-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DZXP1EB0QRgUMrj9/iXlcwHePA8PWsQuqSOkHhjvbB8EB0qBq7cF++N6zrFOjrtr UGngIu3xv6jG0WpTSpOptQ== 0000898431-96-000139.txt : 19960903 0000898431-96-000139.hdr.sgml : 19960903 ACCESSION NUMBER: 0000898431-96-000139 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960815 ITEM INFORMATION: Changes in control of registrant FILED AS OF DATE: 19960830 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGHENY TELEDYNE INC CENTRAL INDEX KEY: 0001018963 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 251792394 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12001 FILM NUMBER: 96624734 BUSINESS ADDRESS: STREET 1: 1000 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4123942800 MAIL ADDRESS: STREET 1: 100 SIX PPG PLACE CITY: PITTSBURGH STATE: PA ZIP: 15222 8-K 1 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): AUGUST 15, 1996 ALLEGHENY TELEDYNE INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 1-12001 25-1792394 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1000 SIX PPG PLACE, PITTSBURGH, PENNSYLVANIA 15222-5479 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: 412-394-2800 2 Item 2. Acquisition or Disposition of Assets. ------------------------------------ On August 15, 1996, pursuant to an Agreement and Plan of Merger and Combination dated as of April 1, 1996, as amended and restated (the "Combination Agreement"), among Allegheny Teledyne Incorporated (the "Company"), Allegheny Ludlum Corporation ("Allegheny Ludlum"), ALS Merger Corporation, Teledyne, Inc. ("Teledyne") and TDY Merger, Inc., ALS Merger Corporation was merged with and into Allegheny Ludlum and TDY Merger, Inc. was merged with and into Teledyne, whereupon each of Allegheny Ludlum and Teledyne became a wholly owned subsidiary of the Company (the "Combination"). Allegheny Ludlum is one of the world's leading manufacturers of specialty materials and one of the largest domestic producers of stainless steel. Teledyne is a technology- based manufacturing corporation 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. Pursuant to the Combination Agreement, at the effective time of the Combination, each outstanding share of Common Stock, par value $.10 per share, of Allegheny Ludlum (other than shares owned by Teledyne or any subsidiary of Teledyne, or shares held in Allegheny Ludlum's treasury immediately prior to the effective time of the Combination) was converted into the right to receive one share of Common Stock, par value $.10 per share, of the Company ("Company Common Stock"), and each share of Common Stock, par value $1.00 per share, of Teledyne (other than shares owned by Allegheny Ludlum or any subsidiary of Allegheny Ludlum, or shares held in Teledyne's treasury immediately prior to the effective time of the Combination) was converted into the right to receive 1.925 shares of Company Common Stock (with cash paid in lieu of fractional shares). The foregoing conversion ratios were determined on the basis of arms' length negotiations between representatives of Allegheny Ludlum and Teledyne. Item 5. Other Events. ------------ Subject to certain conditions, the Private Securities Litigation Reform Act of 1995 provides a safe harbor from liability in any private action that is based on an alleged untrue statement of a material fact or alleged omission of a material fact necessary to make the statement not misleading. To the extent that the Company or its representatives make oral forward-looking statements, following are important factors that could cause actual results to differ materially from those in such forward-looking statements. 3 Certain Business Risks Affecting the Company -------------------------------------------- Demand for products of the Company's specialty metals businesses, which, on a pro forma basis would have accounted for a significant portion of the Company's 1995 total sales and its 1995 total income, is cyclical because the industries in which customers of such businesses operate are cyclical and are subject to changes in general economic conditions, including decreases in the rate of consumption or use of their products due to economic recessions or due to increases in use or decreases in price of other materials which may be used in lieu of the materials they produce, national and international overcapacity, flucutations in the value of the United States dollar against other currencies and levels of lower priced imports, which affect market demand for specialty materials. From time to time, these industries have experienced significant downturns. Significant downturns in the domestic economy are believed to have adversely affected the results of operations of each of Allegheny Ludlum and Teledyne from time to time during their respective histories. As a result, the Company's operating results could be subject to significant fluctuation. Certain of the principal raw materials used to produce specialty metals can be acquired in large part only from foreign sources, some of which are located in countries that may be subject to unstable political and economic conditions which might disrupt supplies or affect the prices of these materials. Purchase prices of certain critical raw materials are volatile. As a result, the Company's operating results could be subject to significant fluctuation. It is anticipated that the Company may enter into raw material futures contracts from time to time to hedge its exposure to price fluctuations. It is expected that these contracts will not be significant to the Company's total raw material purchases and will not be material from a financial point of view. The Company is subject to various federal, state, local and foreign environmental laws and regulations. Environmental laws and regulations have changed rapidly in recent years, and it is likely that the Company will be subject to increasingly stringent environmental standards in the future. The Company believes that its businesses are being operated in compliance in all material respects with applicable environmental laws and regulations. Allegheny Ludlum and Teledyne are parties to lawsuits and other proceedings involving alleged violations of environmental laws. Based on currently available information, management of the Company does not believe that costs in excess of those accrued for environmental matters will have a material adverse effect on the Company. There can be no assurance that additional future developments, administrative actions or liabilities relating to 4 environmental matters will not have a material adverse effect on the Company's financial condition or results of operations. Teledyne performs work on a number of contracts with the Department of Defense and other agencies and departments of the U.S. Government. Such business has certain inherent risks that could have a material effect on the Company's business, results of operations and financial condition, including the following: (1) U.S. Government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds for a given program on a fiscal-year basis even though contract performance may take more than one year. Consequently, at the outset of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. The U.S. defense budget has been declining in real terms since the mid-1980's, resulting in some delays in new program starts, program stretch-outs and program cancellations, and future significant declines may occur; (2) Most of Teledyne's U.S. Government contracts are, by their terms, subject to termination by the U.S. Government either for its convenience or for the default of the contractor. Termination-for-convenience provisions provide only for the recovery by Teledyne of costs incurred or committed, settlement expenses, and profit on work completed prior to termination. Termination-for-default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source; (3) Teledyne obtains many U.S. Government prime and sub contracts through the process of competitive bidding. There can be no assurance that Teledyne will continue to be successful in having its bids accepted or, if accepted, that awarded contracts will generate sufficient sales to result in profitability for Teledyne's government contracting businesses; (4) A number of Teledyne's U.S. Government prime and sub contracts are fixed price-type contracts, with the inherent risk that actual performance cost may exceed the contract price. This is particularly true where the contract was awarded and the price finalized in advance of final completion of design (which may result in unforeseen technological difficulties and/or cost overruns); and (5) Teledyne, like other government contractors, has been and is presently subject to various audits, reviews and investigations (including private party "whistleblower"lawsuits) relating to its compliance with federal and state laws. In addition, Teledyne has adopted a rigorous compliance program, which from time to time surfaces issues that lead to voluntary disclosures to the U.S. Government. Generally, claims arising out of these U.S. Government inquiries and voluntary disclosures 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 Teledyne, 5 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. In addition, substantial amounts may be expended in defending such charges and in damages, fines and penalties if such charges are proven or result in negotiated settlements. It is anticipated that export sales will account for a significant percentage of the Company's sales. Among the risks associated with export sales are export controls, changes in legal and regulatory requirements, policy changes affecting the markets for the Company's products, changes in tax laws and tariffs, exchange rate fluctuations (which may affect sales to foreign customers and the value of, and profits earned on, such sales when translated into U.S. dollars), political and economic instability, accounts receivable collection, and the seasonality of foreign sales. Any of these factors could have a material adverse effect on the Company's business, results of operations and financial condition. Inherent Uncertainties Relating to Certain Effects of the Combination ------------------------------------------ The success of the Combination in enhancing long-term stockholder value depends in part on the ability of the respective managements of Allegheny Ludlum and Teledyne to coordinate the operations of their two substantial business enterprises. As in every business combination, such coordination will require the dedication of management resources, which may temporarily divert attention from the day-to-day business of the Company. The difficulties of coordination may be increased by the necessity of managing geographically separated organizations and by the fact that three of Teledyne's segments engage in businesses in which Allegheny Ludlum has never engaged. There can be no assurance that the coordination necessary to maximize the benefits of the Combination will be wholly realized. In considering the Combination, the senior managements of Allegheny Ludlum and Teledyne have identified reductions of at least $85 million per year in pre-tax expenses and increases of at least $50 million per year in after-tax cash flow which they believe can be achieved, without taking into account or attempting to quantify any of the incremental operating profits or other cost savings expected to be realized over time through the Combination. There can be no assurance that the Company will be able to realize, or do so within any particular time frame, the expected cost reductions and cash-flow increases (a substantial portion of which are based on the ability to merge the respective pension plans of Allegheny Ludlum and Teledyne and use the surplus created by such merger to meet both the current underfunding in Allegheny Ludlum's plans and its obligations for 6 retiree health benefits) or generate additional revenue to offset any unanticipated inability to realize such expected cost reductions and cash-flow increases. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. ----------------------------------------------------- (a) The following financial statements of Allegheny Ludlum Corporation are filed as part of this Current Report on Form 8-K: Consolidated Statement of Income for the years ended December 31, 1995, January 1, 1995 and January 2, 1994 Consolidated Balance Sheets at December 31, 1995 and January 1, 1995 Consolidated Statement of Cash Flows for the years ended December 31, 1995, January 1, 1995 and January 2, 1994 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Accountants Consolidated Statements of Income for the six month periods ended June 30, 1996 and July 2, 1995 Consolidated Balance Sheet at June 30, 1996 Consolidated Statements of Cash Flows for the six month periods ended June 30, 1996 and July 2, 1995 Notes to Consolidated Financial Statements The following financial statements of Teledyne, Inc. are filed as part of this Current Report on Form 8-K: Consolidated Balance Sheets at December 31, 1995 and 1994 Consolidated Statements of Operations for the years ended December 31, 1995, 1994 and 1993 7 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 Report of Arthur Andersen LLP, Independent Public Accountants Notes to Consolidated Financial Statements Consolidated Balance Sheet at June 30, 1996 Consolidated Statements of Operations for the six month periods ended June 30, 1996 and 1995 Consolidated Statements of Cash Flows for the six month periods ended June 30, 1996 and 1995 Notes to Consolidated Financial Statements (b) The following unaudited pro forma condensed combined financial information is filed as part of this Current Report on Form 8-K: Unaudited Pro Forma Condensed Combined Financial Information Unaudited Pro Forma Consolidated Balance Sheet at June 30, 1996 Unaudited Pro Forma Consolidated Statement of Income for the six months ended June 30, 1996 Unaudited Pro Forma Consolidated Statement of Income for the six months ended June 30, 1995 Unaudited Pro Forma Consolidated Statement of Income for the year ended December 31, 1995 Unaudited Pro Forma Consolidated Statement of Income for the year ended December 31, 1994 8 Unaudited Pro Forma Consolidated Statement of Income for the year ended December 31, 1993 Notes to Pro Forma Consolidated Financial Information (c) The following Exhibit is incorporated by reference as part of this Current Report on Form 8-K: Exhibit No. Description ----------- ----------- 2.1 Agreement and Plan of Merger and Combination dated April 1, 1996, as amended and restated, among Allegheny Teledyne Incorporated, Allegheny Ludlum Corporation, ALS Merger Corporation, Teledyne, Inc. and TDY Merger, Inc. (Incorporated by reference to Exhibit 2.1 to the Registration Statement of Allegheny Teledyne Incorporated on Form S-4, Registration No. 333-8235.) 9 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (In thousands of dollars except per share amounts)
December 31, January 1, January 2, 1995 1995 1994 ------------ ---------- ---------- Net Sales $1,494,302 $1,076,871 $1,100,187 Costs and expenses: Cost of products sold 1,173,374 915,039 877,662 Research, development and technology 46,180 36,545 41,901 Commercial and administrative 55,290 45,752 46,048 Depreciation and amortization 40,525 38,167 30,708 ---------- ---------- ---------- 1,315,369 1,035,503 996,319 ---------- ---------- ---------- Income from Steel Operations 178,933 41,368 103,868 Operating earnings from assets held for sale 11,536 - - Other income (expense): Interest expense - net (1,516) (6,003) (2,638) (Loss) gain from limited partnership - (2,590) 15,740 Other income - net 1,794 167 1,996 ---------- ---------- ---------- 11,814 (8,426) 15,098 ---------- ---------- ---------- Income before Income Taxes and Extraordinary Loss 190,747 32,942 118,966 Income Taxes 75,952 14,730 48,206 ---------- ---------- ----------
10 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (Continued) (In thousands of dollars except per share amounts)
December 31, January 1, January 2, 1995 1995 1994 ------------ ---------- ---------- Income before Extra- ordinary Loss 114,795 18,212 70,760 Extraordinary Loss on Early Retirement of Debt, Net of Income Tax Benefit of $1,950 (2,924) - - ---------- ---------- ---------- Net Income $ 111,871 $ 18,212 $ 70,760 ========== ========== ========== Per Common Share: Income before extraordinary loss $ 1.66 $ .26 $ 1.06 Extraordinary loss (.04) - - ---------- ---------- ---------- Net Income $ 1.62 $ .26 $ 1.06 ========== ========== ==========
See notes to consolidated financial statements. 11 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands of dollars)
December 31, January 1, 1995 1995 ------------ ---------- ASSETS Current Assets: Cash and cash equivalents $ 70,913 $ 11,185 Trade receivables, less allowances for doubtful accounts of $3,873 and $3,715 137,016 141,042 Inventories 236,459 232,379 Prepaid expenses and other current assets 9,886 11,035 ---------- ---------- Total Current Assets 454,274 395,641 Properties, plants and equipment - net 451,623 464,977 Cost in excess of net assets acquired 130,103 133,862 Deferred income taxes 44,670 49,027 Assets held for sale 46,477 37,738 Other assets 17,125 13,453 ---------- ---------- Total Assets $1,144,272 $1,094,698 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,941 $ 1,993 Accounts payable 93,464 96,417 Accrued compensation and benefits 60,892 46,115 Deferred income taxes 8,962 5,527 Income taxes 3,935 1,596 Other accrued expenses 14,293 18,632 ---------- ---------- Total Current Liabilities 183,487 170,280 Long-term debt, less current portion 181,157 133,097 Pensions 105,699 135,758 Postretirement benefit liability 265,559 267,136 Other 32,922 26,721 ---------- ---------- Total Liabilities 768,824 732,992 ========== ========== 12 Shareholders' Equity: Preferred stock, par value $1: authorized--50,000,000 shares; issued--none Common stock, par value $.10: authorized--250,000,000 shares; issued--72,878,242 shares (outstanding--67,106,871 and 70,650,571 shares) 7,288 7,288 Additional capital 271,473 270,571 Retained earnings 214,128 136,027 Equity adjustment related to minimum liability for pension plans (14,727) (20,682) Common stock in treasury at cost --5,771,371 and 2,227,671 shares (102,714) (31,498) ---------- ---------- Total Shareholders' Equity 375,448 361,706 ========== ========== Total Liabilities and Shareholders' Equity $1,144,272 $1,094,698 ========== ==========
See notes to consolidated financial statements. 13 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands of dollars)
December 31, January 1, January 2, Fiscal Year Ended 1995 1995 1994 ----------------- ------------ ---------- ---------- Cash flows from operating activities: Net income $ 111,871 $ 18,212 $ 70,760 Adjustments to reconcile net income to cash flow from operating activities: Depreciation and amortization 40,525 38,167 30,708 Loss (gain) from limited partnership - 2,590 (15,740) Deferred taxes 3,485 3,141 (3,143) Net reinvested earnings of assets held for sale (8,739) - - Extraordinary loss on early retirement of debt 2,924 - - Change in operating assets and liabilities: Long-term pension liability (19,330) (13,385) (10,840) Long-term post- retirement liability (1,577) 2,876 18,236 Deferred employee benefits 6,611 (3,118) 4,185 Trade receivables 4,026 (30,080) 359 Inventories (4,080) 22,385 15,441 Trade payables (2,953) 12,665 1,047 Income taxes payable 3,525 (5,566) (5,191) Net change in other current assets and current liabilities 19,493 (14,036) (541) Other changes (738) 7,343 529 ---------- ----------- ----------- Cash Flows From Operating Activities 155,043 41,194 105,810 14 Cash flows from investing activities: Purchases of properties, plants and equipment (30,863) (52,738) (50,446) Disposals of properties, plants and equipment 1,148 235 242 Sales of short-term investments - 50,466 21,649 Increase in limited partnership investment - - (5,437) Limited partnership distribution 346 - 22,822 Increase in notes receivable (1,175) (160) (892) Payments related to the 1993 acquisition primarily debt payment - (25,000) (57,800) ---------- ----------- ----------- Cash Used by Investing Activities (30,544) (27,197) (69,862) Cash flows from financing activities: Issuance of debentures 150,000 - - Payments on long-term debt (101,992) (6,938) (7,495) Dividends paid (33,893) (33,993) (31,571) Purchases of treasury stock (75,562) (10,910) (1,307) Debt prepayment premium (4,110) - - Employee stock plans 786 922 1,095 ----------- ----------- ----------- Cash Used by Financing Activities (64,771) (50,919) (39,278) ----------- ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents 59,728 (36,922) (3,330) Balance of cash and cash equivalents at beginning of year 11,185 48,107 51,437 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year $ 70,913 $ 11,185 $ 48,107 =========== =========== ===========
See notes to consolidated financial statements. 15 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Nature of Business ------------------ The Company is one of the world's leading manufacturers of specialty materials and one of the largest domestic producers of stainless steel. The Company manufactures stainless steel sheet, strip, plate, foil, welded tubing and stampings; silicon electrical steel sheet and strip; and other specialty steel and specialty metals alloys, including tool steels, magnetic, thermostatic and electronic sheet and strip, and high-temperature alloys. Common end uses of specialty steel include automobiles, appliances, communications and electronics equipment, marine equipment, electric power generating and distribution equipment, environmental equipment, home utensils and cutlery, construction products, tools, dies, food and chemical processing equipment, medical and health equipment and aircraft and defense equipment. The Company's products are sold worldwide. Estimates --------- The use of estimates is inherent in the preparation of financial statements in conformity with generally accepted accounting principles. Consolidation ------------- The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated. Business Segment ---------------- The Company operates in a single business segment, specialty steel. Cash and Cash Equivalents ------------------------- Cash includes currency on hand and demand deposits with financial institutions. Cash equivalents are short-term, highly liquid investments both readily convertible to known amounts of cash and so near maturity, three months or less, that there is insignificant risk of fluctuations in value because of changes in interest rates and thus the carrying amounts approximate market. 16 Accounts Receivable ------------------- The Company markets its products to a diverse customer base, principally throughout the United States. Trade credit is extended based upon evaluations of each customer's ability to perform its obligations, which are updated periodically. Credit losses are provided for in the financial statements and have been within management's expectations. Inventories ----------- Inventories are valued at the lower of cost or market. Cost for most inventories is determined by the last-in, first-out (LIFO) method. Inventories not on LIFO (1995 - $24,588,000; 1994 - $25,031,000) are determined using the average cost method. Properties, Plants and Equipment -------------------------------- Properties, plants and equipment are carried at cost. Depreciation is computed using the straight-line method at rates considered sufficient to amortize the costs over the estimated service lives. Depreciation for income tax purposes is computed principally using accelerated methods. Taxes on Income --------------- Provisions for income taxes include deferred taxes resulting from temporary differences in income for financial and tax purposes using the liability method. Such temporary differences result primarily from differences in the carrying value of assets and liabilities. Fiscal Year-End --------------- The Company's fiscal year ends on the Sunday nearest to December 31. Reclassifications ----------------- Certain amounts in the prior year financial statements have been reclassified to conform to the 1995 presentation. 17 Net Income per Share of Common Stock ------------------------------------ Net income per share is based upon the weighted average number of shares of common stock outstanding. The weighted average number of shares was 69,246,949 for the fiscal year ended December 31, 1995, 70,827,362 for the fiscal year ended January 1, 1995 and 66,614,353 for the fiscal year ended January 2, 1994. Accounting Pronouncements ------------------------- FAS No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" and FAS No. 123, "Accounting for Stock-based Compensation" were issued in 1995. The statements are not expected to have a material impact on the Company. The Company intends to continue to account for stock-based compensation under Accounting Principles Board Opinion No. 25 as allowed by FAS No. 123. Note 2 - Inventories (In thousands of dollars)
December 31, January 1, 1995 1995 ------------ ---------- Raw materials $ 63,994 $ 52,332 Work-in-process and finished products 249,139 213,282 Supplies 16,515 16,048 ---------- ---------- Total inventories at current cost 329,648 281,662 Less allowance to reduce current cost values to LIFO basis 93,189 49,283 ---------- ---------- Total Inventories $ 236,459 $ 232,379 ========== ==========
Certain LIFO inventory quantities were reduced, resulting in a liquidation of items carried at costs that prevailed in prior years. The effect of the liquidations was to increase net income by approximately $32,000, $543,000 and $1,531,000 in 1995, 1994 and 1993, respectively. The Company enters into raw material (principally nickel) future contracts from time to time to hedge its exposure to price fluctuations. Gains and losses on hedged contracts are deferred and 18 recognized in cost of sales upon expiration of the hedged period. These contracts are not significant to the Company's total raw material purchases and are not material from a financial point of view. Note 3 - Properties, Plants and Equipment (In thousands of dollars)
December 31, January 1, 1995 1995 ------------ ---------- Land $ 8,267 $ 8,220 Buildings 65,174 64,679 Machinery and equipment 612,729 591,277 ---------- ---------- 686,170 664,176 Less allowance for depreciation and amortization 234,547 199,199 ---------- ---------- Total Properties, Plants and Equipment $ 451,623 $ 464,977 ========== ==========
Note 4 - Credit Agreement and Long-Term Debt Credit Agreement ---------------- The Company's credit agreement with a group of banks provides for borrowings of up to $100,000,000 on a revolving credit basis. Interest is payable at prime or other alternative interest rate bases, at the Company's option. The annual facility fee is 1/8%. The revolving credit facility was not used in 1995. The credit agreement has various covenants which limit the Company's ability to dispose of properties and merge with another corporation. The Company is also required to maintain certain financial ratios as defined in the agreement which can also limit the amount of dividend payments and share repurchases. Under the most restrictive requirement, 100% of retained earnings are currently free of restrictions pertaining to cash dividend distributions and share repurchases. Borrowings outstanding under the credit agreement are unsecured. 19 Debentures ---------- In December of 1995, the Company issued $150 million of 6.95% debentures due December 15, 2025. In December of 1995, a portion of the proceeds from this issue was used to extinguish the Company's $100 million of 5 7/8% convertible subordinated debentures, which were scheduled to mature in 2002, at a call price of 104.11%. This transaction resulted in an extraordinary loss on early retirement of debt of $2,924,000 net of income tax benefit of $1,950,000. Other ----- The industrial revenue bonds and capital lease obligations consist of 11 separate issues at December 31, 1995. Nine issues (aggregating $23,046,000) have an average interest rate of 4.8%, and two issues ($10,052,000) have variable interest rates, ranging from 2.50% to 6.3%. The average interest rate for all outstanding issues was 4.8% in 1995, 4.8% in 1994 and 4.6% in 1993. The variable rate obligations are subject to remarketing agreements, which provide that the bondholder may present the bonds to a remarketing agent for purchase prior to the stated maturity date. Bonds presented to the remarketing agent are then resold in the bond market. Long-term debt consists of the following:
December 31, January 1, (In thousands of dollars) 1995 1995 ------------ ---------- 6.95% debentures due 2025 $ 150,000 $ - 5 7/8% convertible subordinated debentures due 2002 - 100,000 Industrial revenue bonds due 1996 through 2007 17,963 19,425 Capital lease obligations under industrial revenue bonds due 1996 through 2007 15,135 15,665 ---------- ---------- 183,098 135,090 Less current portion 1,941 1,993 ---------- ---------- Total long-term debt $ 181,157 $ 133,097 ========== ==========
Properties, plants and equipment include the following amounts for leases that have been capitalized: 20
December 31, January 1, (In thousands of dollars) 1995 1995 ------------ ---------- Land and buildings $ 2,693 $ 2,693 Machinery 18,054 18,054 ----------- ---------- 20,747 20,747 Less allowance for amortization 10,368 9,218 ----------- ---------- Total leases $ 10,379 $ 11,529 =========== ==========
Amortization of leased assets is included in depreciation and amortization expense. Scheduled maturities of all long-term obligations for the five years succeeding December 31, 1995 are $1,941,000 in 1996, $1,914,000 in 1997, $1,974,000 in 1998, $1,499,000 in 1999 and $1,320,000 in 2000. Interest expense was $8,260,000 in 1995, $8,515,000 in 1994 and $8,668,000 in 1993. Interest and commitment fees paid amounted to $9,630,000 in 1995, $8,448,000 in 1994 and $8,149,000 in 1993. Note 5 - Pension Plans and Other Postemployment Benefits The Company and its subsidiaries have several defined benefit pension plans and several defined contribution plans, which cover substantially all of their employees. Benefits under the defined benefit pension plans are generally based on years of service and the employee's average annual compensation in the five consecutive years of the ten years prior to retirement in which such earnings were the highest. The Company funds at least the amount necessary to meet the minimum funding requirements of ERISA and the Internal Revenue Code. The following table sets forth the funded status and amount recognized for the defined benefit pension plans in the consolidated balance sheets: 21
December 31, January 1, (In thousands of dollars) 1995 1995 ------------ ---------- Actuarial present value of accumulated benefit obligations, including vested benefits of $570,243 in 1995 and $507,565 in 1994 $ 608,300 $ 535,057 ---------- ---------- Actuarial present value of projected benefit obligations for services rendered to date 673,824 600,668 Less plan assets at fair value, primarily listed stocks, government securities and pooled investment funds 504,519 393,048 ---------- ---------- Projected Benefit Obligations in Excess of Plan Assets 169,305 207,620 Unrecognized net loss from past experience different from assumed (49,666) (60,651) Unrecognized prior service costs (47,972) (48,518) Additional minimal liability 34,032 44,761 ---------- ---------- Pension Liabilities $ 105,699 $ 143,212 ========== ==========
Pension liabilities are included in the balance sheets as follows:
December 31, January 1, (In thousands of dollars) 1995 1995 ------------ ---------- Accrued compensation and benefits $ - $ 7,454 Pensions 105,699 135,758 ---------- --------- Total Pension Liabilities $ 105,699 $ 143,212 ========== =========
A summary of the net pension cost for the defined benefit pension plans is as follows: 22 (In thousands of dollars)
1995 1994 1993 ---- ---- ---- Service cost - benefits earned during the period $ 6,506 $ 7,520 $ 4,751 Interest cost on projected benefit obligations 46,101 40,150 33,916 Actual return on plan assets (111,014) 3,674 (28,935) Net amortization and deferral 82,377 (35,803) 1,058 ---------- ---------- ------------ Net Pension Cost $ 23,970 $ 15,541 $ 10,790 ========== ========== ============
The average discount rate used in determining the actuarial present value of the projected benefit obligations was 7.0% in 1995 and 8.0% in 1994. The rates of increase of future years' compensation levels ranged from 3% to 4% in 1995, 1994 and 1993. The expected long-term rate of return on plan assets was 9% in 1995, 1994 and 1993. On November 10, 1988, the Board of Directors amended the salaried defined benefit pension plan to provide that no benefits would accrue thereunder on or after January 1, 1989. At the same time, the Board also adopted, effective January 1, 1989, a defined contribution plan. Pension costs for this plan were $5,780,000 in 1995, $5,165,000 in 1994 and $4,746,000 in 1993. The Company has guaranteed employees who meet certain age and service criteria that at retirement their aggregate benefit from the salaried defined benefit pension plan and the defined contribution plan will not be less than the benefit which would have been payable from the salaried defined benefit pension plan if such plan had not been amended. Other Postretirement Benefit Plans ---------------------------------- The Company sponsors several defined benefit postretirement plans covering most salaried and hourly employees. The plans provide health care and life insurance benefits for eligible retirees. The 23 basic health care plans are noncontributory, and the major medical options are contributory, with retiree contributions adjusted periodically. The life insurance plans are generally noncontributory. The Company funds postretirement benefit obligations for hourly employees represented by the USWA based on the available funds and amounts allowable by the Internal Revenue Code. The following table sets forth the postretirement benefit plans' combined funded status reconciled with the amounts recognized in the balance sheet:
Health Life Care Insurance Total ------ --------- ----- (In thousands of dollars) December 31, 1995 ----------------- Accumulated postretirement benefit obligation (APBO): Retirees $186,932 $ 15,486 $ 202,418 Fully eligible active participants 61,481 3,906 65,387 Other active participants 115,027 4,561 119,588 -------- ---------- ---------- 363,440 23,953 387,393 Less plan assets at fair value, primarily investment in limited partnership funds 45,645 - 45,645 -------- ----------- ---------- Accumulated postretirement benefit obligations in excess of plan assets 317,795 23,953 341,748 Unrecognized net gain (52,853) (2,149) (55,002) Unrecognized prior service cost (21,167) (20) (21,187) Accrued postretirement benefit cost $243,775 $ 21,784 $ 265,559 -------- ----------- ----------
24
Health Life Care Insurance Total ------ --------- ----- (In thousands of dollars) January 1, 1995 --------------- Accumulated postretirement benefit obligation (APBO): Retirees $ 159,089 $ 13,731 $ 172,820 Fully eligible active participants 44,560 3,106 47,666 Other active participants 88,613 3,686 92,299 --------- ----------- ---------- 292,262 20,523 312,785 Less plan assets at fair value, primarily investment in limited partnership funds 31,834 - 31,834 --------- ----------- ---------- Accumulated postretirement benefit obligations in excess of plan assets 260,428 20,523 280,951 Unrecognized net gain 4,511 295 4,806 Unrecognized prior service cost (18,742) 121 (18,621) --------- ----------- ---------- Accrued postretirement benefit cost $ 246,197 $ 20,939 $ 267,136 ========= =========== ==========
The Company's Chairman serves on the advisory boards of the limited partnership funds. The discount rate used in determining the APBO was 7.0% at December 31, 1995 and 8.0% at January 1, 1995. The expected long-term rate of return on plan assets ranged from 9% to 15% in 1995 and 15% in 1994. 25 Net postretirement benefit expenses included the following components:
Health Life Care Insurance Total ------ --------- ----- (In thousands of dollars) 1995 ---- Service cost $ 5,857 $ 256 $ 6,113 Interest cost 22,124 1,509 23,633 Actual return on plan assets (419) - (419) Net amortization and deferral (1,751) 12 (1,739) ---------- ---------- ---------- Net periodic postretirement benefit expense $ 25,811 $ 1,777 $ 27,588 ========== ========== ==========
Health Life Care Insurance Total ------- --------- ------ (In thousands of dollars) 1994 ---- Service cost $ 6,230 $ 263 $ 6,493 Interest cost 19,390 1,498 20,888 Actual return on plan assets (1,516) - (1,516) Net amortization and deferral 47 77 124 --------- ---------- ---------- Net periodic postretirement benefit expense $ 24,151 $ 1,838 $ 25,989 ========= ========== ==========
26
Health Life Care Insurance Total ------ --------- ----- (In thousands of dollars) 1993 ---- Service cost $ 4,700 $ 206 $ 4,906 Interest cost 18,679 1,424 20,103 --------- ---------- ---------- Net periodic postretirement benefit expense $ 23,379 $ 1,630 $ 25,009 ========= ========== ==========
The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care plans is 10.3% for 1996 and is assumed to decrease to 5.25% by 2002 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. If the assumed health care cost trend rates were increased by one percentage point in each year, this would increase the APBO for health care plans as of December 31, 1995 by $54,976,000 and the aggregate of service and interest cost components of net periodic postretirement benefit expense for 1995 by $4,416,000. The actual cash payments of retiree health care and life insurance benefits totaled approximately $15,870,000 in 1995, $13,064,000 in 1994 and $9,295,000 in 1993. Note 6 - Shareholders' Equity
Common Additional Retained Treasury Stock Capital Earnings Shares ------- ---------- -------- --------- (In thousands of dollars except per share amounts) Balance at January 3, 1993 $6,722 $160,876 $113,169 $ (23,873) -------------------------- ------ -------- -------- --------- Net income 70,760 Dividends on common stock at $.47 per share (31,571) Common stock issued 516 107,746 Employee stock plans 490 (100) 2,297 27 Purchase of 65,500 treasury shares at cost (1,307) ------ -------- -------- --------- Balance at January 2, 1994 7,288 269,112 152,258 (22,883) ------ -------- -------- --------- Net income 18,212 Dividends on common stock at $.48 per share (33,993) Employee stock plans 1,459 (450) 2,295 Purchase of 571,300 shares at cost (10,910) ------- -------- -------- --------- Balance at January 1, 1995 7,288 270,571 136,027 (31,498) ------- -------- -------- --------- Net income 111,871 Dividends on common stock at $.49 per share (33,893) Employee stock plans 902 123 4,346 Purchase of 3,826,900 treasury shares at cost (75,562) ------- -------- -------- --------- Balance at December 31, 1995 $ 7,288 $271,473 $214,128 $(102,714) ======= ======== ======== =========
Preferred Stock --------------- The authorized preferred stock may be issued in one or more series, with designations, powers and preferences as shall be designated by the Board of Directors. At December 31, 1995, there were no shares of preferred stock issued. Common Stock ------------ The Board of Directors adopted and the shareholders approved the 1987 Stock Option Incentive Plan ("Plan") in March, 1987. The Plan, which expires January 1, 1997, provides for the granting of stock options and stock appreciation rights ("Awards") of up to 2,700,000 shares of common stock to key employees. Awards may be granted under the Plan at a price not less than the fair market value of the stock as determined by the Personnel and Compensation Committee ("Committee") on the date the Awards are granted. Awards will not be immediately exercisable and vesting of the Awards will be established at the date of each grant but generally will not be more rapid than the 28 rate of one-third of the number of shares in the third, fourth, and fifth years following the date of the Award. Transactions under the Plan are summarized as follows:
Stock Stock Appreciation Price Options Rights Range ------- ------------ ----- Balance at January 3, 1993 999,152 11,250 Granted 620,400 - $ 22.94 Exercised (153,489) (11,250) 8.33-11.08 Cancelled (14,601) - 10.75 --------- ---------- ----------- Balance at January 2, 1994 1,451,462 - Granted 33,068 - 19.88 Exercised (119,731) - 8.33-11.88 Cancelled (44,935) - 10.75-22.94 --------- ---------- ----------- Balance at January 1, 1995 1,319,864 - Granted 13,801 - 17.00 Exercised (109,025) - 8.33-11.08 Cancelled (23,067) - 10.75-22.94 --------- ---------- ----------- Balance at December 31, 1995 1,201,573 - $8.33-22.94 ========= ========== ===========
At December 31, 1995 there were 579,704 options for shares exercisable under the Plan. In March 1987, the Board of Directors adopted and the shareholders approved a Performance Share Plan for Key Employees, which provides that the Chief Executive Officer may establish certain performance objectives for a period established by the Board. The Committee, with the advice of the Chief Executive Officer, may grant performance units payable in common stock and/or cash to key employees. Up to 900,000 shares of common stock were reserved for the Plan. Upon full or partial achievement of the performance objectives for the period, the full or partial dollar amount and/or number of shares of common stock credited to an employee's account will be distributed to the employee in three equal annual installments. A three-year award period under the Performance Share Plan began in 1991 and 97% of the performance objectives to be achieved during this award period were achieved. Payments equal 29 to 92.5% of the base value of awarded units began in 1994 and ended in February 1996. Forty-three participants held an aggregate of 69,050 performance units. The base value of each unit consisted of $50 in cash and four shares of common stock. In November 1994, the Board of Directors established the 1995-1996 award period under the Performance Share Plan and the performance objectives to be achieved during the 1995-1996 award period were set. Forty-five employees hold an aggregate of 76,000 performance units for the 1995-1996 award period. The base value of each unit consists of $50 in cash and four shares of common stock. In 1994, the Board of Directors adopted and the shareholders approved a Stock Acquisition and Retention Plan. The plan provides participating officers with an opportunity to purchase additional shares of common stock directly from the Company and provides for the grant of one share of restricted stock for each two shares purchased under the plan and one share of restricted stock for each two shares of common stock already owned by a participant that are designated as subject to the plan. In general, the restricted shares will vest only if the participant retains the shares that are purchased and/or designated by the participant as subject to the plan for five years. The expense related to the plan is being recognized over the vesting period. A maximum of 1,000,000 shares is available for issuance under the plan. In 1995, 60,238 restricted shares of common stock were issued under the plan and in 1994 17,681 restricted shares were issued under the plan. In 1993, the Board of Directors adopted and the shareholders approved a Director Share Incentive Plan, which provides for the annual delivery to non-employee directors of the Company of shares of common stock (rounded to the nearest whole share) with a fair market value equal to $5,000. A total of 200,000 shares have been reserved for the plan. Pursuant to the plan, on January 3, 1995, each of the Company's eleven non-employee directors received 268 shares of common stock and on January 2, 1996, each of the Company's twelve non-employee directors received 267 shares of common stock. Note 7 - Fair Values of Financial Instruments Fair Values of Financial Instruments ------------------------------------ The following methods and assumptions were used to estimate the fair value of financial instruments. 30 Cash and cash equivalents ------------------------- The carrying amount approximates fair value because of the short maturity of those instruments. Debentures ---------- The fair values of the 6.95% debentures and 5 7/8% convertible subordinated debentures are based on quoted market prices. Long-term debt -------------- The fair values of long-term debt obligations are established from the market value of each issue if available or from market values of similar issues. The carrying amounts and fair values of the Company's financial instruments are as follows:
December 31, 1995 January 1, 1995 Carrying Fair Carrying Fair Amount Value Amount Value -------- -------- -------- -------- (In thousands of dollars) Cash and cash equivalents $ 70,913 $ 70,913 $ 11,185 $ 11,185 6.95% debentures in 1995 and 5 7/8% convertible subordinated debentures in 1994 150,000 150,000 100,000 100,050 Long-term debt 33,098 33,110 35,090 34,133 -------- -------- -------- --------
31 Note 8 - Taxes on Income Income taxes (credits) consist of the following:
(In thousands of dollars) 1995 1994 1993 ---- ---- ---- Current: Federal $60,143 $ 9,411 $40,653 State 12,324 2,178 10,696 ------- ------- ------- Subtotal current expense 72,467 11,589 51,349 ------- ------- ------- Deferred: Federal 1,390 571 (1,828) State 2,095 2,570 (1,315) ------- ------- ------- Subtotal deferred expense 3,485 3,141 (3,143) ------- ------- ------- Total income tax expense $75,952 $14,730 $48,206 ------- ------- ------- Income taxes paid $69,642 $14,385 $56,649 ======= ======= =======
The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:
Percent of pretax income 1995 1994 1993 ------------------------ ---- ---- ---- Federal tax rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax benefit 4.9 9.4 5.1 Amortization of cost in excess of net assets acquired .6 3.8 - Other (.7) (3.5) 0.4 ---- ---- ---- Total effective income tax rate 39.8% 44.7% 40.5% ===== ===== =====
32 Deferred tax assets and/or liabilities result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. They represent future tax benefits or costs to be recognized when those temporary differences reverse. The categories of assets and liabilities which have resulted in differences in the timing of the recognition of income and/or expense are as follows:
Deferred Tax Assets ------------------- (In thousands of dollars) 1995 1994 ---- ---- Postretirement benefits other than pensions $104,553 $107,284 Deferred compensation and other benefit plans 60,238 71,604 Other items 19,733 18,524 -------- -------- Total deferred tax assets 184,524 197,412 Deferred Tax Liabilities ------------------------ Basis of property, plant and equipment - net 109,046 113,212 Inventory valuation - net 28,153 28,175 Other items 11,617 12,525 -------- ------- Total deferred tax liabilities 148,816 153,912 -------- ------- Net deferred tax asset $ 35,708 $ 43,500 ======== ========
33 Note 9 - Supplemental Operating Information Export sales were $87,000,000 in 1995, $73,000,000 in 1994 and $79,000,000 in 1993. Direct research and development expenditures aggregated $9,171,000 in 1995, $8,238,000 in 1994 and $9,170,000 in 1993. "Research, development and technology" in the income statement covers a broad range of activities throughout the Company. Approximately 70% of the Company's workforce are covered by various union contracts. None of the contracts expire within one year. Note 10 - Litigation As previously disclosed, the Company is a defendant in a case filed in 1989 by Allegheny International, Inc. in the United States District Court for the Western District of Pennsylvania which is being pursued by Sunbeam Corporation. The case involves a claim to recover a $5.5 million refund received by the Company in 1989 with respect to a federal income tax overpayment, plus interest. Immediately prior to the commencement of the trial of the case, Sunbeam withdrew with prejudice its related claims for reimbursement of various alleged insurance coverage costs in the amount of $.5 million plus interest. In August 1995, a jury verdict in favor of the Company was entered in this case which Sunbeam has appealed. The Company is vigorously defending the favorable decision. As previously announced, in June 1995, the U.S. Department of Justice commenced an action against the Company in the United States District Court for the Western District of Pennsylvania, asserting, in 64 claims, multiple violations of the federal Clean Water Act occurring at various times since 1987. The complaint seeks injunctive relief and assessment of penalties of up to $25,000 per day of violation. While it is too early to predict the outcome of the case, the Company believes that any costs or penalties should not be material to the financial condition of the Company or its results of operation. In addition, the Company is involved in various lawsuits from time to time arising in the ordinary course of business and otherwise. In management's opinion, the outcome of these matters will not have a material adverse effect on the Company's financial statements. Note 11 - Acquisition On November 10, 1993, the Company completed the acquisition of the stock of Athlone Industries, Inc. Athlone, through its 34 subsidiary, Jessop Steel Company, was primarily a manufacturer of specialty steels in plate form. The Company issued 5,153,376 shares of common stock in the transaction. The transaction is being accounted for as a purchase. The excess of the purchase price paid over the value of net assets acquired is being amortized over 40 years on a straight-line basis. Accumulated amortization was $7,656,000 and $4,224,000 at December 31, 1995 and January 1, 1995, respectively. Pro forma results, as if the transaction were completed at the beginning of 1993, are as follows: Sales $1,215,039,000 Net income $ 77,126,000 Earnings per share $ 1.09
The pro forma presentation is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place at the beginning of 1993 or of future results of the combined companies. In addition to Jessop Steel, the Company acquired Green River Steel Corporation and Reynolds Fasteners, Inc., as part of the Athlone acquisition. The Company has determined that these businesses do not meet its strategic objectives and decided that they would be held for sale. The recorded value for assets held for sale represents management's estimate of net realizable value and includes a reserve for estimated losses until disposition which is not material in relation to the Company's results of operations. Net income for these companies in the amount of $3,603,000, which resulted from the Company's successful efforts to improve the productivity and reduce the costs of these businesses, was excluded from the Company's 1994 results. In 1996, Reynolds Fasteners, Inc. was sold. The sale will not have a significant effect on the Company's results of operation. Cash flows for 1994 and 1993 do not include non-cash items related to the acquisition. 35 Note 12 - Quarterly Data (Unaudited) (In thousands of dollars except per share amounts)
Fiscal Quarter Ended -------------------------------------------- April 2 July 2 October 1 December 31 ------- ------ --------- ----------- Fiscal 1995 ----------- Net sales $395,332 $390,468 $373,631 $334,871 Cost of products sold 313,742 301,306 288,985 269,341 Operating income 46,474 53,142 48,461 30,856 Income before extraordinary loss 28,854 34,470 30,119 21,352 Extraordinary loss on early retirement of debt - - - (2,924) Net income 28,854 34,470 30,119 18,428 Net income per share: Primary Income before extraordinary loss $ .41 $ .49 $ .44 $ .32 Extraordinary loss - - - (.04) Net income $ .41 $ .49 $ .44 $ .28 Fully diluted $ .39 $ .47 $ .42 $ .28 Weighted average common shares outstanding 70,567,973 69,959,030 68,963,949 67,495,993 ---------- ---------- ---------- ----------
(In thousands of dollars except per share amounts)
Fiscal Quarter Ended -------------------------------------------- April 3 July 3(1) October 2 January 1 ------- ------ --------- ----------- Fiscal 1994 ----------- Net sales $313,932 $172,187 $262,255 $328,497 Cost of products sold 245,717 191,283 211,720 266,319 Operating income (loss) 35,747 (49,413) 20,913 34,121 Net income (loss) 18,118 (29,179) 10,328 18,945 36 Net income (loss) per share: Primary $.26 $(.41) $.14 $.27 Fully diluted $.25 $(.41) $.14 $.26 Weighted average common shares outstanding 70,938,937 70,792,035 70,787,897 70,790,579 ---------- ---------- ---------- ----------
(1) The USWA called a strike in the second quarter which lasted 10 weeks. 37 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors Allegheny Ludlum Corporation We have audited the accompanying consolidated balance sheets of Allegheny Ludlum Corporation and subsidiaries as of December 31, 1995 and January 1, 1995, and the related consolidated statements of income and cash flows for each of the three fiscal years in the period ended December 31, 1995. These financial statements are the responsibility of Allegheny Ludlum Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Allegheny Ludlum Corporation and subsidiaries at December 31, 1995 and January 1, 1995, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Pittsburgh, Pennsylvania January 30, 1996 38 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In thousands of dollars except per share amounts)
Fiscal Fiscal Six Months Six Months Ended Ended June 30, July 2, 1996 1995 ---------- ---------- NET SALES $691,655 $785,800 Costs and expenses: Cost of products sold 552,254 615,048 Research, development and technology 21,574 23,284 Commercial and administrative 27,158 28,356 Depreciation and amortization 22,843 19,496 -------- -------- 623,829 686,184 -------- -------- INCOME FROM STEEL OPERATIONS 67,826 99,616 Operating earnings from assets held for sale 1,876 7,268 Other income (expense): Interest expense - net (3,116) (876) Other - net 1,690 1,153 -------- -------- (1,426) 277 -------- -------- Income before income taxes 68,276 107,161 Income taxes 28,716 43,837 -------- -------- NET INCOME $ 39,560 $ 63,324 ======== ======== Per common share: Primary $.60 $.90 ======== ======== Fully diluted $.86 ======== Dividends declared per common share $.26 $.24 ======== ========
See notes to condensed consolidated financial statements. 39 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (in thousands of dollars)
June 30, 1996 ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 92,585 Trade receivables - net 145,525 Inventories (Note 2) 225,173 Prepaid expenses and other current assets 12,384 ---------- TOTAL CURRENT ASSETS 475,667 Properties, plans and equipment - net 442,102 Cost in excess of net assets acquired 128,384 Deferred income taxes 46,426 Other assets including assets held for sale 44,207 ---------- TOTAL ASSETS $1,136,786 ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 1,960 Accounts payable 70,782 Accrued compensation and benefits 55,175 Income taxes payable and deferred 10,098 Other accrued expenses 31,336 ---------- TOTAL CURRENT LIABILITIES 169,351 Long-term debt, less current portion 179,847 Pensions 108,834 Postretirement benefit liability 272,819 Other 29,279 ---------- TOTAL LIABILITIES 760,130
40 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (in thousands of dollars) (Continued)
June 30, 1996 ------------- SHAREHOLDERS' EQUITY: Preferred stock, par value $1: authorized--50,000,000 shares; issued--none Common stock, par value $.10: authorized--250,000,000 shares; issued--72,878,242 shares 7,288 Additional capital 271,348 Retained earnings 236,558 Equity adjustment related to minimum liability for pension plans (14,727) Common stock in treasury at cost-- 6,855,866 and 5,771,371 shares (123,811) ---------- TOTAL SHAREHOLDERS' EQUITY 376,656 ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,136,786 ==========
See notes to condensed consolidated financial statements. 41 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) (in thousands of dollars)
Fiscal Fiscal Six Months Six Months Ended Ended June 30, July 2, 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 39,560 $ 63,324 Adjustment to reconcile net income to cash flow from operating activities: Depreciation and amortization 22,843 19,496 Reinvested earnings from assets held for sale 329 (5,130) Deferred taxes (3,132) 3,015 Change in operating assets and liabilities: Long-term retirement liabilities 8,876 (12,988) Trade receivables (8,509) (15,181) Inventories 11,286 45,076 Trade payables (22,682) (13,268) Net change in other current assets and current liabilities (885) 20,275 Other changes (1,587) 3,163 --------- --------- CASH FROM OPERATING ACTIVITIES 46,099 107,782 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of properties, plants and equipment--net (11,624) (10,227) Proceeds from assets held for sale 24,602 - Long-term investments (4,535) 346 Notes receivable 218 (12) --------- --------- CASH FROM (USED BY) INVESTING ACTIVITIES 8,661 (9,893) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on long-term debt and capital leases (1,291) (1,278) Dividends paid (8,646) (8,480) Purchases of treasury stock (23,710) (30,023) Employee stock plans 559 262 --------- ---------
42 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED) (in thousands of dollars) (Continued)
Fiscal Fiscal Six Months Six Months Ended Ended June 30, July 2, 1996 1995 ---------- ---------- CASH USED BY FINANCING ACTIVITIES (33,088) (39,519) INCREASE IN CASH AND CASH EQUIVALENTS 21,672 58,370 Balance of cash and cash equivalents at beginning of period 70,913 11,185 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 92,585 $ 69,555 ========= =========
See notes to condensed consolidated financial statements. 43 ALLEGHENY LUDLUM CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1--FINANCIAL STATEMENTS This financial information should be read in conjunction with the financial statements and notes thereto for the fiscal year ended December 31, 1995. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal accruals) considered necessary for a fair presentation have been included. Operating results for the fiscal quarter and six months ended June 30, 1996 are not necessarily indicative of results of operations that may be expected for the fiscal year ending December 29, 1996. Net income per common share was computed based on the weighted average number of shares of common stock outstanding during the periods: 66,009,201 and 66,300,786 shares for the fiscal quarter and six months, respectively, ended June 30, 1996 and 69,959,030 and 70,263,501 shares for the fiscal quarter and six months, respectively, ended July 2, 1995. The Company's fiscal year and fiscal quarters end on the Sunday closest to the last day of the calendar month. NOTE 2--INVENTORIES Inventories consisted of the following:
June 30, December 31, 1996 1995 -------- ------------ (in thousands of dollars) Raw materials $ 38,426 $ 63,994 Work-in-process and finished products 253,431 249,139 Supplies 17,220 16,515 -------- -------- Total inventories at current cost 309,077 329,648 Less allowances to reduce current cost values to LIFO basis 83,904 93,189 44 -------- -------- $225,173 $236,459 ======== ========
Substantially all of the Company's inventories are determined by the LIFO method. NOTE 3--LITIGATION In June 1996, the United States Court of Appeals for the Third Circuit upheld a lower court ruling that found in favor of the Company in a case brought by Allegheny International, Inc. (AI) to cover a $5.5 million refund received by Allegheny Ludlum in 1989 with respect to a federal income tax overpayment. The case, which was brought in the United States District Court for the Western District of Pennsylvania, arose out of the 1980 management-led buyout of the Company from AI and was pursued by Sunbeam Corporation, the successor to AI following AI's bankruptcy reorganization. Sunbeam asked the Third Circuit for a rehearing which the Court denied. The Company intends to continue to vigorously defend the favorable decision. On June 28, 1995, the U.S. Department of Justice commenced an action against the Company in the United States District Court for the Western District of Pennsylvania, asserting, in 64 claims, multiple violations of the federal Clean Water Act occurring at various times since 1987. The complaint seeks injunctive relief and assessment of penalties of up to $25,000 per day of violation. While it is too early to predict the outcome of the case, the Company believes that any costs or penalties should not be material to the financial condition of the Company or its results of operations. NOTE 4--COMBINATION As previously announced, on April 1, 1996, Allegheny Ludlum and Teledyne, Inc. entered into an Agreement and Plan of Merger and Combination. Pursuant to this Agreement, Allegheny Ludlum and Teledyne would each become a subsidiary of a new corporation named Allegheny Teledyne Incorporated, each share of Allegheny Ludlum common stock would be converted into one share of Allegheny Teledyne common stock and each share of Teledyne common stock would be converted into 1.925 shares of Allegheny Teledyne common stock. The transaction is subject to approval by the shareholders of Allegheny Ludlum and Teledyne and other customary closing conditions. Special shareholder meetings of each company are scheduled for August 15, 1996. If shareholder approval is obtained, the Combination is expected to be consummated as soon as practicable following the shareholder meetings. 45 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 (In millions except share and per share amounts)
1995 1994 ---- ---- ASSETS ------ Current Assets: Cash and marketable securities $ 41.7 $ 29.7 Receivables 417.5 409.8 Inventories 229.4 196.9 Deferred income taxes 82.2 104.9 Prepaid expenses 17.3 16.5 --------- --------- Total current assets 788.1 757.8 Property and Equipment 304.3 304.3 Prepaid Pension Cost 386.6 332.7 Other Assets 127.2 82.9 --------- --------- $ 1,606.2 $ 1,477.7 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable $ 130.5 $ 162.0 Accrued liabilities 273.2 303.6 --------- --------- Total current liabilities 403.7 465.6 Long-Term Debt 380.0 356.6 Accrued Postretirement Benefits 276.3 275.9 Other Long-Term Liabilities 117.5 106.6 --------- --------- $ 1,177.5 $ 1,204.7 ========= ========= Redeemable Preferred Stock, $1.00 par value, 2,500,000 shares authorized, 2,209,122 shares issued and outstanding in 1995 $ 33.1 $ - --------- ---------
46 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994 (In millions except share and per share amounts) (Continued)
1995 1994 ---- ---- Shareholders' Equity: Common stock, $1.00 par value, 100,000,000 shares authorized, 55,781,423 shares in 1995 and 55,462,298 shares in 1994 issued and outstanding 55.8 55.5 Additional paid-in capital 41.4 35.3 Retained earnings 284.0 178.3 Other 14.4 3.9 --------- --------- Total shareholders' equity 395.6 273.0 --------- --------- $ 1,606.2 $ 1,477.7 ========= =========
The accompanying notes are an integral part of these statements. 47 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1995, 1994 and 1993 (In millions except per share amounts)
1995 1994 1993 ---- ---- ---- Sales $2,567.8 $2,391.2 $2,491.7 Costs and Expenses: Cost of sales 1,912.8 1,787.8 1,917.9 Selling and administrative expenses 430.1 576.3 468.5 Interest expense 42.3 43.5 45.1 ---------- -------- -------- 2,385.2 2,407.6 2,431.5 ---------- -------- -------- Earnings (Loss) before Other Income 182.6 (16.4) 60.2 Other Income, Net 67.6 12.7 53.1 ---------- -------- -------- Income (Loss) before Income Taxes, Extraordinary Loss and Cumulative Effect of Accounting Change* 250.2 (3.7) 113.3 Provision for Income Taxes 88.2 4.7 40.5 ---------- -------- -------- Income (Loss) before Extraordinary Loss and Cumulative Effect of Accounting Change 162.0 (8.4) 72.8 Extraordinary Loss on Redemption of Debt - - (3.7) Cumulative Effect of Accounting Change - - (185.6) ---------- --------- -------- Net Income (Loss) 162.0 (8.4) (116.5) Dividends on Preferred Stock 1.6 - - ---------- --------- -------- Net Income (Loss) Available to Common Shareholders $160.4 $(8.4) $(116.5) ========== ======== ========
48 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 1995, 1994 and 1993 (In millions except per share amounts) (Continued)
1995 1994 1993 ---- ---- ---- Income (Loss) Per Common Share: Income (loss) before extraordinary loss and cumulative effect of accounting change $2.88 $(0.15) $1.32 Extraordinary loss on redemption of debt - - (0.07) Cumulative effect of accounting change - - (3.35) ----------- --------- --------- Net Income (Loss) Per Common Share $2.88 $(0.15) $(2.10) =========== ========= =========
*Includes non-cash pension income of $80.7 million in 1995, $79.1 million in 1994 and $66.2 million in 1993. The accompanying notes are an integral part of these statements. 49 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994 and 1993 (In millions)
1995 1994 1993 ---- ---- ---- Operating activities: Net income (loss) $162.0 $(8.4) $(116.5) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 70.4 70.2 72.7 Increase in prepaid pension cost (53.9) (52.4) (58.2) Gain on sale of businesses (51.1) - - Decrease (increase) in deferred income taxes 38.8 41.0 (57.1) Decrease in accounts payable and accrued liabilities (20.4) (29.9) (53.9) Decrease (increase) in receivables (11.5) (82.3) 17.4 Decrease (increase) in inventories (8.9) (26.8) 21.8 Increase in accrued income taxes 8.9 - - Increase (decrease) in accrued post-retirement benefits 0.4 (1.6) 299.2 Gain on sale of Litton common stock - - (40.4) Other, net (12.5) (28.3) (1.7) -------- -------- -------- Net cash provided by (used in) operating activities 122.2 (118.5) 83.3 -------- -------- -------- Investing activities: Net decrease (increase) in short-term investments (5.6) 11.0 28.5 Sale of marketable securities - 121.4 163.5 Purchases of marketable securities - (8.0) (70.4) -------- -------- -------- Net sales (purchases) of marketable securities (5.6) 124.4 121.6 Proceeds from the sales of businesses 69.0 7.2 9.2 Purchases of property and equipment (62.9) (64.5) (81.2)
50 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995, 1994 and 1993 (In millions) (Continued)
1995 1994 1993 ---- ---- ---- Purchase of businesses (43.2) - (4.0) Proceeds from the sales of property and equipment 13.5 10.9 9.7 Collection of notes receivable from the sales of businesses 0.3 2.9 17.1 Other, net (14.4) (9.3) (11.6) -------- -------- -------- Net cash provided by (used in) investing activities (43.3) 71.6 60.8 -------- -------- -------- Financing activities: Increase (decrease) in checks outstanding (64.2) 51.7 7.9 Cash dividends (23.2) - (44.3) Increase (decrease) in long-term debt 8.5 (4.2) (101.6) Other, net 6.4 0.4 0.5 -------- -------- -------- Net cash provided by (used in) financing activities (72.5) 47.9 (137.5) -------- -------- -------- Increase in cash $ 6.4 $ 1.0 $ 6.6 ======== ======== ======== Noncash transactions: Preferred stock dividend on common stock $ 33.1 $ - $ - ======== ======== ======== Interest paid on long-term debt $ 38.3 $ 40.1 $ 41.7 ======== ======== ======== Income taxes paid (received) $ (14.6) $ 0.9 $ (2.6) ======== ======== ========
The accompanying notes are an integral part of these statements. 51 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 1995, 1994 and 1993 (In millions except per share amounts)
Additional Common Paid-In Retained Stock Capital Earnings Other Equity ----- --------- --------- ----- ------ Balance, December 31, 1992 $55.4 $34.5 $347.5 $3.7 $441.1 Net loss - - (116.5) - (116.5) Cash dividends on common stock ($0.80 per share) - - (44.3) - (44.3) Exercise of stock options - 0.4 - - 0.4 Currency translation adjustment - - - (0.2) (0.2) ------- ------- -------- ------- -------- Balance, December 31, 1993 55.4 34.9 186.7 3.5 280.5 Net loss - - (8.4) - (8.4) Exercise of stock options 0.1 0.4 - - 0.5 Net unrealized appreciation - - - 0.5 0.5 Currency translation adjustment - - - (0.1) (0.1) ------- -------- -------- ------- -------- Balance, December 31, 1994 55.5 35.3 178.3 3.9 273.0 Net income - - 162.0 - 162.0 Preferred stock dividends on common stock ($0.60 per share) - - (33.1) - (33.1) Cash dividends on common stock ($0.40 per share) - - (22.6) - (22.6) Cash dividends on preferred stock ($0.60 per share) - - (0.6) - (0.6) Exercise of stock options 0.3 6.1 - - 6.4 Net unrealized appreciation - - - 9.8 9.8 Currency translation adjustment - - - 0.7 0.7 ------- ------- ------- ------- -------- 52 Balance, December 31, 1995 $55.8 $41.4 $284.0 $14.4 $395.6 ======= ======= ======= ======= ========
The accompanying notes are an integral part of these statements. 53 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Shareholders and Board of Directors of Teledyne, Inc.: We have audited the accompanying consolidated balance sheets of Teledyne, Inc. (a Delaware corporation) and subsidiaries (the Company) as of December 31, 1995 and 1994 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teledyne, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As explained in Note 9 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 106 in 1993. /s/Arthur Andersen LLP Los Angeles, California January 13, 1996 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ Note 1. Summary of Significant Accounting Policies - Principles of Consolidation. The consolidated financial statements include the accounts of Teledyne, Inc. and subsidiaries. All material intercompany accounts and transactions have been eliminated. Certain amounts for 1994 and 1993 have been reclassified to conform with the 1995 presentation. Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the related reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management believes that the estimates are reasonable. Receivables. Receivables are presented net of a reserve for doubtful accounts of $7.1 million at December 31, 1995 and $6.3 million at December 31, 1994. Inventories. Inventories are stated at the lower of cost (last-in, first-out and first-in, first-out methods) or market, less progress payments. Costs include direct material, direct labor and applicable manufacturing and engineering overhead, and other direct costs. Any foreseeable losses are charged to income when determined. Cost in Excess of Net Assets of Purchased Businesses. Other assets include cost in excess of net assets of purchased businesses of $30.9 million at December 31, 1995 and $24.7 million at December 31, 1994. Costs related to businesses purchased after November 1970 are being amortized on a straight- line basis over periods not exceeding 20 years. Financial Instruments. The fair value of financial instruments, except for long-term debt, approximated their carrying values at December 31, 1995. Fair values have been determined through information obtained from quoted market sources and management estimates. In 1994, the Company changed its accounting for investments in debt and equity securities to comply with the provisions of Statement of Financial Accounting Standards No. 115. The statement requires that these investments be classified as either held-to-maturity, trading or available-for-sale. The Company's investments in debt and equity securities are classified as 55 available-for-sale and are reported at fair value, with net unrealized appreciation and depreciation on investments reported as a separate component of shareholders' equity. Revenue Recognition. Commercial sales and revenue from U.S. government fixed-price type contracts are generally recorded as deliveries are made or as services are rendered. For certain fixed-price type contracts that require substantial performance over a long time period before deliveries begin, sales are recorded based upon attainment of scheduled performance milestones. Sales under cost-reimbursement contracts are recorded as costs are incurred and fees are earned. Depreciation and Amortization. Buildings and equipment are depreciated primarily on declining balance methods over their estimated useful lives. Leasehold improvements are amortized on a straight-line basis over the life of the lease. Maintenance and repair costs are charged to income as incurred, and betterments and major renewals are capitalized. Cost and accumulated depreciation of property sold, retired or fully depreciated are removed from the accounts, and any resultant gain or loss is included in income. Research and Development. Company-funded research and development costs, which include bid and proposal costs, ($57.3 million in 1995, $65.9 million in 1994 and $64.0 million in 1993) are expensed as incurred. Costs related to customer-funded research and development contracts are charged to costs and expenses as the related sales are recorded. A portion of the costs incurred for company-funded research and development is recoverable through overhead cost allowances on government contracts. Environmental. Costs that mitigate or prevent future environmental contamination or extend the life, increase the capacity or improve the safety or efficiency of property utilized in current operations are capitalized. Other costs that relate to current operations or an existing condition caused by past operations are expensed. Liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable, but generally not later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Liabilities are estimated and evaluated independently of possible recoveries, if any, from insurance carriers and other third parties. The measurement of environmental liabilities by the Company is 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 56 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. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Income Taxes. Provision for income taxes includes federal, state and foreign income taxes. Deferred income taxes are provided for temporary differences in the recognition of income and expenses. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the financial statement and tax bases of assets and liabilities and tax rates, if any, from period to period. Net Income (Loss) Per Share. The weighted average number of shares of common stock used in the computation of net income per share was 55,656,827 in 1995, 55,446,296 in 1994 and 55,420,654 in 1993. The potential dilution of common stock equivalents is not material and, therefore, is not included in the computation of per share data. Note 2. Inventories - Inventories at December 31, 1995 and 1994 were as follows (in millions):
1995 1994 ---- ---- Raw materials and work-in-process $212.4 $ 301.9 Finished goods 61.3 47.2 --------- -------- 273.7 349.1 Progress payments (44.3) (152.2) --------- -------- $229.4 $196.9 ========= ========
Inventories, before progress payments, determined on the last-in, first-out method were $199.6 million at December 31, 1995 and $234.8 million at December 31, 1994. The remainder of the inventories was determined using the first-in, first-out method. 57 Inventories stated on the last-in, first-out basis were $179.8 million and $189.2 million less than their first-in, first-out values at December 31, 1995 and 1994, respectively. These first-in, first-out values do not differ materially from current cost. During 1995, 1994 and 1993, inventory usage resulted in liquidations of last-in, first-out inventory quantities. These inventories were carried at the lower costs prevailing in prior years as compared with the cost of current purchases. The effect of these last-in, first-out inventory liquidations was to increase net income by $8.0 million in 1995 and 1994, and $11.4 million in 1993. Inventories, before progress payments, related to long-term contracts were $25.3 million and $163.4 million at December 31, 1995 and 1994, respectively. Progress payments related to long-term contracts were $24.1 million and $136.9 million at December 31, 1995 and 1994, respectively. Note 3. Long-Term Debt - Long-term debt at December 31, 1995 and 1994 was as follows (in millions):
1995 1994 ---- ---- 10% Subordinated Debentures, due 2004, Series A and C (net of unamortized discount of $24.6 in 1995 and $27.8 in 1994) $332.4 $332.2 7% Subordinated Debentures, due 1999, $1.9 payable annually 22.4 23.9 Variable Rate Note, due 1997 14.2 - Other 17.7 2.6 --------- -------- 386.7 358.7 Current portion (6.7) (2.1) --------- -------- $380.0 $356.6 ========= ========
At December 31, 1995, the estimated fair value of the Company's long-term debt was $421.9 million. 58 Long-term debt is payable $6.7 million in 1996, $27.6 million in 1997, $2.6 million in 1998 and $17.4 million in 1999. No amount is due in 2000. The Company had available credit facilities at December 31, 1995, with various U.S. and foreign banks, totaling $151.0 million ($135.0 million expiring in July 1997, and $16.0 million expiring in December 1997) for which there is a $75.0 million letters of credit sublimit. Borrowings under the credit agreements, at the Company's election, bear interest at a floating rate generally based on either a defined prime rate or a fixed rate based on an interbank offered rate. A fee is charged on the amount of the unused commitment. The agreements contain restrictive covenants including those relating to net worth, investments, asset sales and material changes in lines of business. During 1995, the Company utilized $14.2 million of its lines of credit in the acquisition of the material handling business of Kooi B.V. At December 31, 1995, the interest rate on this borrowing was 4.4 percent. Commitments under separate standby letters of credit outstanding were $51.1 million at December 31, 1995 and $86.2 million at December 31, 1994. In 1994, the Company settled with the U.S. government two civil cases relating to its Teledyne Relays and Systems units. In connection with the settlement, the Company paid the U.S. government $112.5 million and related interest of $2.1 million in 1994. In 1993, the Company redeemed at par $100 million of its 10% Subordinated Debentures due 2004, Series C resulting in an extraordinary loss of $6.0 million or $3.7 million, net of tax. Note 4. Supplemental Balance Sheet Information - Cash and marketable securities at December 31, 1995 and 1994 were as follows (in millions):
1995 1994 ---- ---- Cash $ 22.1 $ 15.7 Repurchase agreements, at cost which approximates market 13.0 14.0 Other short-term investments, at cost which approximates market 6.6 - --------- -------- $41.7 $29.7 ========= ========
59 Property and equipment at December 31, 1995 and 1994 were as follows (in millions):
1995 1994 ---- ---- Land $ 28.3 $ 28.9 Buildings 224.4 229.8 Equipment and leasehold improvements 614.3 597.2 --------- -------- 867.0 855.9 Accumulated depreciation and amortization (562.7) (551.6) --------- -------- $304.3 $304.3 ========= ========
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 $9.6 million at December 31, 1995 and $73.8 million at December 31, 1994 for checks outstanding in excess of cash balances. Accrued liabilities at December 31, 1995 and 1994 were as follows (in millions):
1995 1994 ---- ---- Salaries and wages $ 69.0 $ 68.6 Accrued postretirement benefits 22.0 22.5 Advances and billings in excess of costs 17.2 34.4 Other 165.0 178.1 --------- -------- $273.2 $303.6 ========= ========
60 Note 5. Redeemable Preferred Stock - During 1995, dividends consisting in part of cash and in part of redeemable preferred stock were paid to common shareholders. The redeemable preferred stock is a new issue of Series E Cumulative Preferred Stock, $15.00 stated value per share, callable by the Company at any time at $15.00 per share, with a mandatory call at $16.50 per share on change of control, paying an annual cumulative cash dividend of $1.20 per share payable semi-annually. For each dividend on the common stock, shareholders received one share of the Series E Cumulative Preferred Stock for each one hundred shares of common stock, with cash paid in lieu of fractional shares. Note 6. Shareholders' Equity - The Company is authorized to issue 15 million shares of preferred stock, $1 par value. In 1988, the Board of Directors authorized the purchase of up to five million shares of the Company's common stock. As of December 31, 1995, the Company had purchased and subsequently retired 1,432,000 shares. The Company has compensation plans which allow for issuance of restricted stock, stock options and stock appreciation rights covering an aggregate of 5,200,000 shares of the Company's common stock. Under the plans, options to purchase shares of the Company's common stock may be granted to certain key employees and non-employee directors and may be incentive stock options or non-qualified stock options. If incentive stock options are granted, the exercise price of the options is the fair market value of the shares on the date of the grant. Non-qualified stock options may be granted with an exercise price below the fair market value of the shares on the date of the grant. Options are generally nontransferable and are exercisable in installments. In 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 became directors after January 1, 1994, allows for the issuance of stock options covering 200,000 shares of the Company's common stock. 61 Stock option activity for the year ended December 31, 1995 was as follows:
Number Exercise of Shares Price per Share --------- --------------- Outstanding at December 31, 1994 3,276,375 $16.375 - $25.125 Granted 548,528 $15.330 - $24.750 Exercised (319,125) $16.375 - $20.250 Canceled (76,625) $16.375 - $25.125 --------- ----------------- Outstanding at December 31, 1995 3,429,153 $15.330 - $24.750 ========= =================
The options granted to date are exercisable in installments beginning one and two years from the date of grant and expiring 10 or 11 years from the date of grant. As of December 31, 1995, options for 1,401,472 common shares were available for future grant and 1,518,891 of the stock options were exercisable. In 1995, SFAS No. 123 was issued which requires certain disclosures about stock-based employee compensation arrangements using the fair value based method of accounting. This statement, effective in 1996, allows for companies to either adopt the new method of accounting or to continue using the intrinsic value based method of accounting but make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting had been applied. The Company has not yet determined the method it will use or the impact of SFAS No. 123 on the the consolidated financial statements. 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 62 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. Note 7. Income Taxes - The components of the net deferred tax asset at December 31, 1995 and 1994, were as follows (in millions):
1995 1994 ---- ---- Pension income $(148.9) $(124.0) Postretirement benefits 115.0 116.1 Inventory valuations 17.6 21.7 Long-term contracts 13.6 29.0 Self-insurance reserves 12.1 14.3 Vacation benefits 9.7 10.1 Other deferred assets 59.0 66.9 Other deferred liabilities (17.5) (28.4) --------- -------- $60.6 $105.7 ========= ========
Provision (credit) for income taxes for the years ended December 31, 1995, 1994 and 1993 was as follows (in millions):
1995 1994 1993 ---- ---- ---- Current - Federal $40.2 $(41.1) $(20.1) - State 5.0 2.9 0.4 - Foreign 4.1 2.0 1.5 63 ----- ------ ----- - Total 49.3 (36.2) (18.2) ----- ------ ----- Deferred - Federal 28.4 40.3 49.3 - State 10.5 0.6 9.4 ----- ------ ----- - Total 38.9 40.9 58.7 ----- ------ ----- Provision for income taxes $88.2 $ 4.7 $40.5 ===== ====== =====
Income (loss) before income taxes, extraordinary loss and cumulative effect of accounting changes included income (loss) from domestic operations of $246.4 million in 1995, $(9.3) million in 1994 and $113.7 million in 1993. Differences between the provision for income taxes and income taxes at the statutory federal income tax rate for the years ended December 31, 1995, 1994 and 1993 were as follows (in millions):
1995 1994 1993 ---- ---- ---- Income tax at statutory federal rate $87.4 $(1.3) $39.6 State and local income taxes, net of federal income tax effect 10.1 2.3 6.4 Revisions to prior years' estimated income tax liabilites (9.3) - - Foreign sales corporation exemption (1.2) (1.9) (2.5) Non-deductible settlement expenses - 4.7 0.5 Effect of tax rate change - - (4.6) Other, net 1.2 0.9 1.1 ------ ------ ------ Provision for income taxes $ 88.2 $ 4.7 $ 40.5 ====== ====== ======
64 The Omnibus Budget Reconciliation Act of 1993 increased the corporate federal income tax rate to 35 percent in 1993 from 34 percent in 1992. The tax law change resulted in the recognition of additional income by the Company due primarily to revaluing the Company's net deferred tax asset. Note 8. Pension Benefits - The Company sponsors defined benefit pension plans covering substantially all of its employees. Benefits are generally based on years of service and/or final average pay. The Company funds the pension plans in accordance with the requirements of the Employee Retirement Income Security Act of 1974, as amended. Components of pension expense (income) for the years ended December 31, 1995, 1994 and 1993 included the following (in millions):
Expense (Income) ------------------------ 1995 1994 1993 ---- ---- ---- Service cost - benefits earned during the year $21.0 $31.2 $29.6 Interest cost on benefits earned in prior years 74.8 64.2 68.4 Expected return on plan assets (129.6) (111.8) (106.1) Net amortization of unrecognized amounts (50.0) (59.8) (58.9) ----- ------ ----- Pension income for defined benefit plans (83.8) (76.2) (67.0) Other 3.1 (2.9) 0.8 ----- ----- ----- Pension income $(80.7) $(79.1) $(66.2) ====== ====== ======
Actual return on plan assets was income of $264.6 million in 1995, loss of $44.8 million in 1994 and income of $174.1 million in 1993. Actuarial assumptions used to develop the components of pension expense (income) for the years ended December 31, 1995, 1994 and 1993 were as follows: 65
1995 1994 1993 ---- ---- ---- Discount rate 8.5% 7.0% 8.0% Rate of increase in future compensation levels 4.5% 4.5% 4.5% Expected long-term rate of return on assets 7.5% 6.0% 6.0% ===== ===== =====
Plan assets in excess of projected benefit obligation at December 31, 1995 and 1994 were as follows (in millions):
1995 1994 ---- ---- Plan assets at fair value $1,910.8 $1,761.8 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation 959.5 750.8 Non-vested benefit obligation 3.3 5.0 -------- --------- Accumulated benefit obligation 962.8 755.8 Additional benefits related to future compensation levels 96.6 78.1 -------- --------- Projected benefit obligation 1,059.4 833.9 -------- --------- Plan assets in excess of projected benefit obligation $851.4 $927.9 ======== ========= Plan assets in excess of projected benefit obligation: Included in balance sheet: Prepaid pension cost $386.6 $332.7 Other long-term liabilities (0.1) (12.5) Not included in balance sheet: Unrecognized net gain due to experience different from that assumed and changes in the discount rate 299.9 400.5 66 Unrecognized net asset at adoption of SFAS No. 87, net of amortization 195.6 234.5 Unrecognized prior service cost (30.6) (27.3) -------- --------- Plan assets in excess of projected benefit obligation $851.4 $927.9 ======== =========
Any reversion of pension plans' assets to the Company would be subject to federal and state income taxes, substantial excise tax and other possible claims. At December 31, 1995 and 1994, the plans' assets, which consisted primarily of fixed maturities, included debt obligations of the Company (primarily Teledyne 10% Subordinated Debentures) with a market value of $79.1 million and $76.7 million, respectively. A discount rate of 7.5 percent at December 31, 1995 and 8.5 percent at December 31, 1994 and a rate of increase in future compensation levels of 4.5 percent at December 31, 1995 and 1994 were used for the valuation of pension obligations. Note 9. Postretirement Benefits - The Company provides postretirement health care and life insurance benefits, which are paid as incurred, to certain employees and their dependents meeting eligibility requirements. Most of the plans are of a defined benefit nature and are subject to deductibles, co-payment provisions and other limitations. Retiree contributions to the premium cost are generally required based on coverage type, plan and medicare eligibility. In many plans, company contributions toward premiums are capped based on the cost as of a certain date thereby creating a defined contribution. The Company generally reserves the right to change or eliminate the plans. Non-represented employees who commenced employment after January 1, 1986 and union represented employees who commence employment after the most recently negotiated labor agreement are not eligible for medical benefits upon retirement. Effective January 1, 1993, the Company changed its method of accounting for postretirement health care and life insurance benefits, as required by SFAS No. 106. This statement requires that the expected cost of providing postretirement health care and life insurance benefits be charged to expense during the years that the employees render service. Prior to 1993, the Company expensed the cost of these benefits as they were paid. As a result of adopting SFAS No. 106, the Company recorded a charge of $301.7 million or $185.6 million, net of tax, to recognize the accumulated postretirement benefit obligation at 67 the date of adoption. The new accounting method has no effect on the Company's cash outlays for postretirement health care benefits. Cash from excess pension assets of $17.5 million in 1995 and $15.0 million in 1994 was transferred pre-tax under Section 420 of the Internal Revenue Code from the Company's defined benefit pension plans to the Company. The Internal Revenue Code permits transfers annually of an amount not to exceed the Company s actual expenditures on retiree health care benefits. While not affecting reported operating profit, cash flow increased by the after-tax effect of the transferred amount. Components of postretirement expense for the years ended December 31, 1995, 1994 and 1993 included the following (in millions):
Expense (Income) ------------------------ 1995 1994 1993 ---- ---- ---- Service cost - benefits earned during the year $0.8 $0.9 $1.3 Interest cost on benefits earned in prior years 23.1 21.3 23.4 Net amortization of unrecognized amounts (2.1) (2.1) - Other - - (1.8) ----- ----- ----- Postretirement expense $ 21.8 $ 20.1 $ 22.9 ======= ======= =======
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 10.5 percent in 1995, gradually declining to 6.5 percent in the year 2012 and remaining at that level thereafter. A one percentage point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation by $22.2 million and the 1995 postretirement benefit expense by $2.0 million. A discount rate of 8.5 percent in 1995, 7.0 percent in 1994 and 8.0 percent in 1993 was used in determining the postretirement expense. A discount rate of 7.5 percent at December 31, 1995 and 8.5 percent at December 31, 1994 was used to determine the postretirement benefit obligation. 68 Accumulated postretirement benefit obligations at December 31, 1995 and 1994 were as follows (in millions):
1995 1994 ---- ---- Accumulated present value of benefit obligations: Retirees $280.0 $248.7 Other fully eligible plan participants 17.0 13.2 Other active plan participants 14.8 11.6 ------- ------- Accumulated benefit obligation $ 311.8 $ 273.5 ======= ======= Accumulated benefit obligation: Included in balance sheet: Current portion included in accrued liabilities $ 22.0 $ 22.5 Accrued postretirement benefits 276.3 275.9 Not included in balance sheet: Unrecognized net loss (gain) due to experience different from that assumed and changes in the discount rate 13.5 (24.9) ------- ------- Accumulated benefit obligation $ 311.8 $ 273.5 ======= =======
Note 10. Acquisitions - In January 1995, the Company acquired the material handling business of Kooi B.V., a Netherlands company that is Europe s largest supplier of truck-mountable, self-propelled material handlers. In December 1995, the Company acquired two businesses complementing existing operations: Stellram Group, based in Europe, manufacturers of high precision milling, boring and drilling systems primarily for the European market; and Envases Comerciales, S.A., a Costa Rican manufacturer of specialty packaging for pharmaceutical and food companies throughout Central America and Mexico. These three businesses were purchased for $59.5 million, consisting of $43.2 million in cash and the assumption of $16.3 million in debt. In connection with these purchases, the Company acquired operating assets with a fair value of $87.9 million and assumed operating liabilities of $28.4 million. 69 Note 11. Business Segments - Teledyne, Inc. is a technology-based manufacturing corporation 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. The Company's major business segments include aviation and electronics, specialty metals, industrial and consumer. Companies in the aviation and electronics segment produce piston and turbine engines for aircraft and land based vehicle applications, airframe structures, unmanned aerial vehicles, target drone systems, and equipment and subsystems for spacecraft and avionics. Other activities in this segment include the manufacture of electronic equipment, aircraft-monitoring and control systems for military and commercial applications, relays and other related products and systems. Products in the specialty metals segment include zirconium, titanium, high temperature nickel-based alloys, specialty and tool steels, tungsten and molybdenum. Other operations in this segment consist of processing, casting, rolling and forging metals. The industrial segment is comprised of companies that are involved in the design and/or manufacture of military vehicles, diesel engines, material handling equipment, machine tools, dies and molds, nitrogen cylinders, specialty valves, pumps and boosters. The consumer segment manufactures oral hygiene, shower and water purification systems, swimming pool and spa heaters, residential and commercial heating systems, and specialty packaging for consumer products. Information on the Company's business segments for the years ended December 31, 1995, 1994 and 1993 was as follows (in millions):
1995 1994 1993 ---- ---- ---- Sales: Aviation and electronics: Continuing $1,015.4 $882.0 $951.9 Discontinued - 148.5 180.6 --------- -------- -------- 1,015.4 1,030.5 1,132.5 --------- -------- -------- Specialty metals: Continuing 867.6 709.7 650.8 70 Discontinued 1.5 1.7 8.0 --------- -------- -------- 869.1 711.4 658.8 --------- -------- -------- Industrial: Continuing 346.8 318.1 333.5 Discontinued 9.9 23.6 53.8 --------- -------- -------- 356.7 341.7 387.3 --------- -------- -------- Consumer: Continuing 326.6 307.6 313.1 Discontinued - - - --------- -------- -------- 326.6 307.6 313.1 --------- -------- -------- Total: Continuing 2,556.4 2,217.4 2,249.3 Discontinued 11.4 173.8 242.4 --------- -------- -------- $2,567.8 $2,391.2 $2,491.7 ========= ======== ========
The Company's backlog of confirmed orders was approximately $1.0 billion at December 31, 1995 and $1.4 billion at December 31, 1994. Backlog of the aviation and electronics segment was $456.6 million at December 31, 1995 and $850.7 million at December 31, 1994.
1995 1994 1993 ---- ---- ---- Sales to the U.S. government including direct sales as prime contractor and indirect sales as subcontractor or supplier: Aviation and electronics $582.2 $595.6 $729.4 Specialty metals 38.7 41.8 59.2 Industrial 93.5 99.4 134.7 Consumer 38.8 38.4 37.7 ------ ------ ------ $753.2 $775.2 $961.0 ====== ====== ======
71 Sales to the U.S. government include sales to the department of defense of $613.4 million in 1995, $599.5 million in 1994 and $791.3 million in 1993. Total foreign sales were $548.6 million in 1995, $519.4 million in 1994 and $505.5 million in 1993. Of these amounts, sales by operations in the United States to customers in other countries were $439.5 million in 1995, $381.3 million in 1994 and $371.3 million in 1993. Sales between business segments, which were not material, generally were priced at prevailing market prices.
1995 1994 1993 ---- ---- ---- Income (Loss) before Taxes, Extraordinary Loss and Cumulative Effect of Accounting Change: Aviation and electronics: Continuing $102.7 $(4.2) $41.3 Discontinued - (35.8) (13.6) Pension income 18.1 12.8 13.8 ------- ------- ------- 120.8 (27.2) 41.5 ------- ------- ------- Specialty metals: Continuing 85.3 27.1 29.9 Discontinued - 1.4 4.0 Pension income 8.3 8.7 9.9 ------- ------- ------- 93.6 37.2 43.8 ------- ------- ------- Industrial: Continuing 18.7 13.0 13.2 Discontinued 0.6 (1.3) 1.3 Pension income 25.9 25.8 38.8 ------- ------- ------- 45.2 37.5 53.3 ------- ------- ------- Consumer: Continuing 18.7 21.5 19.6 Discontinued - (2.8) 2.0 Pension income 0.2 (0.1) 0.5 ------- ------- ------- 18.9 18.6 22.1 ------- ------- ------- 72 Total: Continuing 225.4 57.4 104.0 Discontinued 0.6 (38.5) (6.3) ------- ------- ------- 226.0 18.9 97.7 ------- ------- ------- Corporate expense: Salaries and benefits (23.0) (18.7) (17.8) Closed businesses expenses (11.9) (8.4) (6.6) Other (47.2) (41.3) (35.6) Interest expense (42.3) (43.5) (45.1) Pension income 80.7 79.1 66.2 Other income 67.9 10.2 54.5 ------- ------- ------- $250.2 $(3.7) $113.3 ======= ======= =======
In 1993, Teledyne undertook a major realignment which consolidated its operating companies. The realignment built on the 1992-1993 restructure which focused the Company on those businesses in which it has significant leadership roles. The restructure consisted of the sale, closure or transfer of certain operations. Discontinued results include the estimated realignment and restructure cost, before pension income, and results of operations divested. As a result of the January 1995 sale of substantially all of the Company's defense electronic systems business and related assets at a gain of $50.7 million (included in other income), sales and operating results for the business have been reclassified and are presented in discontinued results of the aviation and electronics segment. Operating results of continuing operations for the aviation and electronics segment included income of $8.4 million in 1995 and $7.0 million in 1994 and charges of $15.1 million in 1993 related to adjustment of loss reserves on fixed-price development and initial production contracts. Discontinued results included provision for losses on fixed-price development and initial production contracts of approximately $11.5 million in 1994 and $4.4 million in 1993. Operating results of continuing operations for the aviation and electronics segment were adversely impacted by charges of $88.8 million in 1994 and $3.6 million in 1993 to resolve certain U.S. government contracting matters. Discontinued results for the aviation and electronics segment included charges of $35.0 million in 1994 and $13.0 million in 1993 to resolve certain U.S. government contracting matters. Operating results of continuing operations for the specialty metals segment included a charge of $13.0 million in 1994 to resolve a U.S. government export investigation matter. 73 In 1995, the New Piper Aircraft Company emerged from bankruptcy with Teledyne having exchanged its major creditor position for 24.2 percent ownership and an option to purchase an additional 24.2 percent. As a result, Teledyne recognized a gain for the year 1995 of $5.9 million, included in other income. In 1993, the Company sold its investment in Litton common stock resulting in a $40.4 million gain, included in other 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.
1995 1994 1993 ---- ---- ---- Depreciation and Amortization: Aviation and electronics $15.6 $19.1 $22.0 Specialty metals 32.0 28.3 27.9 Industrial 7.8 8.1 9.0 Consumer 7.8 7.7 6.9 Corporate 7.2 7.0 6.9 ------- ------- ------ $70.4 $70.2 $72.7 ======= ======= ====== Capital Expenditures: Aviation and electronics $12.8 $15.8 $22.8 Specialty metals 31.6 26.6 35.0 Industrial 9.2 6.2 5.2 Consumer 6.4 11.1 9.9 Corporate 2.9 4.8 8.3 ------- ------- ------- $62.9 $64.5 $81.2 ======= ======= ======= Identifiable Assets: Aviation and electronics $257.7 $299.7 $284.6 Specialty metals 420.7 315.6 288.0 Industrial 158.9 114.1 113.1 Consumer 135.3 117.1 105.4 Corporate 633.6 631.2 686.7 -------- -------- -------- $1,606.2 $1,477.7 $1,477.8 ======== ======== ========
74 Note 12. Commitments and Contingencies - Rental expense under operating leases was $22.9 million in 1995, $26.8 million in 1994, and $27.0 million in 1993. Future minimum rental commitments under operating leases with non-cancelable terms of more than one year as of December 31, 1995, are as follows: $15.8 million in 1996, $11.2 million in 1997, $9.9 million in 1998, $8.7 million in 1999, $6.8 million in 2000 and $37.7 million thereafter. 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. 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. 75 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In millions except share and per share amounts)
June 30, 1996 ------------- (Unaudited) ASSETS ------ Current Assets: Cash and marketable securities $ 101.9 Receivables 413.3 Inventories 221.5 Deferred income taxes 74.6 Prepaid expenses 13.3 ----------- Total current assets 824.6 Property and Equipment 292.0 Prepaid Pension Cost 420.8 Other Assets 130.9 ----------- $ 1,668.3 =========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable 128.8 Accrued liabilities 268.7 Total current liabilities 397.5 Long-Term Debt 375.3 Accrued Postretirement Benefits 268.7 Deferred Income Taxes 31.6 Other Long-Term Liabilities 101.3 ----------- 1,174.4 ----------- 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 ----------- Shareholders' Equity: Preferred stock, $1.00 par value, 15,000,000 shares authorized - 76 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 Additional paid-in capital 46.1 Retained earnings 345.0 Other 5.2 ----------- Total shareholders' equity 452.4 ----------- $ 1,668.3 ===========
The accompanying notes are an integral part of these statements. 77 TELEDYNE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In millions except per share amounts) (Unaudited)
Six Months Ended June 30, ------------------------ 1996 1995 ---------- --------- Sales $ 1,331.5 $ 1,332.2 Costs and Expenses*: Cost of sales 966.6 996.3 Selling and administrative expenses 230.4 216.8 Interest expense 21.1 21.0 -------- -------- 1,218.1 1,234.1 -------- -------- Earnings Before Other Income 113.4 98.1 Other Income 52.0 56.9 -------- -------- Income before Income Taxes 165.4 155.0 Provision for Income Taxes 63.0 58.1 -------- -------- Net Income 102.4 96.9 Preferred Stock Dividends (2.0) (0.4) -------- -------- Net Income Applicable to Common Shareholders $ 100.4 $ 96.5 ======== ======== Net Income Per Common Share $ 1.79 $ 1.74 ========= ========= Dividends Per Share $ 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. 78 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 ------- ------- 79 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. 80 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 ========== ==========
81 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. 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 with 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 82 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. 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 Six Months Ended 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 ------- ------- ------- ------- 83 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 ======= ======= ======= ======= Income before Income Taxes: 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) 84 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. 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 85 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. 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 86 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 87 or more of these matters could have a material adverse effect on the Company's results of operations for that period. 88 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The unaudited pro forma consolidated financial information gives effect to the Combination on the basis that it will be accounted for as a pooling of interests. The consolidated financial information on the following pages presents the historical unaudited consolidated balance sheets of each of Allegheny Ludlum and Teledyne at June 30, 1996 and the pro forma unaudited consolidated balance sheet of the Company as of June 30, 1996, giving effect to the Combination as if it had occurred on that date, and the historical consolidated statements of income of each of Allegheny Ludlum and Teledyne for the six months ended June 30, 1996 and 1995 and for each of the three years in the period ended December 31, 1995, and the pro forma unaudited consolidated statements of income for the six months ended June 30, 1996 and 1995 and for each of the three years in the period ended December 31, 1995, giving effect to the Combination as if it had been effected at the beginning of the period presented. Certain reclassifications have been made to the historical financial information to conform to current presentation. Intercompany transactions between Allegheny Ludlum and Teledyne are immaterial and, accordingly, have not been eliminated. The unaudited pro forma consolidated balance sheet gives effect to anticipated expenses and nonrecurring charges related to the Combination and assumes each of the outstanding shares of Allegheny Ludlum Common Stock is converted into one share of Company Common Stock and each of the outstanding shares of Teledyne Common Stock is converted into 1.925 shares of Company Common Stock. However, pro forma financial information excludes the estimated effect of revenue enhancements and expense savings associated with the consolidation of the operations of Allegheny Ludlum and Teledyne. The unaudited pro form consolidated financial statements are intended for informational purposes and may not be indicative of the combined financial position or results of operations that actually would have occurred had the transaction been consummated during the periods or as of the dates indicated, or which will be attained in the future. 89 ALLEGHENY TELEDYNE INCORPORATED Unaudited Pro Forma Consolidated Balance Sheet June 30, 1996 (in millions of dollars)
Allegheny Pro Forma Pro Ludlum Teledyne Adjustments Forma(1) ---------- -------- ------------ -------- Assets ------- Current assets: Cash and marketable securities $92.6 $101.9 $ (43.5)(2) $151.0 Trade receivables 145.5 413.3 -- 558.8 Inventories 225.2 221.5 -- 446.7 Deferred income taxes -- 74.6 (7.6)(3) 67.0 Prepaid expenses and other current assets 12.4 13.3 -- 25.7 ------- ------- ------- ------- Total current assets 475.7 824.6 (51.1) 1,249.2 Properties, plants and equipment 442.1 292.0 -- 734.1 Cost in excess of net assets acquired 128.4 45.5 -- 173.9 Prepaid pension cost -- 420.8 (74.8)(4) 346.0 Other assets, including assets held for sale 44.2 85.4 (9.8)(4) 119.8 Deferred income taxes 46.4 -- (41.1)(3)(4) 5.3 ------- ------- ------- ------- Total assets $1,136.8 $1,668.3 $(176.8) $2,628.3 ======= ======== ======= ======= Liabilities and shareholders' equity -------------------- Current liabilities: Current portion of long- term debt $2.0 $10.0 $ -- $12.0 Accounts payable 70.8 128.8 (.1)(2) 199.5 Income taxes payable 10.1 2.2 (7.6)(3) 4.7 Other accrued expenses 86.5 256.5 19.4 (2)(5) 362.4 ------- ------- ------- ------- Total current liabilities 169.4 397.5 11.7 578.6 Long-term debt 179.8 375.3 -- 555.1 90 Pensions 108.8 -- (108.8)(4) -- Postretirement benefit liability 272.8 268.7 -- 541.5 Deferred income taxes -- 31.6 (31.6)(3) -- Other 29.3 101.3 -- 130.6 ------- ------- ------- ------- Total liabilities 760.1 1,174.4 (128.7) 1,805.8 Redeemable preferred stock -- 41.5 (41.5)(2) -- Shareholders' equity Common stock 7.3 56.1 (46.0)(6) 17.4 Additional capital 271.3 46.1 (77.8)(6) 239.6 Retained earnings 236.6 345.0 (21.3)(5) 560.3 Other -- 5.2 -- 5.2 Equity adjustment- pension minimum liability (14.7) -- 14.7(4) -- Common stock in treasury (123.8) -- 123.8(6) -- ------- ------- ------- ------- Total shareholders' equity 376.7 452.4 (6.6) 822.5 ------- ------- ------- ------- Total liabilities and shareholders' equity $1,136.8 $1,668.3 $(176.8) $2,628.3 ======== ======== ======= ========
See accompanying notes to pro forma consolidated financial information. 91 ALLEGHENY TELEDYNE INCORPORATED Unaudited Pro Forma Consolidated Statement of Income Six Months Ended June 30, 1996 (in millions, except per share and share data)
Allegheny Ludlum Teledyne Pro Forma (7) ---------- --------- ------------- Sales $691.7 $1,331.5 $2,023.2 Costs and expenses: Cost of sales 573.9 930.3 1,504.2 Commercial and administrative 27.2 230.4 257.6 Depreciation and amortization 22.8 36.3 59.1 Interest expense-net 3.1 19.4 22.5 ------ -------- -------- 627.0 1,216.4 1,843.4 Operating earnings-assets held for sale 1.9 -- 1.9 Other income-net 1.7 50.3 52.0 ------ -------- -------- Income before income taxes 68.3 165.4 233.7 Income taxes 28.7 63.0 91.7 ------ -------- -------- Net income $ 39.6 $ 102.4 $ 142.0 ====== ======== ======== Net income per common share $ .60 $ 1.79 $ .82 ======= ======== ======== Average common shares outstanding 66,300,786 55,938,099 173,981,627
See accompanying notes to pro forma consolidated financial information. 92 ALLEGHENY TELEDYNE INCORPORATED Unaudited Pro Forma Consolidated Statement of Income Six Months ended June 30, 1995 (in millions, except per share and share data)
Allegheny Ludlum Teledyne Pro Forma (7) ---------- --------- ------------- Sales $785.8 $1,332.2 $2,118.0 Costs and expenses: Cost of sales 638.3 959.9 1,598.2 Commercial and administrative 28.4 216.8 245.2 Depreciation and amortization 19.5 36.4 55.9 Interest expense-net .9 20.1 21.0 ------ -------- -------- 687.1 1,233.2 1,920.3 Operating earnings-assets held for sale 7.3 -- 7.3 Other income-net 1.2 56.0 57.2 ------ -------- -------- Income before income taxes 107.2 155.0 262.2 Income taxes 43.9 58.1 102.0 ------ -------- -------- Net income $ 63.3 $ 96.9 $ 160.2 ====== ======== ======== Net income per common share $ .90 $ 1.74 $ .90 ====== ======== ======== Average common shares outstanding 70,262,501 55,563,892 177,222,993
See accompanying notes to pro forma consolidated financial information. 93 ALLEGHENY TELEDYNE INCORPORATED Unaudited Pro Forma Consolidated Statement of Income Year ended December 31, 1995 (in millions, except per share and share data)
Allegheny Ludlum Teledyne Pro Forma (7) ---------- --------- ------------- Sales $1,494.3 $2,567.8 $4,062.1 Costs and expenses: Cost of sales 1,219.6 1,842.4 3,062.0 Commercial and administrative 55.3 430.1 485.4 Depreciation and amortization 40.5 70.4 110.9 Interest expense-net 1.5 39.3 40.8 -------- -------- -------- 1,316.9 2,382.2 3,699.1 Operating earnings-assets held for sale 11.5 -- 11.5 Other income-net 1.8 64.6 66.4 -------- -------- -------- Income before income taxes and extraordinary item 190.7 250.2 440.9 Income taxes 75.9 88.2 164.1 -------- -------- -------- Income before extraordinary item $ 114.8 $ 162.0 $ 276.8 ======== ======== ======== Income per common share before extraordinary item $ 1.66 $ 2.88 $ 1.57 ======== ======== ======== Average common shares outstanding 69,246,949 55,656,827 176,386,341
See accompanying notes to pro forma consolidated financial information 94 ALLEGHENY TELEDYNE INCORPORATED Unaudited Pro Forma Consolidated Statement of Income Year ended December 31, 1994 (in millions, except per share and share data)
Allegheny Ludlum Teledyne Pro Forma (7) ---------- --------- ------------- Sales $1,076.9 $2,391.2 $3,468.1 Costs and expenses: Cost of sales 951.6 1,717.6 2,669.2 Commercial and administrative 45.8 576.3 622.1 Depreciation and amortization 38.2 70.2 108.4 Interest expense-net 6.0 38.0 44.0 -------- --------- -------- 1,041.6 2,402.1 3,443.7 Other income (loss)-net (2.4) 7.2 4.8 -------- --------- -------- Income (loss) before income taxes 32.9 (3.7) 29.2 Income taxes 14.7 4.7 19.4 -------- --------- -------- Net income (loss) $ 18.2 $ (8.4) $ 9.8 ======== ========= ======== Net income (loss) per common share $ .26 $ (.15) $ .06 ======== ========= ======== Average common shares outstanding 70,827,362 55,446,296 177,561,482
See accompanying notes to pro forma consolidated financial information. 95 ALLEGHENY TELEDYNE INCORPORATED Unaudited Pro Forma Consolidated Statement of Income Year ended December 31, 1993 (in millions, except per share and share data)
Allegheny Ludlum Teledyne Pro Forma(7) ----------- ---------- ------------ Sales $ 1,100.2 $ 2,491.7 $ 3,591.9 Costs and expenses: Cost of sales 919.6 1,845.2 2,764.8 Commercial and administrative 46.0 468.5 514.5 Depreciation and amortization 30.7 72.7 103.4 Interest expense-net 2.6 33.2 35.8 ----------- ----------- ----------- 998.9 2,419.6 3,418.5 Other income-net 17.7 41.2 58.9 ----------- ----------- ---------- Income before income taxes, extraordinary item and cumulative effect of accounting change 119.0 113.3 232.3 Income taxes 48.2 40.5 88.7 ----------- ----------- ---------- Income before extraordinary item and cumulative effect of accounting change $ 70.8 $ 72.8 $ 143.6 =========== ========== ========== Income per common share before extraordinary item and cumulative effect of accounting change $ 1.06 $ 1.32 $ .83 =========== ========== ========== Average common shares outstanding 66,614,353 55,420,654 173,299,112
See accompanying notes to pro forma consolidated financial information. 96 NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (Unaudited) (1) The pro forma consolidated balance sheet gives effect to the Combination by combining the respective balance sheets of the two companies at June 30, 1996 on a pooling of interests basis. (2) The pro forma balance sheet gives effect to the redemption of Teledyne Series E Cumulative Preferred Stock. (3) Reflects reclassification of deferred income tax liabilities. (4) Prepaid and accrued pension obligations, equity adjustment and the associated deferred tax amounts related to minimum liabilities of Allegheny Ludlum have been eliminated on the pro forma balance sheet to reflect the excess of plan assets over projected benefit obligations of Teledyne. Although the Company is pursuing a course of action which would allow Teledyne's surplus pension funds to be utilized to fund Allegheny Ludlum's underfunded pension obligations subsequent to the Combination, no adjustment has been made to reflect the foregoing in the pro forma statements of income. (5) A liability of $25 million has been recorded in the pro forma consolidated balance sheet to reflect management's estimate of anticipated expenses related to the Combination, including $3.7 million which was expensed in the 1996 second quarter. (6) The capital accounts have been adjusted to reflect the issuance of 174.2 million shares of Company Common Stock in exchange for all the outstanding shares of Allegheny Ludlum Common Stock and Teledyne Common Stock, and the cancellation of treasury stock. (7) The pro forma consolidated statements of income give effect to the Combination by combining the respective statements of income of the two companies for the six months ended June 30, 1996 and 1995 and for each of the three years in the period ended December 31, 1995. The pro forma consolidated statements of income do not give effect to anticipated expenses and nonrecurring charges related to the Combination and the estimated effect of revenue enhancements and expense savings associated with the combination of the operations of Allegheny Ludlum and Teledyne. Earnings per common share amounts for Allegheny Ludlum and Teledyne are based on the historical weighted average number of common shares outstanding for each company during the 97 period. With respect to the pro forma earnings per share computation, shares have been adjusted to the equivalent shares of the Company for each period. 98 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Allegheny Teledyne Incorporated Date: August 30, 1996 By: /s/Jon D. Walton ------------------------ Jon D. Walton Vice President-General Counsel and Secretary -----END PRIVACY-ENHANCED MESSAGE-----