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, 1996
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 22, 1996, Registrant had outstanding 56,061,932 shares of
its Common Stock.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
_____________________________
TELEDYNE, INC. AND SUBSIDIARIES
_______________________________
CONSOLIDATED BALANCE SHEETS
___________________________
(In millions except share and per share amounts)
June 30, December 31,
1996 1995
___________ ___________
(Unaudited)
ASSETS
______
Current Assets:
Cash and marketable securities $ 101.9 $ 41.7
Receivables 413.3 417.5
Inventories 221.5 229.4
Deferred income taxes 74.6 82.2
Prepaid expenses 13.3 17.3
__________ ___________
Total current assets 824.6 788.1
Property and Equipment 292.0 304.3
Prepaid Pension Cost 420.8 386.6
Other Assets 130.9 127.2
__________ ___________
$ 1,668.3 $ 1,606.2
__________ ___________
__________ ___________
LIABILITIES AND SHAREHOLDERS' EQUITY
____________________________________
Current Liabilities:
Accounts payable $ 128.8 $ 130.5
Accrued liabilities 268.7 273.2
__________ ___________
Total current liabilities 397.5 403.7
Long-Term Debt 375.3 380.0
Accrued Postretirement Benefits 268.7 276.3
Deferred Income Taxes 31.6 21.6
Other Long-Term Liabilities 101.3 95.9
__________ ___________
1,174.4 1,177.5
__________ ___________
Redeemable Preferred Stock, $1.00 par
value, 5,000,000 shares authorized,
2,763,722 shares at June 30, 1996
and 2,209,122 shares at December 31,
1995 issued and outstanding 41.5 33.1
__________ ___________
Shareholders' Equity:
Preferred stock, $1.00 par value,
15,000,000 shares authorized - -
Common stock, $1.00 par value,
100,000,000 shares authorized,
56,054,682 shares at June 30, 1996
and 55,781,423 shares at December 31,
1995 issued and outstanding 56.1 55.8
Additional paid-in capital 46.1 41.4
Retained earnings 345.0 284.0
Other 5.2 14.4
__________ ___________
Total shareholders' equity 452.4 395.6
__________ ___________
$ 1,668.3 $ 1,606.2
__________ ___________
__________ ___________
The accompanying notes are an integral part of these statements.
<PAGE>
TELEDYNE, INC. AND SUBSIDIARIES
_______________________________
CONSOLIDATED STATEMENTS OF INCOME
_________________________________
(In millions except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ____________________
1996 1995 1996 1995
________ ________ _________ _________
Sales $ 662.8 $ 706.7 $1,331.5 $1,332.2
Costs and Expenses*:
Cost of sales 475.7 539.5 966.6 996.3
Selling and administrative
expenses 119.9 107.4 230.4 216.8
Interest expense 10.3 10.4 21.1 21.0
_______ _______ _________ _________
605.9 657.3 1,218.1 1,234.1
_______ _______ _________ _________
Earnings Before Other Income 56.9 49.4 113.4 98.1
Other Income 7.6 2.7 52.0 56.9
_______ _______ _________ _________
Income before Income Taxes 64.5 52.1 165.4 155.0
Provision for Income Taxes 24.6 19.5 63.0 58.1
_______ _______ _________ _________
Net Income 39.9 32.6 102.4 96.9
Preferred Stock Dividends (1.3) (0.4) (2.0) (0.4)
________ ________ _________ _________
Net Income Applicable to
Common Shareholders $ 38.6 $ 32.2 $ 100.4 $ 96.5
________ ________ _________ _________
________ ________ _________ _________
Net Income Per Common Share $ 0.69 $ 0.59 $ 1.79 $ 1.74
________ ________ _________ _________
________ ________ _________ _________
Dividends Per Share $ 0.31 $ 0.25 $ 0.685 $ 0.50
________ ________ _________ _________
________ ________ _________ _________
* Includes a credit of pension income of $19.5 million and $39.3 million for
the second quarter and first half of 1996 and $21.1 million and $42.2 million
for the same periods in 1995.
The accompanying notes are an integral part of these statements.
<PAGE>
TELEDYNE, INC. AND SUBSIDIARIES
_______________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
_____________________________________
(In millions)
(Unaudited)
Six Months Ended
June 30,
__________________
1996 1995
_______ _______
Operating Activities:
Net income $ 102.4 $ 96.9
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of businesses (43.7) (49.8)
Increase in prepaid pension cost (40.8) (34.5)
Depreciation and amortization of property and
equipment 36.3 36.4
Decrease in deferred income taxes 24.4 43.5
Increase in receivables (12.0) (4.7)
Decrease in accrued income taxes (10.0) -
Decrease in accounts payable and accrued
liabilities (9.2) (18.6)
Increase in inventories (7.0) (22.9)
Other, net 3.2 (9.5)
_______ _______
Net cash provided by operating activities 43.6 36.8
_______ _______
Investing Activities:
Proceeds from the sale of businesses 79.6 63.2
Net decrease (increase) in short-term investments (48.1) 2.0
Purchases of property and equipment (23.1) (31.2)
Purchases of businesses (13.5) (11.7)
Other, net 2.9 (3.3)
_______ _______
Net cash provided by (used in) investing activities (2.2) 19.0
_______ _______
Financing Activities:
Cash dividends (33.1) (11.3)
Exercise of stock options 4.9 4.0
Increase (decrease) in checks outstanding 3.5 (58.3)
Reduction of long-term debt (2.8) (5.3)
Increase in long-term debt 1.4 16.7
_______ _______
Net cash used in financing activities (26.1) (54.2)
_______ _______
Increase in cash $ 15.3 $ 1.6
_______ _______
_______ _______
Non cash transactions:
Preferred stock dividend on common stock $ 8.3 $ 16.5
_______ _______
_______ _______
The accompanying notes are an integral part of these statements.
<PAGE>
TELEDYNE, INC. AND SUBSIDIARIES
_______________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
__________________________________________
Note 1. Consolidated Financial Statements -
The interim consolidated financial statements of Teledyne, Inc. and
subsidiaries have not been examined by independent public accountants; however,
in the opinion of the Company, all adjustments (which include only recurring
normal adjustments) required for a fair presentation of the financial position
as of June 30, 1996, and the results of operations and cash flows for the six
months ended June 30, 1996 and 1995, 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,
1995 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
1996 presentation.
Note 2. Inventories -
Inventories were as follows (in millions):
June 30, December 31,
1996 1995
___________ ___________
Raw materials $ 45.3 $ 43.6
Work-in-process 131.7 168.8
Finished goods 70.8 61.3
___________ ___________
247.8 273.7
Progress payments (26.3) (44.3)
___________ ___________
$ 221.5 $ 229.4
___________ ___________
___________ ___________
Note 3. Supplemental Balance Sheet Information -
Cash and marketable securities were as follows (in millions):
June 30, December 31,
1996 1995
___________ ___________
Cash $ 37.4 $ 22.1
Repurchase agreements, at market, which
approximates cost 64.5 13.0
Other short-term investments, at market, which
approximates cost - 6.6
___________ ___________
$ 101.9 $ 41.7
___________ ___________
___________ ___________
Property and equipment is presented net of accumulated depreciation and
amortization of $571.3 million at June 30, 1996 and $562.7 million at
December 31, 1995.
Accounts payable included $13.1 million at June 30, 1996 and $9.6 million
at December 31, 1995 for checks outstanding in excess of cash balances.
<PAGE>
Note 4. Dispositions -
In March 1996, the Company sold Teledyne Vehicle Systems, a defense
supplier of combat vehicles, mobility systems, tactical wheeled vehicles and
vehicle modernization, at a pretax gain of $41.0 million, included in other
income. In January 1995, the Company sold substantially all of its defense
electronic systems business and related assets at a pretax gain of $50.7
million, included in other income.
Note 5. Combination with Allegheny Ludlum -
On April 1, 1996, the Company entered into a definitive agreement to
combine Allegheny Ludlum, a leading producer of a wide range of specialty
materials including stainless steels, tool steels, high technology alloys and
grain-oriented silicon steel. Under the agreement, each Company will become a
wholly owned subsidiary of the new company, Allegheny Teledyne Incorporated.
Teledyne shareholders will receive 1.925 shares of common stock in Allegheny
Teledyne for each of their Teledyne common shares. Allegheny Ludlum
shareholders will receive one share in the new company for each of their shares
in Allegheny Ludlum. The transaction is expected to be tax-free to shareholders
and accounted for as a pooling of interests. Both companies will hold special
shareholder meetings on August 15, 1996 to vote on the proposed combination.
Note 6. Redemption of Preferred Stock -
On June 28, 1996, the Board of Directors approved the redemption of all of
the outstanding shares of the Company's Series E Cumulative Preferred Stock. The
redemption price of $15.00 per share, together with an additional $0.60 per
share, representing an amount equal to the dividend payment that would otherwise
be due September 1, 1996, will be payable on August 14, 1996.
<PAGE>
Note 7. Business Segments -
Information on the Company's business segments for the three and six months
ended June 30, 1996 and 1995 was as follows (in millions):
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1996 1995 1996 1995
______ ______ ______ ______
Sales:
Specialty metals: $ 269.7 $ 226.1 $ 515.9 $ 450.1
_______ _______ _______ _______
Aviation and electronics:
Continuing 239.3 317.8 487.4 542.5
Discontinued 6.8 8.4 14.4 18.8
_______ _______ _______ _______
246.1 326.2 501.8 561.3
_______ _______ _______ _______
Consumer: 90.5 80.0 172.8 155.0
_______ _______ _______ _______
Industrial:
Continuing 55.2 52.6 111.3 99.0
Discontinued 1.3 21.8 29.7 66.8
_______ _______ _______ _______
56.5 74.4 141.0 165.8
_______ _______ _______ _______
Total:
Continuing 654.7 676.5 1,287.4 1,246.6
Discontinued 8.1 30.2 44.1 85.6
_______ _______ ________ ________
$ 662.8 $ 706.7 $1,331.5 $1,332.2
_______ _______ ________ ________
_______ _______ ________ ________
<PAGE>
Income before Income Taxes:
Three Months Ended Six Months Ended
June 30, June 30,
__________________ __________________
1996 1995 1996 1995
_______ _______ _______ _______
Specialty metals:
Continuing $ 35.9 $ 23.5 $ 66.2 $ 48.3
Pension income 0.7 2.6 2.7 5.2
_______ _______ _______ _______
36.6 26.1 68.9 53.5
_______ _______ _______ _______
Aviation and electronics:
Continuing 21.9 29.2 47.3 57.7
Discontinued (0.6) (1.6) (1.2) (2.4)
Pension income 3.9 4.5 8.3 9.0
_______ _______ _______ _______
25.2 32.1 54.4 64.3
_______ _______ _______ _______
Consumer:
Continuing 7.3 3.9 12.3 6.6
Pension income (0.2) 0.1 (0.2) 0.1
_______ _______ _______ _______
7.1 4.0 12.1 6.7
_______ _______ _______ _______
Industrial:
Continuing 5.9 5.5 11.0 10.9
Discontinued (0.3) (0.9) 0.1 (0.8)
Pension income 0.4 5.9 6.7 11.9
_______ _______ _______ _______
6.0 10.5 17.8 22.0
_______ _______ _______ _______
Total:
Continuing 71.0 62.1 136.8 123.5
Discontinued (0.9) (2.5) (1.1) (3.2)
_______ _______ _______ _______
70.1 59.6 135.7 120.3
_______ _______ _______ _______
Corporate expense:
Salaries and benefits (5.9) (6.0) (10.4) (11.8)
Closed businesses' expenses (4.5) (3.4) (7.3) (4.5)
Other (12.0) (11.5) (22.8) (27.1)
Interest expense (10.3) (10.4) (21.1) (21.0)
Pension income 19.5 21.1 39.3 42.2
Other income 7.6 2.7 52.0 56.9
_______ _______ _______ _______
$ 64.5 $ 52.1 $ 165.4 $ 155.0
_______ _______ _______ _______
_______ _______ _______ _______
Sales and operating results for the Company's aviation and electronics wire and
cable business, which was sold in May 1996, have been reclassified and presented
in discontinued results.
Teledyne's pension income reflects 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 8. 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, 1996 was 56,016,608 and 55,938,099, respectively, and 55,627,166 and
55,563,892, respectively, for the same periods in 1995.
<PAGE>
Note 9. Commitments and Contingencies -
The Company is defending an action brought under the False Claims Act in
the U.S. District Court for the Western District of Missouri. The case was
first filed in 1991 and concerns the Company's former Teledyne Neosho unit,
divested in 1992. The U.S. government has elected to intervene and, on or about
May 7, 1996, filed an amended complaint alleging misappropriation of government-
owned aircraft parts and falsification of inventory control documents. Two
former Teledyne Neosho employees have pleaded guilty to related criminal
charges. The outcome of this matter could have a material adverse effect on the
Company's results of operations in the period in which the matter is resolved,
but management does not believe the outcome is likely to have a material adverse
effect on the Company's financial condition or liquidity.
On January 13, 1993, the Company's Teledyne Thermatics unit sought
admission into the Department of Defense Voluntary Disclosure Program with
respect to testing practices at variance from military specifications, and was
accepted into the program on April 2, 1993. On May 26, 1994, the Company
reached preliminary agreement with the U.S. government to settle the matter for
$3.8 million, subject to conclusion of the government's investigation at
Teledyne Thermatics. In connection therewith, the Company established a reserve
in the amount of $3.8 million. On March 28, 1996, the Company learned that the
government had concluded its investigation. By letter dated May 7, 1996, the
government advised the Company that it may seek substantially more in
settlement. While liability in this matter is probable, and resolution could
have a material adverse effect on the Company's results of operations in the
period in which the matter is resolved, management does not believe that the
outcome is likely to have a material adverse effect on the Company's financial
condition or liquidity.
The Company has also made voluntary disclosures to the U.S. government of
government contracting irregularities discovered in certain other of its current
or former business units, and has cooperated with the government in the
investigation of these matters. Management does not believe that the outcome
of any of these matters is likely to have a material adverse effect on the
Company's financial condition or liquidity, although the resolution in any
reporting period of one or more of these matters could have a material adverse
effect on the Company's results of operations for that period.
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 is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws.
<PAGE>
As discussed in Note 1 to the Company's consolidated financial statements
in the December 31, 1995, annual report to shareholders, the Company accrues for
losses associated with environmental remediation obligations when the Company's
liability is probable and the costs are reasonably estimable. In many cases,
however, investigations are not yet at a stage where the Company has been able
to determine whether it is liable or, if liability is probable, to reasonably
estimate the loss or range of loss, or certain components thereof. Estimates
of the Company's liability are further subject to uncertainties regarding the
nature and extent of site contamination, the range of remediation alternatives
available, evolving remediation standards, imprecise engineering evaluations and
estimates of appropriate cleanup technology, methodology and cost, the extent
of corrective actions that may be required, and the number and financial
condition of other potentially responsible parties, as well as the extent of
their responsibility for the remediation. Accordingly, as investigation and
remediation of these sites proceeds, it is likely that adjustments in the
Company's accruals will be necessary to reflect new information. The amounts
of any such adjustments could have a material adverse effect on the Company's
results of operations in a given period, but are not reasonably estimable.
Based on currently available information, however, management does not believe
future environmental costs at sites with which the Company has been identified
in excess of those accrued are likely to have a material adverse effect on the
Company's financial condition or liquidity.
At June 30, 1996, the Company's reserves for environmental remediation
obligations totaled approximately $44 million, of which approximately $14
million was included in other current liabilities. The reserve includes
estimated probable future costs of $16 million for federal Superfund and
comparable state-managed sites; $8 million for formerly owned or operated sites
for which the Company has remediation or indemnification obligations; $12
million for owned or controlled sites at which Company operations have been
discontinued; and $8 million for sites utilized by the Company in its ongoing
operations. The Company has resolved claims against its insurance carriers for
recovery of environmental costs, and does not expect to recover a material
amount of future costs for environmental liabilities from its carriers or from
third parties other than participating potentially responsible parties.
The timing of expenditures depends on a number of factors that vary by
site, including the nature and extent of contamination, the number of
potentially responsible parties, the timing of regulatory approvals, the
complexity of the investigation and remediation, and the standards for
remediation. The Company expects that it will expend present accruals over many
years, and will complete remediation of all sites with which it has been
identified in up to thirty years.
A number of lawsuits, claims and proceedings have been or may be asserted
against the Company relating to the conduct of its business, including those
pertaining to product liability, patent infringement, commercial, employment,
employee benefits, shareholder, tax and government contract matters. While the
outcome of litigation cannot be predicted with certainty, and some of these
lawsuits, claims or proceedings may be determined adversely to the Company,
management does not believe that the disposition of any such pending matters is
likely to have a material adverse effect on the Company's financial condition
or liquidity, although the resolution in any reporting period of one or more of
these matters could have a material adverse effect on the Company's results of
operations for that period.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
Teledyne, Inc. is a federation of technology-based manufacturing businesses
serving worldwide customers with specialty metals for consumer, industrial and
aerospace applications; commercial and government-related aviation and
electronics products; and consumer and industrial products.
Results of Operations
- ---------------------
Sales and operating profit for the Company's four business segments are
discussed below.
Specialty Metals
- ----------------
Sales increased to $269.7 million for the second quarter of 1996 from
$226.1 million for the same period of 1995 and increased to $515.9 million for
the first half of 1996 from $450.1 million in the same period of 1995. Sales
significantly increased for titanium and nickel-based alloys and specialty
steels due to continued improvement in worldwide commercial aerospace and other
industrial markets, and for thin-rolled products due to new market
opportunities. Sales also increased significantly due to the acquisition in
December 1995 of the European-based Stellram Group, a manufacturer of high
precision milling, boring and drilling systems. Lower zirconium sales and
decreased demand for forgings due to softness in the truck market partially
offset the sales increases.
Operating profit increased to $35.9 million for the second quarter of 1996
from $23.5 million for the same period of 1995 and increased to $66.2 million
for the first half of 1996 from $48.3 million for the 1995 period. Operating
profit increased for both periods of 1996 primarily due to higher sales and
improved margins particularly in titanium and nickel-based alloys. Margins also
significantly improved in zirconium and niobium alloys. The improvement in
operating profit was partially offset by lower margins on thin-rolled products.
Aviation and Electronics
- ------------------------
Sales from continuing operations decreased to $239.3 million for the second
quarter of 1996 from $317.8 million for the same period of 1995 and decreased
to $487.4 million for the first half of 1996 from $542.5 million in the same
period of 1995. Sales for 1996 would have increased over 1995 but for non-
recurring sales of $102 million in the second quarter of 1995 related to the
completion of a fixed price contract to develop and produce ground power
generators for the U.S. Air Force. Without the 1995 contract completion, 1996
sales would have improved principally due to increased development work on the
United States' new High Altitude Endurance Unmanned Aerial
Surveillance/Reconnaissance Vehicle ("Global Hawk"). Sales improvements for the
1996 second quarter and six months also occurred in electronic devices and
electromechanical relays for commercial customers, and engineering services
related to environmental cleanup of chemical munitions. Lower sales of
electronic countermeasure equipment for the international market, and lower
sales to the U.S. Government of fabricated products, airframe structures, and
other military unmanned aerial vehicles offset increased 1996 sales for the
quarter and year.
<PAGE>
Operating profit from continuing operations decreased to $21.9 million for
the second quarter of 1996 from $29.2 million for the same period of 1995 and
decreased to $47.3 million for the first half of 1996 from $57.7 million for the
1995 period. Operating profit declined primarily due to non-recurring income
of $6.1 million and $9.3 million for the second quarter and first half of 1995,
respectively, from the reversal of estimated losses on the ground power
generator contract. Results for the second quarter and six months of 1996 were
enhanced by strong performances of electronic devices and electromechanical
relays.
Consumer
- --------
Sales increased to $90.5 million for the second quarter of 1996 from $80.0
million for the same period of 1995 and increased to $172.8 million for the
first half of 1996 from $155.0 million in the same period of 1995. Sales
improved primarily due to the acquisitions of Jandy Industries, the major United
States producer of water flow control valves and electronic control systems for
the residential swimming pool industry, in May 1996, and Envases
Comerciales, S.A., a Costa Rican manufacturer of specialty packaging for
pharmaceutical and food companies, in December 1995. In addition, sales
improved for the Teledyne Water Pik Pour-Thru Water Filter device introduced in
1995.
Operating profit increased to $7.3 million in the second quarter of 1996
from $3.9 million for the same period of 1995 and increased to $12.3 million for
the first half of 1996 from $6.6 million for the 1995 period. The increase in
operating profit was due primarily to the higher sales discussed above and lower
start-up costs incurred for new product introductions.
Industrial
- ----------
Sales from continuing operations increased to $55.2 million for the second
quarter of 1996 from $52.6 million for the same period of 1995 and increased to
$111.3 million for the first half of 1996 from $99.0 million for the 1995
period. Sales improved in both periods of 1996 primarily in metal stamping dies
and compression molds for the automotive and truck markets. In addition, sales
of nitrogen cylinder systems for the metal stamping industry and sales of
breaker systems for the construction and mining industries had strong
performances. The improvement in sales was partially offset by lower sales of
vehicle control valves to the trucking industry and material handling equipment.
Operating profit from continuing operations increased to $5.9 million for
the second quarter of 1996 from $5.5 million for the same period of 1995 and
increased to $11.0 million for the first half of 1996 from $10.9 million for the
1995 period. Increased profits from the sales increases discussed above were
offset by a decline in margins of material handling equipment.
Corporate Expense
Corporate expense increased to $22.4 million for the second quarter of 1996
from $20.9 million for the same period of 1995 primarily due to legal and
advisory costs associated with the pending combination with Allegheny Ludlum.
For the first half of 1996, corporate expense decreased to $40.5 million from
$43.4 million for the 1995 period due to a decline in costs related to
unsolicited merger proposals and ensuing proxy contests.
Pension Income
Teledyne's pension income reflects the amount by which the amortization
into income of pension surplus and estimated return on plan assets exceeded the
<PAGE>
current year's cost of providing benefits. Pension income before tax was $19.5
million in the second quarter of 1996 compared to $21.1 million for the same
period of 1995 and was $39.3 million for the first half of 1996 compared to
$42.2 million for the 1995 period. The decrease in pension income was a result
of reduced amortization of actuarial pension gains and a decrease in the
discount rate, to 7.5% from 8.5%, used to calculate the pension benefit
obligation, partially offset by a higher expected return on pension assets.
Dispositions
In March 1996, the Company sold Teledyne Vehicle Systems, a defense supplier of
combat vehicles, mobility systems, tactical wheeled vehicles and vehicle
modernization, at a pretax gain of $41.0 million, included in other income. In
January 1995, the Company sold substantially all of its defense electronic
systems business and related assets at a pretax gain of $50.7 million, included
in other income.
Income Taxes
The Company's lower effective tax rate for 1995 was the result of a $2.1
million reduction in 1995 of prior's years estimated tax liabilities not
repeated in 1996.
Financial Condition
The Company has been able to meet all cash requirements for the six months
ended June 30, 1996 and 1995 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.
For the first half of 1996, cash provided from operations of $43.6 million and
proceeds from the sale of businesses of $79.6 million were used to pay cash
dividends of $33.1 million and fund capital expenditures and purchases of
businesses of $36.6 million. At June 30, 1996, the balance of cash and
marketable securities was $101.9 million, compared to $41.7 million at
December 31, 1995. At June 30, 1996, the Company's unused lines of credit with
various banks totaled $135.0 million.
On June 28, 1996, the Board of Directors approved the redemption of all of
the outstanding shares of the Company's Series E Cumulative Preferred Stock. The
redemption price of $15.00 per share, together with an additional $0.60 per
share, representing an amount equal to the dividend payment that would otherwise
be due September 1, 1996, will be payable on August 14, 1996.
Other Matters
Combination with Allegheny Ludlum
- ---------------------------------
On April 1, 1996, the Company entered into a definitive agreement to
combine Allegheny Ludlum, a leading producer of a wide range of specialty
materials including stainless steels, tool steels, high technology alloys and
grain-oriented silicon steel. Under the agreement, each Company will become a
wholly owned subsidiary of the new company, Allegheny Teledyne Incorporated.
Teledyne shareholders will receive 1.925 shares of common stock in Allegheny
Teledyne for each of their Teledyne common shares. Allegheny Ludlum
shareholders will receive one share in the new company for each of their shares
in Allegheny Ludlum. The transaction is expected to be tax-free to shareholders
<PAGE>
and accounted for as a pooling of interests. Both companies will hold special
shareholder meetings on August 15, 1996 to vote on the proposed combination.
Government Contracts
- --------------------
Company subsidiaries perform work on a substantial number of 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 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 may
have an adverse effect on the Company's business, depending upon the specific
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 a contracting unit of the Company be charged with wrongdoing,
or should the U.S. government determine that the contracting 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.
Since certain contracts extend over a long period of time, all revisions
in cost and funding estimates during the progress of work have the effect of
adjusting the current period earnings on a cumulative catch-up basis. When the
current contract estimate indicates a loss, provision is made for the total
anticipated loss.
For additional discussion of government contract matters, see Note 9 to the
consolidated financial statements of the Company.
Environmental
- -------------
The Company is subject to federal, state and local environmental laws and
regulations which require that it investigate and remediate the effects of the
release or disposal of materials at sites associated with past and present
operations, including sites at which the Company has been identified as a
potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws.
The Company's reserves for environmental investigation and remediation
<PAGE>
totaled approximately $44 million at June 30, 1996, of which approximately $14
million was included in other current liabilities. The total reserve amount
relates to four categories of sites with which the Company has been associated:
federal Superfund and comparable state-managed sites, formerly owned or operated
sites for which the Company has remediation or indemnification obligations,
owned or controlled sites at which Company operations have been discontinued,
and sites utilized by the Company in its on-going operations.
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 at approximately 60 such sites, excluding
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.
Reserves of $16 million have been established for future remediation and
settlement costs at sites in this category.
With respect to the remaining three categories, reserves of $8 million have
been established with respect to formerly owned or operated sites for which the
Company has remediation or indemnification obligations; reserves of $12 million
have been established for remediation of owned or controlled sites at which
Company operations have been discontinued; and reserves of $8 million have been
accrued for sites utilized by the Company in its ongoing operations.
The measurement of environmental liabilities by the Company is based on
currently available facts, present laws and regulations, and current technology.
As investigation and remediation of these sites proceeds, it is likely that
adjustments in the Company's accruals will be necessary to reflect new
information. The amounts of any such adjustments could have a material adverse
effect on the Company's results of operations in any one period, but are not
reasonably estimable. Based on currently available information, however,
management does not believe future environmental costs at sites with which the
Company has been identified in excess of those accrued are likely to have a
material adverse effect on the Company's financial condition or liquidity.
For additional discussion of environmental matters, see Note 9 to the
consolidated financial statements of the Company.
<PAGE>
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 (the "Bass Federal Case")
against certain of Registrant's directors and executive officers, a former
employee of Registrant's Teledyne Relays unit, and Registrant as a "nominal"
defendant. 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 Bass Federal Case, 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 (the "Bass State Case"), against certain of
Registrant's directors and executive officers, a former employee of Teledyne
Relays, and Registrant as a "nominal" defendant. 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.
On February 11, 1993, Moise Katz and Harry Lewis, shareholders purporting
to act derivatively on behalf of Registrant, commenced an action in the Superior
Court of the State of California, County of Los Angeles, against certain of
Registrant's directors and Registrant as a "nominal" defendant (the "Katz and
Lewis Case"). The complaint alleges, among other things, gross negligence and
breaches of fiduciary duty in connection with the management and administration
<PAGE>
of the affairs of Registrant with respect to its Teledyne Controls, Teledyne
Relays and Teledyne Systems units, each of which has been subject to
investigation by the U.S. government, and with respect to Registrant's foreign
military sales effort in Egypt and Saudi Arabia. The complaint seeks damages
sustained by Registrant as a result of the alleged conduct, plaintiffs' costs
and expenses, including attorneys' fees, and other appropriate relief. On
February 28, 1994, the Court entered an order dismissing the complaint with
prejudice; plaintiffs filed a notice of appeal from the order on March 25, 1994.
The parties entered a stipulation settling all of the shareholder
derivative actions described above (the "Global Settlement"), and on January 22,
1996, the Court in the Bass State Case entered final judgment approving the
Global Settlement. Pursuant to the stipulation, the plaintiffs in the Bass
Federal Case dismissed their appeal on November 29, 1995. The plaintiffs in the
Katz and Lewis Case dismissed their appeal on May 8, 1996. On March 20, 1996,
an objecting shareholder in the Bass State Case appealed the Court's approval
of the Global Settlement to the California Court of Appeal.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits -
11 Statement re the calculation of earnings per share.
27 Financial Data Schedule
(b) Registrant filed the following reports on Form 8-K relating to items
5 and 7: April 1, 1996, April 24, 1996, and June 27, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELEDYNE, INC.
__________________________________
(Registrant)
Date: July 25, 1996 By /S/ Donald B. Rice
___________________________________
Donald B. Rice
President and
Chief Operating Officer
Date: July 25, 1996 By /S/ Douglas J. Grant
___________________________________
Douglas J. Grant
Treasurer
TELEDYNE, INC. AND SUBSIDIARIES
_______________________________
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
______________________________________________
(In millions except per share and share amounts)
Three Months Ended Six Months Ended
June 30 June 30,
_________________________ ________________________
1996 1995 1996 1995
__________ __________ __________ __________
Shares used in Computing
Earnings Per Share:
Weighted average
number of shares
outstanding 56,016,608 55,627,166 55,938,099 55,563,892
Incremental shares
attributed to
outstanding options 1,725,349 877,568 1,725,349 965,665
__________ __________ __________ __________
57,741,957 56,504,734 57,663,448 56,529,557
__________ __________ __________ __________
__________ __________ __________ __________
Net Income $ 39.9 $ 32.6 $ 102.4 $ 96.9
Preferred Stock
Dividends (1.3) (0.4) (2.0) (0.4)
__________ __________ __________ __________
Net Income Applicable
to Common Shareholders $ 38.6 $ 32.2 $ 100.4 $ 96.5
__________ __________ __________ __________
__________ __________ __________ __________
Fully Diluted Income
Per Common Share $ 0.67 $ 0.58 $ 1.74 $ 1.71
__________ __________ __________ __________
__________ __________ __________ __________
Published Net Income
Per Common Share $ 0.69 $ 0.59 $ 1.79 $ 1.74
__________ __________ __________ __________
__________ __________ __________ __________
Note: This calculation is submitted in accordance with Regulation S-X
item 601(b)(11) although not required by footnote 2 to paragraph 14 of
APB Opinion No. 15 because it results in dilution of less than 3%.
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