SenSonic
Plaque Removal Instrument were encouraging, as was initial customer reaction to
the MAXX-PURE ozone swimming pool sanitizing system. Also, the Pour-Thru Water
Filter was introduced in the Northeast, with a national roll out, including
distribution in major supermarkets and mass merchandisers, scheduled to begin
in the third quarter.
Operating profits from continuing operations decreased to $4.2 million for
the second quarter of 1995 from $6.9 million in the same period of 1994 and
decreased to $6.5 million for the first half of 1995 from $10.6 million in 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 $22.4 million for the second quarter of 1995
from $16.0 million in the same period of 1994 and increased to $42.1 million for
the first half of 1995 from $35.5 million in the same period of 1994. Corporate
expense increased due to legal and advisory fees associated with an unsolicited
merger proposal and ensuing proxy contest, increased medical costs for retired
employees of discontinued operations, and timing adjustments related to
insurance reserves for health and workers' compensation and general liability.
Provision for Income Taxes
Provision for income taxes for the six months ended June 30, 1995 included
a $2.1 million decrease in the Company's estimate of prior year's tax
liabilities.
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 increased to $21.1 million in the second quarter of 1995 from $18.7 million
for the same period of 1994 and $42.2 million in the first half of 1995 from
$37.7 million for the same period of 1994. This increase 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.
Financial Condition
The Company has been able to meet all cash requirements for the six months
ended June 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 six months ended June 30, 1995, the Company utilized a portion of its
lines of credit in the acquisition of the business of Kooi Beheer B.V. At
June 30, 1995, the Company's unused lines of credit with various banks totalled
$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 $50 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
- --------------------------
On October 29, 1992, Eugene J. Bass, a shareholder purporting to act
derivatively on behalf of Registrant, commenced an action in the United States
District Court for the Central District of California against certain of
Registrant's directors and executive officers, a former employee of Registrant's
Teledyne Relays unit, and Registrant as a "nominal" defendant ("Bass Federal
Court Action"). Subsequently, Herman and Lillian Krangel and Marshall Wolf
joined the action as plaintiffs. On February 26, 1993, plaintiffs filed a
consolidated second amended complaint in the action which alleged, among other
things, violations of RICO and the Securities Exchange Act of 1934, and breaches
of fiduciary duty, in connection with the management and administration of the
affairs of Registrant with respect to its Teledyne Controls, Teledyne
Electro-Mechanisms, Teledyne Electronics, Teledyne Firth Sterling, Teledyne
Neosho, Teledyne Relays, Teledyne Ryan Aeronautical, Teledyne Solid State,
Teledyne Systems, Teledyne Thermatics and Teledyne Wah Chang Albany units, and
with respect to Registrant's foreign military sales effort in Egypt and Saudi
Arabia. The action seeks a declaratory judgment, treble the damages allegedly
sustained by Registrant as a result of the alleged conduct, return of salaries
and other remuneration received by the defendants, a declaration that the
election of directors at Registrant's annual meetings in 1987 through 1992 is
null and void, plaintiffs' costs and expenses, including attorneys' fees, and
other appropriate relief. On August 19, 1993, the Court issued a memorandum
decision dismissing plaintiffs' state law claims without prejudice to refiling
in state court, dismissing plaintiffs' RICO and Securities Exchange Act claims
without prejudice, and ordering plaintiffs to show cause why their RICO and
Securities Exchange Act claims should not be dismissed with prejudice. After
briefing by the parties, the Court entered an order on September 30, 1993,
dismissing plaintiffs' RICO and Securities Exchange Act claims with prejudice.
Plaintiffs filed a notice of appeal on October 4, 1993.
On December 7, 1993, following dismissal of their consolidated second
amended complaint in the above-described action, Eugene J. Bass, Herman Krangel,
Lillian Krangel and Marshall Wolf, shareholders purporting to act derivatively
on behalf of Registrant, commenced an action in the Superior Court of the State
of California, County of Los Angeles, against certain of Registrant's directors
and executive officers, a former employee of Teledyne Relays, and Registrant as
a "nominal" defendant ("Bass State Court Action"). The complaint in this action
alleges, among other things, breaches of fiduciary duty and gross mismanagement
in connection with the management and administration of the affairs of
Registrant with respect to its Teledyne Controls, Teledyne Electro-Mechanisms,
Teledyne Electronics, Teledyne Firth Sterling, Teledyne Neosho, Teledyne Relays,
Teledyne Ryan Aeronautical, Teledyne Solid State, Teledyne Systems, Teledyne
Thermatics and Teledyne Wah Chang Albany units, and with respect to Registrant's
foreign military sales effort in Egypt and Saudi Arabia. The action seeks a
declaratory judgment, damages allegedly sustained by Registrant as a result of
the alleged conduct, costs and expenses, including attorneys' fees, and other
appropriate relief. The parties have reached an agreement in principle to
settle the Bass Federal Court and Bass State Court Actions, which was approved
by Registrant's Board of Directors at its meeting on April 26, 1995. The
parties are now in the process of seeking court approval of the proposed
settlement, and providing notice of the proposed settlement to Registrant's
shareholders. Management does not believe that the outcome of these matters is
likely to have a material adverse effect on Registrant's financial condition.
Registrant is defending a civil action filed on behalf of the U.S.
government pursuant to the False Claims Act in the United States District Court
for the Central District of California, entitled United States of America ex
rel. 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, adds allegations that Teledyne Relays and Teledyne Solid
State falsified test certifications for switching devices supplied to the
government, and seeks 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 states 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, subject to government approval.
On March 31, 1995, a putative class of Registrant's shareholders filed a
complaint in the Court of Chancery, State of Delaware in and for New Castle
County, entitled Ruth Freeman v. Teledyne, Inc., William P. Rutledge, Donald B.
Rice, George Kozmetsky, George A. Roberts, Fayez Sarofim, Henry E. Singleton and
Diane Creel, which asserts a claim against Registrant and certain of its
directors for breach of fiduciary duty. Plaintiffs principally contend that
Registrant and its Board of Directors inappropriately rejected an unsolicited
acquisition proposal from WHX Corporation ("WHX"), failed to negotiate with WHX
for a higher price, and failed to engage in an auction of Registrant. By their
complaint, plaintiffs seek declaratory relief certifying the case as a class
action and declaring that the director defendants have beached their fiduciary
duties. Plaintiffs also seek injunctive relief prohibiting any action that
might "diminish shareholder value" and requiring the director defendants "to
properly and adequately consider all bona fide offers or proposals to acquire
Teledyne and to negotiate in good faith with all person with bona fide
interested [sic] in acquiring Teledyne", and monetary damages. The complaint
does not specify the amount of monetary damages sought. The plaintiffs also
request reimbursement of costs and attorneys' fees. Registrant and the named
directors have substantial defenses, and will defend the matter vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At Teledyne's Annual Meeting of Shareholders held on April 26, 1995, the
following proposals were adopted. The following is the final vote tabulation:
1. To elect a Board of Directors. Under applicable cumulative voting rules,
the Company cumulated votes to elect six of the Company's seven nominees, and
WHX Corporation cumulated votes to elect one of its two nominees as follows:
Nominee Votes For Votes Withheld
- ------------------- ---------- --------------
Frank V. Cahouet 41,412,337 524,801
Diane C. Creel 41,412,337 524,687
Donald B. Rice 41,412,337 523,112
George A. Roberts - 523,980
William P. Rutledge 41,412,337 531,800
Fayez Sarofim 41,412,337 523,600
Henry E. Singleton 41,412,337 519,106
Ronald LaBow 59,246,138 187,242
Marvin L. Olshan - 187,248
There were no abstentions or broker non-votes. On May 15, 1995, the Board of
Directors voted to amend the Company's By-Laws to increase to eight the maximum
number of directors that can be elected to the Board of Directors, to authorize
eight directors to serve on the Board of Directors and to appoint George A.
Roberts to fill the newly created eighth director position.
Votes For Votes Against Abstained No Vote
---------- ------------- --------- -------
2. To adopt the Company's
1995 Non-Employee Director
Stock Option Plan 36,525,945 3,632,881 4,503,888 -
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits -
10 A form of the severance agreement dated as of March 5, 1995
between the Company and the following executive officers:
William P. Rutledge (Chairman of the Board and Chief Executive
Officer), Donald B. Rice (President and Chief Operating Officer),
Hudson B. Drake (Senior Vice President), Douglas J. Grant
(Treasurer), Judith R. Nelson (Secretary and General Counsel),
and Gary L. Riley (Vice President). Each of the agreements is
identical to the form except that the severance compensation
multiple is 2.5 for Messrs. Rutledge and Rice and 2.25 for the
other executive officers.
27 Financial Data Schedule
(b) Registrant did not file any reports on Form 8-K during the quarter
ended June 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: July 24, 1995 By /S/ Donald B. Rice
------------------------------------------
Donald B. Rice
President and
Chief Operating Officer
Date: July 24, 1995 By /S/ Douglas J. Grant
------------------------------------------
Douglas J. Grant
Treasurer
Exhibit 10
TELEDYNE, INC.
2049 Century Park East
Los Angeles, California 90067
CONFIDENTIAL
March 5, 1995
William P. Rutledge
Chairman and
Chief Executive Officer
Teledyne, Inc.
[address deleted]
Dear Bill:
The Board of Directors of Teledyne, Inc. (the "Company")
has determined that it is in the best interests of the Company
and its shareholders to offer you the following agreement (the
"Agreement") which provides you with certain severance
payments and benefits if your employment terminates following
a "Change of Control" (as defined below).
ARTICLE I
DEFINITIONS
1.1 Definitions
Whenever used in this Agreement, the following
capitalized terms shall have the meanings set forth in
this Section, certain other capitalized terms being
defined elsewhere in this Agreement:
(a) "Annualized Compensation" means the sum of (i) your
highest level of Compensation (exclusive of any
bonus(es)) within one (1) year of the date on which
your employment terminates and (ii) the bonus(es)
included in the definition of "Compensation".
(b) "Beneficial Owner" shall have the meaning ascribed
to such term in Rule 13d-3 promulgated under the
Exchange Act.
(c) "Board of Directors" means the Board of Directors of
the Company.
(d) "Change of Control" of the Company means and
includes any of the following:
(i) Any Person or "group" (as that term is defined
in Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder) is or
becomes, on or prior to July 31, 1996, the
Beneficial Owner, directly or indirectly, of
securities of the Company, or of any entity
resulting from a merger or consolidation involving
the Company, representing more than fifty percent
(50%) of the combined voting power of the then
outstanding securities of the Company or such
entity.
(ii) The individuals who, as of March 5, 1995, are
members of the Company's Board of Directors (the
"Existing Directors"), cease, at or prior to the
conclusion of the Company's 1995 Annual Meeting of
Shareholders (or any adjournments thereof), for any
reason, to constitute more than fifty percent (50%)
of the number of authorized directors of the Company
as determined in the manner prescribed in the
Company's Certificate of Incorporation and Bylaws;
provided, however, that if the election, or
nomination for election, by the Company's
stockholders of any new director was approved by a
vote of at least fifty percent (50%) of the Existing
Directors, such new director shall be considered an
Existing Director; provided further, however, that
no individual shall be considered an Existing
Director if such individual initially assumed office
as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11
promulgated under the Exchange Act) or other actual
or threatened solicitation of proxies by or on
behalf of anyone other than the Board of Directors
(a "Proxy Contest"), including by reason of any
agreement intended to avoid or settle any Election
Contest or Proxy Contest.
(iii) The consummation, on or prior to July 31,
1996, of (x) a merger, consolidation or
reorganization to which the Company is a party,
whether or not the Company is the Person surviving
or resulting therefrom, or (y) a sale, assignment,
lease, conveyance or other disposition of all or
substantially all of the assets of the Company, in
one transaction or a series of related transactions,
to any Person other than a Subsidiary, where any
such transaction or series of related transactions
as is referred to in clause (x) or clause (y) above
in this subparagraph (iii) (a "Transaction") does
not otherwise result in a "Change of Control"
pursuant to subparagraph (i) of this definition of
"Change of Control"; provided, however, that no such
Transaction shall constitute a "Change of Control"
under this subparagraph (iii) if the Persons who
were the stockholders of the Company immediately
before the consummation of such Transaction are the
"beneficial owners" (as such term is defined in
Rule 13d-3 promulgated under the Exchange Act),
immediately following the consummation of such
Transaction, of seventy percent (70%) or more of the
combined voting power of the then outstanding voting
securities of the Person surviving or resulting from
any merger, consolidation or reorganization referred
to in clause (x) above in this subparagraph (iii) or
the Person to whom the assets of the Company are
sold, assigned, leased, conveyed or disposed of in
any transaction or series of related transactions
referred in clause (y) above in this subparagraph
(iii) in substantially the same proportion as such
stockholders' ownership of the combined voting power
of the Company's then outstanding voting securities
immediately before the consummation of such
Transaction.
(e) "Company" means Teledyne, Inc., a Delaware
corporation, and any successor or assignee as
provided in Article IV.
(f) "Compensation" means and includes all of your base
salary attributable to your employment with the
Company and/or any of its Subsidiaries (including,
but not limited to, any amounts excludable from your
gross income for federal income tax purposes
pursuant to Section 125 or Section 401(k) of the
Internal Revenue Code of 1986, as amended, or
deferred pursuant to any Company or Subsidiary plan
or program) plus your target cash bonus under all
performance-related criteria (including personal
objectives) applicable prior to the Change of
Control, including under the "EVA" (economic value
added) incentive compensation program adopted by the
Company in 1994 (your "Target Bonus"), for the
fiscal year during which a Change of Control occurs,
but excluding overtime pay, and other regular cash
compensations or reimbursements, if any (e.g.,
automobile allowance and gasoline reimbursement).
(g) "Disability" means a physical or mental infirmity
which substantially impairs your ability to perform
your material duties for a period of at least one
hundred eighty (180) consecutive calendar days and,
as a result of such Disability, you have not
returned to your full-time regular employment prior
to termination.
(h) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(i) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(j) "Just Cause" means the termination of your
employment as a result of fraud, misappropriation of
or intentional material damage to the property or
business of the Company (including its
Subsidiaries), or conviction of a felony.
(k) "Person" shall have the meaning ascribed to such
term in Section 3 of the Exchange Act and the rules
and regulations promulgated thereunder.
(l) "Severance Payment" means the payment of severance
compensation as provided in Article II.
(m) "Subsidiary" means any corporation or other Person,
a majority of the voting power, equity securities or
equity interest of which is owned directly or
indirectly by the Company.
ARTICLE II
SEVERANCE PAYMENTS
2.1 Right to Severance Payment
You shall be entitled to receive a Severance Payment from
the Company in the amount provided in Section 2.2 if (x) there
has been a Change of Control of the Company, (y) you are an
active employee at the time of the Change of Control, and (z)
within three hundred sixty five (365) calendar days from and
including the date of the Change of Control, your employment
is involuntarily terminated for any reason (other than Just
Cause or your death or Disability), or you voluntarily
terminate your employment for any reason. For purposes of
subclause (y) above, you will still be considered to be an
active employee if you are on sick leave, military leave or
any other leave of absence approved by the Company or any of
its Subsidiaries.
2.2 Amount of Severance Payment
(a) If you become entitled to a Severance Payment under
this Agreement, you shall receive a lump sum payment
equal to 2.5 times one year's Annualized
Compensation.
(b) The Severance Payment otherwise calculated under
this Section 2.2 shall be reduced by the amount of
cash severance-type benefits to which you may be
entitled pursuant to any other severance plan,
agreement, policy or program of the Company or any
of its Subsidiaries; provided that if the amount of
cash severance benefits payable under such other
severance plan, agreement, policy or program is
greater than the amount payable pursuant to this
Agreement, you will be entitled to receive the
amounts payable under such other plan, agreement,
policy or program. Without limiting other payments
which would not constitute "cash severance-type
benefits" hereunder, any cash settlement of stock
options, accelerated vesting of stock options and
retirement, pension and other similar benefits shall
not constitute "cash severance-type benefits" for
purposes of this Section 2.2(b).
2.3 Excise Tax Limitation
(a) Notwithstanding anything contained in this Agreement
to the contrary, in the event that any payment or benefit
(within the meaning of Section 280G(b)(2) of the Internal
Revenue Code of 1986, as amended (the "Code")), to you or for
your benefit paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise in
connection with, or arising out of, your employment with the
Company or any of its Subsidiaries or a Change of Control (a
"Payment" or "Payments"), would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then
the Payments shall be reduced (but not below zero) but only to
the extent necessary that no portion thereof shall be subject
to the excise tax imposed by Section 4999 of the Code (the
"Section 4999 Limit"). Unless you shall have given prior
written notice specifying a different order to the Company to
effectuate the limitations described in the preceding
sentence, the Company shall reduce or eliminate the Payments
by first reducing or eliminating those Payments or benefits
which are not payable in cash and then by reducing or
eliminating cash Payments, in each case in reverse order
beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter
defined). Any notice given by you pursuant to the preceding
sentence shall take precedence over the provisions of any
other plan, arrangement or agreement governing your rights and
entitlements to any benefits or compensation.
(b) All determinations required to be made under this
Section 2.3 (each, a "Determination") shall be made, at the
Company's expense, by a nationally recognized accounting firm
designated by the Company (other than the accounting firm that
is regularly engaged by any party who has effectuated the
Change of Control) and reasonably acceptable to you (the
"Accounting Firm"). The Accounting Firm shall provide its
calculations, together with detailed supporting documentation,
both to the Company and to you within fifteen (15) calendar
days after the date on which your right to a Severance Payment
hereunder was triggered (if requested at that time by the
Company or you) or such other time as requested by the Company
or you (in either case provided that the Company or you
believe in good faith that any of the Payments may be subject
to the Excise Tax); provided, however, that if the Accounting
Firm determines that no Excise Tax is payable by you with
respect to a Payment or Payments, it shall furnish you with an
opinion reasonably acceptable to you that no Excise Tax will
be imposed with respect to any such Payment or Payments.
Within ten (10) calendar days of the delivery of the
Determination to you, you shall have the right to dispute the
Determination (the "Dispute"). The existence of any Dispute
shall not in any way affect your right to receive the Payments
in accordance with the Determination. If there is no Dispute,
the Determination by the Accounting Firm shall be final,
binding and conclusive upon the Company and you, subject to
the application of Section 2.3(c).
(c) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that the
Payments either will have been made or will not have been made
by the Company, in either case in a manner inconsistent with
the limitations provided in Section 2.3(a) (an "Excess
Payment" or "Underpayment", respectively). If it is
established pursuant to (i) a final determination of a court
for which all appeals have been taken and finally resolved or
the time for all appeals has expired, or (ii) an Internal
Revenue Service (the "IRS") proceeding which has been finally
and conclusively resolved, that an Excess Payment has been
made, such Excess Payment shall be deemed for all purposes to
be a loan to you made on the date you received the Excess
Payment and you shall repay the Excess Payment to the Company
on demand, together with interest on the Excess Payment at the
applicable federal rate (as defined in Section 1274(d) of the
Code) from the date of your receipt of such Excess Payment
until the date of such repayment. If it is determined by (i)
the Accounting Firm, the Company (which shall include the
position taken by the Company, together with its consolidated
group, on its federal income tax return) or the IRS, (ii)
pursuant to a determination by a court, or (iii) upon the
resolution to your satisfaction of the Dispute, that an
Underpayment has occurred, the Company shall pay an amount
equal to the Underpayment to you within ten (10) calendar days
of such determination or resolution, together with interest on
such amount at the applicable federal rate from the date such
amount should have been paid to you pursuant to the terms of
this Agreement or otherwise, but for the operation of this
Section 2.3, until the date of payment.
2.4 No Duty of Mitigation
The Company acknowledges that it would be very difficult
and generally impracticable to determine your ability to, or
the extent to which you may, mitigate any damages or injuries
you may incur by reason of the Change of Control. The Company
has taken this into account in entering into this Agreement
and, accordingly, the Company acknowledges and agrees that you
shall have no duty to mitigate any such damages and that you
shall be entitled to receive your entire Severance Payment
regardless of any income which you may receive from other
sources following your termination after any Change of
Control.
2.5 Time of Severance Payment
The Severance Payment to which you are entitled shall be
paid to you, in cash and in full, not later than ten (10)
calendar days after the termination of your employment. If
you should die before all amounts payable to you have been
paid, such unpaid amounts shall be paid to your beneficiary
under this Agreement or, if you have not designated such a
beneficiary in writing to the Company, to the personal
representative(s) of your estate.
2.6 Life and Health Insurance Coverage; Physical
If you are entitled to receive a Severance Payment under
Section 2.1, you will also be entitled to receive the
following additional benefits:
(a) Life insurance coverage for you and
your dependents having a face amount at least equal
to the greater of (i) the amount in effect for you
(in your case) and/or your dependents (in the case
of your dependents) on the date of the Change of
Control, or (ii) the amount in effect for you (in
your case) and/or your dependents (in the case of
your dependents) on the date of termination of your
service, such coverage to be provided under the same
plan or plans under which you (in your case) or your
dependents (in the case of your dependents) were
covered immediately prior to the termination of your
employment or substantially similar plan(s)
established by the Company or any of its
Subsidiaries thereafter. Such life insurance
coverage shall be paid for by the Company to the
same extent as if you were still employed by the
Company and you will be required to make such
payments as you would be required to make if you
were still employed by the Company. This coverage
will continue for the period hereinafter provided.
(b) Health insurance coverage (including
any dental coverage) for you and your dependents
under the same plan or plans under which you were
covered immediately prior to the termination of your
employment or substantially similar plan(s)
established by the Company or any of its
Subsidiaries thereafter. Such health insurance
coverage shall be paid for by the Company to the
same extent as if you were still employed by the
Company, and you will be required to make such
payments as you would be required to make if you
were still employed by the Company. This coverage
will continue for the period hereinafter provided.
(c) Payment for one physical examination,
to be performed by the physician of your choice.
(d) The benefits provided under this
Section 2.6 shall continue for a period of two (2)
years following the date of termination of your
employment; provided, however, that the benefits for
medical coverage under the provisions of Section
2.6(b) shall end as of the date you become covered
under any other group health plan not maintained by
the Company or any of its Subsidiaries which
provides equal or greater benefits than such plan
and which does not exclude any pre-existing
condition that you or your dependents may have at
that time; and provided further that the benefits
provided under the provision of Section 2.6(c) shall
be available only during the first twelve months
following the occurrence of the event which gives
rise to your right to a Severance Payment.
2.7 Outplacement Services
If you are entitled to receive a Severance Payment under
Section 2.1, you will also be entitled to receive a full range
of outplacement services, including but not limited to the use
of office space, counselling and spousal support, provided for
up to fifty-two (52) weeks by a reputable organization chosen
by you from a list of three such organizations pre-selected by
the Company. These outplacement services will be paid for by
the Company up to a maximum of $15,000.
2.8 Miscellaneous
(a) If you are entitled to receive a Severance Payment
under Section 2.1, and at the time of the occurrence of a
Change of Control you had the use of an automobile that was
provided to you at the expense of the Company or any of its
Subsidiaries, you will have the option, exercisable by written
notice to the Company within thirty (30) calendar days after
you become entitled to receive a Severance Payment hereunder,
to purchase such automobile from the Company for an amount
equal to the depreciated book value of the automobile as
reflected on the books and records of the Company and its
Subsidiaries. The purchase price will be payable by cash or
personal check within ten (10) calendar days after the Company
informs you in writing, after exercise of your option, of such
depreciated book value. If the automobile has been leased by
the Company or any of its Subsidiaries, instead of having the
option to purchase the automobile, the Company will, at your
written request made within thirty (30) calendar days after
you become entitled to receive a Severance Payment hereunder,
promptly use its best efforts to have the applicable lease
assigned to you.
(b) If you are entitled to a Severance Payment pursuant
to Section 2.1, you shall be entitled to receive, at Company
expense, personal financial and estate planning services
pursuant to the Company's Personal/Estate Financial Planning
for Executives Program, as in effect immediately prior to a
Change of Control. You will only be entitled to these
services during the first twenty-four months following the
occurrence of the event which gives rise to your right to a
Severance Payment.
2.9 Withholding of Taxes
The Company may withhold from any amounts payable under
this Agreement all federal, state, city or other taxes
required by applicable law to be withheld by the Company.
2.10 No Setoff
The Company's obligation to make Severance Payments to
you pursuant to this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any
circumstances, including, but not limited to, any setoff,
counterclaim, recoupment, defense or other right which the
Company or any of its Subsidiaries may have against you or
others.
2.11 Benefits Under Other Plans
The benefits that you may be entitled to receive pursuant
to Sections 2.6, 2.7 and 2.8(b) of this Agreement are not
intended to be duplicative of any similar benefits to which
you may be entitled from the Company or any of its
Subsidiaries under any other severance plan, agreement, policy
or program maintained by the Company or any of its
Subsidiaries. Accordingly, the benefits to which you are
entitled under Sections 2.6, 2.7 and 2.8(b) shall be reduced
to take account of any other similar benefits to which you are
entitled from the Company or any of its Subsidiaries;
provided, however, that if the amount of benefits to which you
are entitled under such other severance plan, agreement,
policy or program is greater than the benefits to which you
are entitled under Sections 2.6, 2.7 and 2.8(b) of this
Agreement, you will be entitled to receive the full amount of
the benefits to which you are entitled under such other plan,
agreement, policy or program.
ARTICLE III
OTHER RIGHTS AND BENEFITS NOT AFFECTED
3.1 Other Benefits
This Agreement does not provide a pension for you nor
shall any payment hereunder be characterized as deferred
compensation. Except as set forth in Sections 2.2(b), 2.3 and
2.11, neither the provisions of this Agreement nor the
Severance Payment provided for hereunder shall reduce any
amounts otherwise payable, or in any way diminish your rights
as an employee, whether existing now or hereafter, under any
benefit, incentive, retirement, stock option, stock bonus or
stock purchase plan or any employment agreement or other plan
or arrangement not related to severance. Any such other
amounts or benefits payable shall be included, as necessary,
for making any of the calculations required under Section 2.3.
3.2 Employment Status
This Agreement does not constitute a contract of
employment or impose on you any obligation to remain in the
employ of the Company, nor does it impose on the Company or
any of its Subsidiaries any obligation to retain you in your
present or any other position, or to change the status of your
employment as an employee at will. Nothing in this Agreement
shall in any way require the Company or any of its
Subsidiaries to provide you with any severance benefits prior
to a Change of Control, nor shall this Agreement ever be
construed in any way as establishing any policies or
requirements of the Company or any of its Subsidiaries for the
termination of your employment or the payment of severance
benefits to you if your employment terminates prior to a
Change of Control, nor shall anything in this Agreement in any
way affect the right of the Company or any of its Subsidiaries
in its absolute discretion to change prior to a Change of
Control one or more benefit plans, including but not limited
to pension plans, dental plans, health care plans, savings
plans, bonus plans, vacation pay plans, disability plans, and
the like.
ARTICLE IV
SUCCESSOR TO COMPANY
The Company shall require any successor or assignee,
whether direct or indirect, by purchase, merger, consolidation
or otherwise, to all or substantially all the business or
assets of the Company, expressly and unconditionally to assume
and agree to perform the Company's obligations under this
Agreement, in the same manner and to the same extent that the
Company would be required to perform if no such succession or
assignment had taken place. In such event, the term
"Company," as used in this Agreement, shall mean (from and
after, but not before, the occurrence of such event) the
Company as herein before defined and any successor or assignee
to the business or assets which by reason hereof becomes bound
by the terms and provisions of this Agreement.
ARTICLE V
LEGAL FEES AND EXPENSES
The Company shall pay as they become due all legal fees,
costs of litigation and other expenses incurred in good faith
by you as a result of the Company's refusal or failure to make
the Severance Payment to which you become entitled under this
Agreement, as a result of the Company's contesting the
validity, enforceability or interpretation of this Agreement
or of your right to benefits hereunder, or with regard to any
Dispute (as defined in Section 2.3(b)). You shall be
conclusively presumed to have acted in good faith unless a
court makes a final determination not otherwise subject to
appeal to the contrary.
ARTICLE VI
ARBITRATION
Except as otherwise provided in Section 2.3, you shall
have the right and option (but not the obligation) to elect
(in lieu of litigation) to have any dispute or controversy
arising under or in connection with this Agreement not
otherwise resolved through the claims procedure set forth in
Section 7.12, including any dispute under Section 2.3, settled
by arbitration, conducted before a panel of three arbitrators
sitting in a location selected by you within fifty (50) miles
from the location of your job with the Company or any of its
Subsidiaries, in accordance with the rules of the American
Arbitration Association then in effect. Judgement may be
entered on the award of the arbitrator in any court having
jurisdiction. All expenses of such arbitration, including the
fees and expenses of your counsel, shall be borne, and paid as
incurred, by the Company; provided that the Company shall only
be required to pay your fees and expenses if they are incurred
in good faith. You shall be conclusively presumed to have
acted in good faith unless and until the arbitrator makes a
final determination to the contrary.
ARTICLE VII
MISCELLANEOUS
7.1 Applicable Law
To the extent not preempted by the laws of the United
States and in the interest of interpreting this Agreement in a
uniform manner with other similar agreements being entered
into by the Company with other of its and its Subsidiaries'
employees regardless of the jurisdiction in which you are
employed or any other factor, the laws of the State of
California shall be the controlling law in all matters
relating to this Agreement, regardless of the choice-of-law
rules of the State of California or any other jurisdiction.
7.2 Construction
No term or provision of this Agreement shall be construed
so as to require the commission of any act contrary to law,
and wherever there is any conflict between any provision of
this Agreement and any present or future statute, law,
ordinance, or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail, but in such
event the affected provision of this Agreement affected shall
be curtailed and limited only to the extent necessary to bring
such provision within the requirements of the law.
7.3 Severability
If a provision of this Agreement shall be held illegal or
invalid, the illegality or invalidity shall not affect the
remaining parts of this Agreement and this Agreement shall be
construed and enforced as if the illegal or invalid provision
had not been included.
7.4 Headings
The Section headings in this Agreement are inserted only
as a matter of convenience, and in no way define, limit, or
extend or interpret the scope of this Agreement or of any
particular Section.
7.5 Notice of Termination
Following a Change of Control, any purported termination
of your employment by the Company or any of its Subsidiaries
shall be communicated by a written notice of termination,
which such notice shall indicate the specific termination
provision in this Agreement, if any, relied upon and which
sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment
under any provision so indicated. The failure to provide such
notice shall create a rebuttable presumption that you are
entitled to a Severance Payment and the other benefits
provided by this Agreement.
7.6 Assignability
Neither this Agreement nor any right or interest therein
shall be assignable or transferrable (whether by pledge, grant
of a security interest, or otherwise) by you, your
beneficiaries or legal representatives, except by will or by
the laws of descent and distribution. This Agreement shall be
binding upon and shall inure to the benefit of the Company,
its successors and assigns, and you and shall be enforceable
by them and your legal personal representatives.
7.7 Entire Agreement
This Agreement constitutes the entire agreement between
the Company and you regarding the subject matter hereof and
supersedes all prior agreements, if any, understandings and
arrangements, written or oral, between the Company and you
with respect to the subject matter hereof.
7.8 Term
If a Change of Control has not theretofore occurred, this
Agreement shall expire and be of no further force and effect
on August 1, 1996; provided that the Board of Directors of the
Company may, at any time prior to the expiration thereof,
extend the term of this Agreement for a term of up to two
years, including changing the date set forth in the second
line of the definition of "Change of Control", without any
further action on your part.
If a Change of Control occurs, this Agreement shall
continue in full force and effect, and shall not terminate or
expire until the expiration of three hundred sixty six (366)
calendar days from and including the date of the Change of
Control, at which time this Agreement shall terminate except
if you become entitled to Severance Payments hereunder prior
to such time. If you become so entitled to Severance Payments
hereunder, this Agreement shall continue and be effective
until you (or the person(s) specified in Section 2.5) shall
have received in full all Severance Payments and other
benefits to which you are entitled under this Agreement, at
which time this Agreement shall terminate for all purposes.
7.9 Amendment
Except as set forth in Section 7.8, no provision of this
Agreement may be modified, waived or discharged unless such
waiver, modification or discharge is agreed to in writing and
signed by you and the Company. No waiver by the Company or
you at any time or any breach by the other party of, or
compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver
of similar or dissimilar provisions or conditions at the same
or any prior or subsequent time. No agreement or
representations, written or oral, express or implied, with
respect to the subject matter hereof, have been made by either
party which are not expressly set forth in this Agreement.
7.10 Notices
For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and
shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last
given by each party to the other, provided that all notices to
the Company shall be directed to the attention of the Board of
Directors with a copy to the General Counsel. All notices and
communications shall be deemed to have been received on the
date of delivery thereof or on the third business day after
the mailing thereof, except that notice of change of address
shall be effective only upon actual receipt. No objection to
the method of delivery may be made if the written notice or
other communication is actually received.
7.11 Administration
The Company has entered into agreements similar to this
Agreement herein with other employees of the Company or its
Subsidiaries. These agreements, taken together, constitute a
welfare benefit plan within the meaning of Section 3(1) of
ERISA. The Administrator of such plan, within the meaning of
Section 3(16) of ERISA, and the Named Fiduciary thereof,
within the meaning of Section 402 of ERISA, is the Company.
7.12 Claims
If you believe you are entitled to a benefit under this
Agreement, you may make a claim for such benefit by filing
with the Company a written statement setting forth the amount
and type of payment so claimed. The statement shall also set
forth the facts supporting the claim. The claim may be filed
by mailing or delivering it to the Secretary of the Company.
Within sixty (60) calendar days after receipt of such a
claim, the Company shall notify you in writing of its action
on such claim and if such claim is not allowed in full, shall
state the following in a manner calculated to be understood by
you:
(a) The specific reason or reasons for
the denial;
(b) Specific reference to pertinent
provisions of this Agreement on which the denial is
based;
(c) A description of any additional
material or information necessary for you to be
entitled to the benefits that have been denied and
an explanation of why such material or information
is necessary; and
(d) An explanation of this Agreement's
claim review procedure.
If you disagree with the action taken by the Company, you
or your duly authorized representative may apply to the
Company for a review of such action. Such application shall
be made within one hundred twenty (120) calendar days after
receipt by you of the notice of the Company's action on your
claim. The application for review shall be filed in the same
manner as the claim for benefits. In connection with such
review, you may inspect any documents or records pertinent to
the matter and may submit issues and comments in writing to
the Company. A decision by the Company shall be communicated
to you within sixty (60) calendar days after receipt of the
application. The decision on review shall be in writing and
shall include specific reasons for the decision, written in a
manner calculated to be understood by you, and specific
references to the pertinent provisions of this Agreement on
which the decision is based.
If this Agreement is acceptable to you, please sign the
enclosed copy of this Agreement in the space provided below
and return it to me.
Sincerely,
Donald B. Rice
President and Chief
Operating Officer
ACCEPTED AND AGREED TO:
___________________________
William P. Rutledge
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