-----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, Dg8fgT/BrVN+FOwxGcrdz42Y08Wi8n5KyfQ6A9PkM1UwH0ug2s8jHmQBoUwpeOar v+/IiZ7iPs/sEJ1RC4mysg== 0000950128-99-001136.txt : 19991117 0000950128-99-001136.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950128-99-001136 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-12001 FILM NUMBER: 99756471 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 10-Q 1 3RD QUARTER FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _____ to _____ Commission File Number 1-12001 ALLEGHENY TELEDYNE INCORPORATED ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 25-1792394 - ------------------------------- ------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification Incorporation of Organization) Number) 1000 Six PPG Place Pittsburgh, Pennsylvania 15222-5479 - -------------------------------- ------------------------------- (Address of Principal Executive (Zip Code) Offices) (412) 394-2800 ------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- At November 5, 1999, the Registrant had outstanding 187,114,591 shares of its Common Stock. 2 ALLEGHENY TELEDYNE INCORPORATED SEC FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 INDEX Page No. PART I. - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets 2 Consolidated Statements of Income 3 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3. Quantitative and Qualitative Disclosures About Market Risk 30 PART II. - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 31 Signatures 32 1 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions except share and per share amounts)
September 30, December 31, 1999 1998 ---- ---- (Unaudited) ASSETS Cash and cash equivalents $ 49.2 $ 74.8 Accounts receivable 500.8 534.7 Inventories 647.6 659.9 Deferred income taxes 60.8 59.3 Tax refund 3.5 5.9 Prepaid expenses and other current assets 28.1 29.9 ---------- ---------- Total Current Assets 1,290.0 1,364.5 Property, plant and equipment 994.3 1,003.6 Prepaid pension cost 501.9 418.6 Cost in excess of net assets acquired 242.8 256.0 Other assets 112.0 132.8 ---------- ---------- Total Assets $ 3,141.0 $ 3,175.5 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 238.9 $ 227.0 Accrued liabilities 324.6 327.1 Current portion of long-term debt 73.9 68.2 ---------- ---------- Total Current Liabilities 637.4 622.3 Long-term debt 256.7 446.8 Accrued postretirement benefits 578.0 582.6 Other 251.2 183.9 ---------- ---------- Total Liabilities 1,723.3 1,835.6 ---------- ---------- Stockholders' Equity: Preferred stock, par value $0.10: authorized- 50,000,000 shares; issued-None -- -- Common stock, par value $0.10: authorized-600,000,000 shares; issued-197,937,664 shares at September 30, 1999 and December 31, 1998; outstanding-189,059,875 shares at September 30, 1999 and 194,873,151 shares at December 31, 1998 19.8 19.8 Additional paid-in capital 470.8 467.3 Retained earnings 1,107.7 923.9 Treasury stock: 8,877,789 shares at September 30, 1999 and 3,064,513 shares at December 31, 1998 (183.9) (67.6) Foreign currency translation losses (4.4) (5.9) Unrealized gains on securities 7.7 2.4 ---------- ---------- Total Stockholders' Equity 1,417.7 1,339.9 ---------- ---------- Total Liabilities and Stockholders' Equity $ 3,141.0 $ 3,175.5 ========== ==========
The accompanying notes are an integral part of these statements. 2 4 ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions except per share amounts) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ -------------------------- 1999 1998 1999 1998 ------ ------ -------- -------- Sales $855.9 $927.1 $2,708.4 $2,948.4 Costs and expenses: Cost of sales 675.0 707.8 2,093.8 2,248.8 Selling and administrative expenses 118.1 119.4 349.1 363.4 Transformation, merger and restructuring costs 3.1 -- 7.4 67.8 Interest expense, net 2.5 4.0 19.8 12.7 ------ ------ -------- -------- 798.7 831.2 2,470.1 2,692.7 Earnings before other income 57.2 95.9 238.3 255.7 Other income 2.0 11.2 5.1 15.9 ------ ------ -------- -------- Income before income taxes and extraordinary gains 59.2 107.1 243.4 271.6 Provision for income taxes 21.2 41.6 87.5 103.7 ------ ------ -------- -------- Income before extraordinary gains 38.0 65.5 155.9 167.9 Extraordinary gains on sales of operations, net of income tax 129.6 -- 129.6 -- ------ ------ -------- -------- Net income $167.6 $ 65.5 $ 285.5 $ 167.9 ====== ====== ======== ======== Basic net income per common share: Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85 Extraordinary gains 0.68 -- 0.67 -- ------ ------ -------- -------- Basic net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85 ====== ====== ======== ======== Diluted net income per common share: Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85 Extraordinary gains 0.68 -- 0.67 -- ------ ------ -------- -------- Diluted net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85 ====== ====== ======== ======== Dividends declared per common share $ 0.16 $0.16 $ 0.48 $ 0.48 ====== ====== ======== ========
The accompanying notes are an integral part of these statements. 3 5 ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions)(Unaudited)
Nine Months Ended September 30, ------------------------------ 1999 1998 ------- ------- Operating Activities: Net income $ 285.5 $ 167.9 Adjustments to reconcile net income to net cash provided by operating activities: Gains on sales of businesses and investments (209.3) (0.2) Depreciation and amortization 92.6 81.2 Deferred income taxes 7.4 1.7 Non-cash restructuring costs -- 50.8 Change in operating assets and liabilities: Prepaid pension cost (83.3) (66.1) Accrued income taxes 40.4 (28.6) Accounts payable 22.7 (70.3) Accrued liabilities (16.3) 22.1 Accounts receivable (1.9) 55.0 Inventories (6.9) 39.7 Other 8.6 (15.1) ------- ------- Cash provided by operating activities 139.5 238.1 Investing Activities: Proceeds from the sale of businesses and investments 346.8 27.2 Purchases of property, plant and equipment (78.6) (118.3) Disposals of property, plant and equipment 10.0 12.5 Purchases of businesses and investment in ventures (9.4) (129.3) Short-term investments - sales -- 34.4 Other (1.5) (6.9) ------- ------- Cash provided (used) by investing activities 267.3 (180.4) Financing Activities: Net borrowings (repayments) under credit agreements (196.8) 43.2 Payments on long-term debt and capital leases (1.5) (4.3) ------- ------- Net increase (decrease) in debt (198.3) 38.9 Purchases of treasury stock (148.3) -- Cash dividends (92.2) (91.0) Exercises of stock options 6.4 9.1 ------- ------- Cash used by financing activities (432.4) (43.0) Increase (decrease) in cash and cash equivalents (25.6) 14.7 Cash and cash equivalents at beginning of the year 74.8 53.7 ------- ------- Cash and cash equivalents at end of period $ 49.2 $ 68.4 ======= ======= Non-cash transactions: Assets acquired under promissory note $ 6.6 $ -- ======= =======
Cash provided by operating activities in the 1999 nine months is net of payments of taxes on gains on sales of businesses of $79.9 million. Excluding these tax payments, cash provided by operating activities was $219.4 million. The accompanying notes are an integral part of these statements. 4 6 ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Accounting Policies Basis of Presentation These interim consolidated financial statements include the accounts of Allegheny Teledyne Incorporated and its subsidiaries ("Allegheny Teledyne" or the "Company"). These unaudited 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 note disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (which include only normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1998 Annual Report. The results of operations for these interim periods are not necessarily indicative of the operating results for a full year. Accounting Pronouncements Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133" was issued. This statement delays the effective date of FASB Statement No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is presently evaluating the effect of adopting this statement. Note 2. Inventories Inventories were as follows (in millions):
September 30, December 31, 1999 1998 ---- ---- Raw materials and supplies $ 145.7 $ 196.1 Work-in-process 491.9 471.6 Finished goods 145.8 133.4 ---------- ---------- Total inventories at current cost 783.4 801.1 Less allowances to reduce current cost values to LIFO basis (122.5) (128.7) Progress payments (13.3) (12.5) ---------- ---------- Total inventories $ 647.6 $ 659.9 ========== ==========
5 7 Note 3. Business Segments Information on the Company's business segments was as follows (in millions):
Three Months Ended Nine Months Ended September 30, September 30, ------------------------ ---------------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- Sales: Specialty metals $ 495.5 $ 487.0 $ 1,506.7 $ 1,559.5 Aerospace and electronics 206.0 192.4 606.3 596.5 Industrial 67.0 80.8 214.0 266.6 Consumer 58.0 56.5 176.5 162.0 -------- -------- ---------- ---------- Total continuing operations 826.5 816.7 2,503.5 2,584.6 Operations sold or held for sale 29.4 110.4 204.9 363.8 -------- -------- ---------- ---------- Total sales $ 855.9 $ 927.1 $ 2,708.4 $ 2,948.4 ======== ======== ========== ========== Operating Profit: Specialty metals $ 28.4 $ 59.6 $ 139.5 $ 208.8 Aerospace and electronics 23.6 21.8 61.5 64.7 Industrial 1.8 8.0 10.2 30.5 Consumer 3.9 5.7 12.0 13.1 -------- -------- ---------- ---------- Total operating profit 57.7 95.1 223.2 317.1 Transformation, merger and restructuring costs (3.1) -- (7.4) (67.8) Corporate expenses (10.8) (8.9) (27.8) (27.3) Interest expense, net (2.5) (4.0) (19.8) (12.7) Investments and operations sold or held for sale 0.5 14.3 26.0 30.5 Excess pension income 17.4 10.6 49.2 31.8 -------- -------- ---------- ---------- Income before income taxes and extraordinary gains $ 59.2 $ 107.1 $ 243.4 $ 271.6 ======== ======== ========== ==========
In the 1999 third quarter and 1999 nine months, transformation, merger and restructuring costs included costs of $3.1 million and $7.4 million, respectively, related to the previously announced transformation of the Company. In the 1998 nine months, transformation, merger and restructuring costs included deal costs of $10.3 million related to the acquisition of OREMET, along with pretax charges of $5.8 million for a planned salaried workforce reduction related to integrating the operations of OREMET and Wah Chang. Allegheny Ludlum also recorded a $19.3 million pretax charge due to a planned 6 8 salaried workforce reduction. In addition, pretax charges of $32.4 million were recorded for costs associated with exiting certain product lines and asset impairments resulting from capital expenditure programs. Pension income in excess of amounts allocated to business segments to offset pension and other postretirement benefit expenses is presented separately. Note 4. Divestitures In the 1999 third quarter, the Company completed the sale of its unmanned aerial vehicle and its pyrotechnic components and systems businesses, Ryan Aeronautical and McCormick Selph Ordnance Unit. In addition, the Company sold its pressure relief valve, vehicle control valve, nitrogen gas springs, consumer drinkware and its construction and mining equipment businesses. During the 1999 third quarter, the Company realized more than $340 million in gross proceeds and recognized extraordinary gains of $129.6 million, net of $79.9 million in taxes, in connection with the sales of these businesses. 7 9 Note 5. Net Income Per Share The following table sets forth the computation of basic and diluted net income per common share (in millions, except per share amounts):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------- ---------------------------------- 1999 1998 1999 1998 ---------------------------------- ----------------- ---------------- Numerator: Income before extraordinary gains $ 38.0 $ 65.5 $ 155.9 $ 167.9 Extraordinary gains on sales of operations 129.6 -- 129.6 -- ------- ------- ------- ------- Numerator for basic and diluted net income per common share - net income available to common stockholders $ 167.6 $ 65.5 $ 285.5 $ 167.9 ======= ======= ======= ======= Denominator: Weighted average shares 190.3 197.0 192.2 196.6 Contingent issuable stock 0.2 0.4 0.2 0.3 ------- ------- ------- ------- Denominator for basic net income per common share 190.5 197.4 192.4 196.9 Effect of dilutive securities: Employee stock options 0.7 1.0 0.9 1.6 ------- ------- ------- ------- Dilutive potential common shares 0.7 1.0 0.9 1.6 Denominator for diluted net income per common share - Adjusted weighted average shares 191.2 198.4 193.3 198.5 ======= ======= ======= ======= Basic net income per common share: Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85 Extraordinary gains on sales of operations 0.68 -- 0.67 -- ------- ------- ------- ------- Basic net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85 ======= ======= ======= ======= Diluted net income per common share: Income before extraordinary gains $ 0.20 $ 0.33 $ 0.81 $ 0.85 Extraordinary gains on sales of operations 0.68 -- 0.67 -- ------- ------- ------- ------- Diluted net income per common share $ 0.88 $ 0.33 $ 1.48 $ 0.85 ======= ======= ======= =======
8 10 Note 6. Comprehensive Income The components of comprehensive income, net of tax, were as follows (in millions):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------- Net income $167.6 $ 65.5 $285.5 $167.9 Foreign currency translation gains (losses) arising during the period 1.7 (2.9) (3.4) (6.5) Less: foreign currency translation losses due to sale of foreign entities (4.9) -- (4.9) -- ------ ------ ------ ------ 6.6 (2.9) 1.5 (6.5) Unrealized holding gains arising during period 0.7 0.6 5.3 0.2 ------ ------ ------ ------ Comprehensive income $174.9 $ 63.2 $292.3 $161.6 ====== ====== ====== ======
Note 7. Stockholders' Equity Allegheny Teledyne paid a cash dividend of $0.16 per common share in each of the 1999 and 1998 first, second and third quarters. On November 11, 1999, the Company's Board of Directors declared a regular quarterly dividend of $0.16 per share of common stock. The dividend is payable on December 14, 1999 to stockholders of record at the close of business on November 22, 1999. At a stockholders meeting held on November 11, 1999, Allegheny Teledyne's stockholders approved a one-for-two reverse split of the Company's stock. The reverse split will be effective immediately following the spin-offs of the Company's Aerospace and Electronics and Consumer segments to Allegheny Teledyne's stockholders. Allegheny Teledyne will complete the spin-offs on November 29, 1999. The Board of Directors has preliminarily approved setting the regular quarterly dividend at $0.10 per share of common stock, or $0.20 per share after giving effect to the reverse split. It is anticipated that this new dividend rate will be implemented with the regular quarterly dividend payable in March 2000. On October 1, 1998, the Company's Board of Directors authorized a stock repurchase program to acquire up to 20 million shares of Allegheny Teledyne's common stock. The shares may be purchased from time-to-time in the open market or in negotiated transactions. In the first nine months of 1999, the Company had purchased 7.3 million shares for $148.3 million under this program. In the 1999 third quarter, the Company had purchased 2.1 million shares for $39.7 million under this program. During the month of October 1999 the Company purchased over 1.7 million shares at a cost of approximately $28 million. From the inception of the share repurchase program through November 9 11 9, 1999, the Company has repurchased approximately 12.0 million shares at an aggregate cost of $232.5 million. On November 12, 1999, the Company announced that its board of directors had set November 22, 1999 as the record date and November 29, 1999 as the distribution date for the spin-offs of the Company's Aerospace and Electronics and Consumer segments. The Aerospace and Electronics segment will be spun off to Allegheny Teledyne's stockholders at the ratio of one share of the common stock of the new aerospace and electronics company, which will be known as Teledyne Technologies Incorporated, for each seven shares of Allegheny Teledyne common stock. The Consumer segment will be spun off to Allegheny Teledyne's stockholders at the ratio of one share of the common stock of the new consumer company, which will be known as Water Pik Technologies, Inc., for each 20 shares of Allegheny Teledyne common stock. Note 8. Commitments and Contingencies 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. Environmental liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable. In many cases, however, investigations are not yet at a stage where the Company has been able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss, or certain components thereof. Estimates of the Company's liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required, and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceeds, it is likely that adjustments in the Company's accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company's results of operations in a given period, but the amounts, and the possible range of loss in excess of amounts accrued, are not reasonably estimable. Based on currently available information, however, management does not believe future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company's financial condition or liquidity. However, there can be no assurance that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's financial condition or results of operations. At September 30, 1999, the Company's reserves for environmental remediation obligations totaled approximately $44.0 million, of which approximately $10.6 million was included in other current liabilities. The reserve includes estimated probable future costs of $12.6 million for federal Superfund and 10 12 comparable state-managed sites; $14.5 million for formerly owned or operated sites for which the Company has remediation or indemnification obligations; $6.4 million for owned or controlled sites at which Company operations have been discontinued; and $10.5 million for sites utilized by the Company in its ongoing operations. The Company is evaluating whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and 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 for which it has identified remediation obligations in up to thirty years. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, including claims based on business practices and cost classifications and actions under the False Claims Act. Although such claims are generally resolved by detailed fact-finding and negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations. However, although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to result in suspension or debarment of the Company, or that is otherwise likely to have a material adverse effect on the Company's financial condition 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, since such cases are under seal, the Company does not in all cases possess sufficient information to determine whether the Company will sustain a material loss in connection with such cases, or to reasonably estimate the amount of any loss attributable to such cases. A number of other 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, tax, and stockholder matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company's financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company's results of operations for that period. 11 13 Note 9. Subsequent Events In November 1999, the Company completed the previously announced sale of Specialty Equipment's material handling business to Terex Corporation. The Material Handling business is the last remaining business to be sold as part of the transformation initiatives Allegheny Teledyne announced in January 1999. On November 12, 1999, the Company announced that its subsidiary, Allegheny Ludlum Corporation, has entered into a definitive agreement with Bethlehem Steel Corporation in which Allegheny Ludlum will acquire the Washington, PA plant of Lukens' Washington Steel Division for approximately $20 million. The plant has been idle since April 1999 and was formerly used to cold roll and finish stainless steel sheet and strip. The agreement is subject to customary regulatory approval and closing conditions. Note 10. Unaudited Pro Forma Financial Information Following extensive studies and strategic analyses initiated in the summer of 1998, the Company announced in January 1999 that it would pursue a significant strategic transformation and reconfiguration of the Company. As part of this transformation, the Company is spinning off its Aerospace and Electronics segment as a stand-alone company (which will be called Teledyne Technologies Incorporated) and its Consumer segment as a stand-alone company (which will be called Water Pik Technologies, Inc.) on November 29, 1999. In addition, the Company has sold several of its businesses as described in Note 4 and Note 9. At the time of the spin-offs, Allegheny Teledyne will change its name to Allegheny Technologies Incorporated ("Allegheny Technologies"). In addition, the Company will effect a one-for-two reverse split of its common stock immediately after the spin-offs. The reverse stock split was approved by the Company's stockholders at a special meeting held on November 11, 1999. The following unaudited pro forma consolidated income statements for the nine months ended September 30, 1999 and 1998 and the year ended December 31, 1998 and the unaudited pro forma balance sheet at September 30, 1999 present the results of operations and financial position of Allegheny Technologies assuming that the transactions contemplated by the spin-offs of the Aerospace and Electronics and Consumer segments and the reverse stock split had been completed as of the beginning of 1998 with respect to the consolidated income statements and as of September 30, 1999 with respect to the consolidated balance sheet. In addition, the statements reflect the operations of the segments to be spun-off and the companies sold or to be sold as discontinued. In the opinion of management, the statements include all material adjustments necessary to reflect, on a pro forma basis, the impact of the spin-off transactions and the reverse stock split on the historical financial information of Allegheny Teledyne Incorporated. The adjustments are described in the notes to pro forma consolidated financial information and are set forth in the "Pro Forma Adjustments" column. The unaudited pro forma financial information has been presented for informational purposes only and does not reflect the results of operations or 12 14 financial position of Allegheny Technologies that would have occurred had Allegheny Technologies operated as a company without the spun-off operations and the companies sold or to be sold for the period represented. Actual results might have differed. The unaudited pro forma consolidated information should not be relied upon as being indicative of results Allegheny Technologies would have had or of future results after the spin-offs and sales of companies. 13 15 ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET September 30, 1999 (Unaudited)
Historical Pro Forma Allegheny Pro Forma Allegheny (In millions) Technologies Adjustments Technologies - ----------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 49.2 $ 133.7 $ 182.9 Accounts receivable 504.3 (163.8) 340.5 Inventories 647.6 (88.5) 559.1 Deferred income taxes 60.8 (26.0) 34.8 Prepaid expenses and other current assets 28.1 (3.6) 24.5 - ----------------------------------------------------------------------------------------------------------------- Total Current Assets 1,290.0 (148.2) 1,141.8 Property, plant and equipment 994.3 (88.7) 905.6 Prepaid pension cost 501.9 16.5 518.4 Cost in excess of net assets acquired 242.8 (36.5) 206.3 Net assets of discontinued operations -- 20.7 20.7 Other assets 112.0 (15.7) 96.3 - ----------------------------------------------------------------------------------------------------------------- Total Assets $3,141.0 $(251.9) $2,889.1 - ----------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 238.9 $ (76.3) $ 162.6 Accrued liabilities 324.6 (75.0) 249.6 Short-term debt and current portion of long-term debt 73.9 (0.2) 73.7 - ----------------------------------------------------------------------------------------------------------------- Total Current Liabilities 637.4 (151.5) 485.9 Long-term debt 256.7 (6.8) 249.9 Accrued postretirement benefits 578.0 (33.3) 544.7 Other 251.2 (11.1) 240.1 - ----------------------------------------------------------------------------------------------------------------- Total Liabilities 1,723.3 (202.7) 1,520.6 - ----------------------------------------------------------------------------------------------------------------- Stockholders' Equity: Preferred stock -- -- -- Common stock 19.8 (9.9) 9.9 Additional paid-in capital 470.8 9.9 480.7 Retained earnings 1,107.7 (50.1) 1,057.6 Treasury stock (183.9) -- (183.9) Foreign currency translation losses (4.4) 0.9 (3.5) Unrealized gains on securities 7.7 -- 7.7 - ----------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity 1,417.7 (49.2) 1,368.5 - ----------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $3,141.0 $(251.9) $2,889.1 - -----------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 14 16 ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Nine Months Ended September 30, 1999 (Unaudited)
Pro Forma Historical Pro Forma Effect of Allegheny Pro Forma Allegheny Reverse (In millions except per share amounts) Technologies Adjustments Technologies Stock Split - ----------------------------------------------------------------------------------------------------------------------------- Sales $ 2,708.4 $ (987.7) $ 1,720.7 - ----------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 2,093.8 (701.2) 1,392.6 Selling and administrative expenses 349.1 (190.0) 159.1 Transformation costs 7.4 (7.4) -- Interest expense, net 19.8 (0.1) 19.7 - ----------------------------------------------------------------------------------------------------------------------------- 2,470.1 (898.7) 1,571.4 - ----------------------------------------------------------------------------------------------------------------------------- Earnings before other income 238.3 (89.0) 149.3 Other income 5.1 (1.5) 3.6 - ----------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes and extraordinary gains 243.4 (90.5) 152.9 Provision for income taxes 87.5 (38.9) 48.6 - ----------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before extraordinary gains 155.9 (51.6) 104.3 Income from discontinued operations, net of income taxes -- 51.6 51.6 Extraordinary gains on sales of operations, net of income taxes 129.6 -- 129.6 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 285.5 $ -- $ 285.5 - ----------------------------------------------------------------------------------------------------------------------------- Basic net income per common share: Income from continuing operations before extraordinary gains $ 0.81 $ (0.27) $ 0.54 $ 1.08 Income from discontinued operations -- 0.27 0.27 0.54 - ----------------------------------------------------------------------------------------------------------------------------- Extraordinary gains on sales of operations 0.67 -- 0.67 1.34 - ----------------------------------------------------------------------------------------------------------------------------- Basic net income per common share $ 1.48 $ -- $ 1.48 $ 2.96 - ----------------------------------------------------------------------------------------------------------------------------- Diluted net income per common share: Income from continuing operations before extraordinary gains $ 0.81 $ (0.27) $ 0.54 $ 1.08 Income from discontinued operations -- 0.27 0.27 0.54 - ----------------------------------------------------------------------------------------------------------------------------- Extraordinary gains on sales of operations 0.67 -- 0.67 1.34 - ----------------------------------------------------------------------------------------------------------------------------- Diluted net income per common share $ 1.48 $ -- $ 1.48 $ 2.96 - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 15 17 ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Year Ended December 31, 1998 (Unaudited)
Pro Forma Historical Pro Forma Effect of Allegheny Pro Forma Allegheny Reverse (In millions except per share amounts) Technologies Adjustments Technologies Stock Split - ----------------------------------------------------------------------------------------------------------------------------- Sales $ 3,923.4 $ (1,521.0) $ 2,402.4 - ----------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 2,950.2 (1,118.5) 1,831.7 Selling and administrative expenses 507.6 (263.2) 244.4 Transformation, merger and restructuring costs 67.8 -- 67.8 Interest expense, net 19.3 0.1 19.4 - ----------------------------------------------------------------------------------------------------------------------------- 3,544.9 (1,381.6) 2,163.3 - ----------------------------------------------------------------------------------------------------------------------------- Earnings before other income 378.5 (139.4) 239.1 Other income 12.7 (2.0) 10.7 - ----------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 391.2 (141.4) 249.8 Provision for income taxes 150.0 (55.2) 94.8 - ----------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 241.2 (86.2) 155.0 Income from discontinued operations, net of income taxes -- 86.2 86.2 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 241.2 $ -- $ 241.2 - ----------------------------------------------------------------------------------------------------------------------------- Basic net income per common share: Income from continuing operations $ 1.23 $ (0.44) $ 0.79 $ 1.58 Income from discontinued operations -- 0.44 0.44 0.88 - ----------------------------------------------------------------------------------------------------------------------------- Basic net income per common share $ 1.23 $ -- $ 1.23 $ 2.46 - ----------------------------------------------------------------------------------------------------------------------------- Diluted net income per common share: Income from continuing operations $ 1.23 $ (0.44) $ 0.79 $ 1.58 Income from discontinued operations -- 0.44 0.44 0.88 - ----------------------------------------------------------------------------------------------------------------------------- Diluted net income per common share $ 1.23 $ -- $ 1.23 $ 2.46 - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 16 18 ALLEGHENY TECHNOLOGIES INCORPORATED AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the Nine Months Ended September 30, 1998 (Unaudited)
Pro Forma Historical Pro Forma Effect of Allegheny Pro Forma Allegheny Reverse (In millions except per share amounts) Technologies Adjustments Technologies Stock Split - ----------------------------------------------------------------------------------------------------------------------------- Sales $ 2,948.4 $ (1,122.3) $ 1,826.1 - ----------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 2,248.8 (835.0) 1,413.8 Selling and administrative expenses 363.4 (194.7) 168.7 Transformation, merger and restructuring costs 67.8 -- 67.8 Interest expense, net 12.7 0.1 12.8 - ----------------------------------------------------------------------------------------------------------------------------- 2,692.7 (1,029.6) 1,663.1 - ----------------------------------------------------------------------------------------------------------------------------- Earnings before other income 255.7 (92.7) 163.0 Other income 15.9 (2.1) 13.8 - ----------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 271.6 (94.8) 176.8 Provision for income taxes 103.7 (37.1) 66.6 - ----------------------------------------------------------------------------------------------------------------------------- Income from continuing operations 167.9 (57.7) 110.2 Income from discontinued operations, net of income taxes -- 57.7 57.7 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 167.9 $ -- $ 167.9 - ----------------------------------------------------------------------------------------------------------------------------- Basic net income per common share: Income from continuing operations $ 0.85 $ (0.29) $ 0.56 $ 1.12 Income from discontinued operations -- 0.29 0.29 0.58 - ----------------------------------------------------------------------------------------------------------------------------- Basic net income per common share $ 0.85 $ -- $ 0.85 $ 1.70 - ----------------------------------------------------------------------------------------------------------------------------- Diluted net income per common share: Income from continuing operations $ 0.85 $ (0.29) $ 0.56 $ 1.12 Income from discontinued operations -- 0.29 0.29 0.58 - ----------------------------------------------------------------------------------------------------------------------------- Diluted net income per common share $ 0.85 $ -- $ 0.85 $ 1.70 - -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements. 17 19 The pro forma unaudited consolidated balance sheet was prepared assuming the spin-offs and reverse stock split occurred on September 30, 1999 and includes "Pro Forma Adjustments" as follows: (a) To reclassify the operations sold or to be sold and operations to be spun-off as discontinued operations. (b) To record cash proceeds of $134 million from credit facilities established by Allegheny Teledyne on behalf of Teledyne Technologies Incorporated and Water Pik Technologies, Inc. The repayment obligations of $100 million and $34 million under these credit facilities will be assumed by Teledyne Technologies Incorporated and Water Pik Technologies, Inc., respectively. (c) To record the distribution of the spun-off companies to Allegheny Teledyne stockholders. (d) To reflect the one-for-two reverse stock split. The pro forma unaudited consolidated income statements were prepared assuming the spin-offs and reverse stock split occurred at the beginning of 1998. These statements include "Pro Forma Adjustments" as follows: (a) To reclassify the operations sold or to be sold and operations to be spun-off as discontinued operations. (b) To reflect the one-for-two reverse stock split. 18 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Allegheny Teledyne Incorporated is a group of technology-based manufacturing businesses with significant concentration in specialty metals, complemented by aerospace and electronics, industrial, and consumer products. The Company's Specialty Metals business segment accounted for 60 percent of the Company's total sales from continuing operations of $2,503.5 million for the nine months ended September 30, 1999. Its Aerospace and Electronics, Industrial and Consumer business segments accounted for 24 percent, 9 percent and 7 percent, respectively, of total sales from continuing operations. Such percentages were approximately the same for the first nine months of 1998, where total sales from continuing operations were $2,584.6 million. For the 1999 nine months, operating profit was $223.2 million compared to $317.1 million for the same 1998 period. Sales from continuing operations declined 3.1 percent to $2,503.5 million for the 1999 nine months compared to $2,584.6 million for the same 1998 period. The lower results were due mainly to continuing difficult pricing conditions in stainless steel, nickel alloys, titanium and tungsten carbide markets, higher raw material costs (primarily nickel), and reduced demand for high performance metals in the commercial aerospace and oil and gas markets. Strong cost controls partially offset the negative market conditions experienced in some businesses. Net income was $285.5 million, or $1.48 per diluted share, for the 1999 nine months, compared to $167.9 million, or $0.85 per diluted share, for the same 1998 period. Net income was $167.6 million, or $0.88 per diluted share, for the 1999 third quarter, compared to $65.5 million, or $0.33 per diluted share, for the same 1998 period. Net income in the third quarter 1999 was impacted by $129.6 million, or $0.68 per diluted share from extraordinary gains on the sales of operations and $5.6 million, or $0.03 per diluted share, relating to costs associated with the previously announced planned spin-offs of certain businesses of the Aerospace and Electronics and Consumer segments, workforce reductions and facilities start-up costs. Sales and operating profit for the Company's four business segments are discussed below. Specialty Metals Third quarter 1999 operating profit declined to $28.4 million from $59.6 million in the same year-ago period and sales increased 2 percent to $495.5 million. For the 1999 nine months, operating profit declined 33 percent to $139.5 million and sales declined 3 percent to $1,506.7 million. Allegheny Ludlum Combined sales and operating profits for Allegheny Ludlum, whose products consist primarily of flat-rolled products, increased 15 percent and declined 57 percent, respectively, from the 1998 third quarter and increased 7 percent and declined 18 percent, respectively, from the 1998 nine months. Sales increased due to higher shipments compared to 1998, as a result of strong 19 21 demand and the utilization and capability of new strategic assets. Operating profit declined due primarily to significantly higher nickel costs and relatively flat prices for commodity stainless steel products. With rising nickel costs, increased demand and lower imports reflecting the impact of favorable trade cases, in the 1999 third quarter Allegheny Ludlum announced two price increases totaling approximately 12 to 14 percent for most stainless steel sheet, strip and coiled plate products. In addition, Allegheny Ludlum reduced the surcharge mechanism for nickel to $2.75 per pound from $3.50 per pound effective with shipments beginning October 4, 1999. Due to existing contracts, the full benefits of the price increases and surcharge change are not expected to be realized until the first quarter 2000. The ability to maintain price increases depends on market conditions, including pricing by foreign producers. Tons of flat-rolled specialty materials shipped in the third quarter and nine months of 1999 increased to 168,200 tons and 480,200 tons, respectively, compared to 130,200 tons and 402,200 tons for the same periods of 1998. The average prices of flat-rolled specialty materials in the third quarter and nine months of 1999 declined to $1,940 and $1,993 per ton, respectively, compared to $2,181 and $2,230 per ton in the same 1998 periods due primarily to product mix, including an increase in sales of semi-finished stainless steel products. Tight cost controls and cost reduction efforts continue. High Performance Metals Operating profit and sales for high performance metals declined 48 percent and 17 percent, respectively, over the 1998 third quarter and declined 45 percent and 17 percent, respectively, over the 1998 nine months. The decline in operating results in 1999 occurred primarily due to lower prices and volume for nickel alloy and titanium products resulting from continuing weak demand in aerospace and oil and gas markets. This weakness was partially offset by strong demand for nickel-based superalloys for large land-based power generation turbines and medical implant devices. Results for the 1999 third quarter also include start-up costs associated with Oremet-Wah Chang's new electron beam melt facility. The results for the 1999 nine months include this item as well as start-up costs associated with Allvac's new vacuum induction furnace and costs related to a workforce reduction at Allvac's operation in the United Kingdom. Aerospace and Electronics Segment Operating profit increased 8 percent to $23.6 million for the 1999 third quarter from $21.8 million in the same 1998 period, and sales increased 7 percent to $206.0 million. For the 1999 nine months, operating profit decreased 5 percent to $61.5 million and sales increased 2 percent to $606.3 million. Product recall costs at Continental Motors and a continuing slow economic recovery in some Asian markets negatively impacted performance during the 1999 nine-month period. While sales at Continental Motors improved in the 1999 third quarter and nine months, operating profit for the 1999 nine months was negatively impacted by a recall of piston engines produced in 1998. Efforts associated with the recall resulted in a $3.0 million charge during the 1999 nine months. Sales and operating results for Continental Motors' turbine engines 20 22 increased in both the 1999 third quarter and nine months. At Electronic Technologies, increased demand for business and commuter aircraft systems and medical devices in both the 1999 third quarter and nine months were more than offset by lower sales for microelectronics for the 1999 third quarter and lower sales for contract manufacturing services and precision electronic devices for the 1999 nine months. These results were also impacted by costs related to workforce reductions at Electronic Technologies. At Brown Engineering, increased 1999 third quarter and nine-month sales in defense energy systems and environmental programs partially offset lower sales for marine instrumentation products. The decrease in operating results for marine instrumentation products was attributable, in large part, to adverse conditions in the oil industry. Third quarter 1999 and the 1999 nine months operating results for Teledyne Cast Parts were adversely affected by reduced demand from commercial aerospace markets. Industrial Segment Operating profit for the 1999 third quarter was $1.8 million compared to $8.0 million for the same quarter of 1998, and sales decreased 17 percent to $67.0 million. For the 1999 nine months, operating profit decreased 67 percent to $10.2 million while sales decreased 20 percent to $214.0 million. The decline in sales and operating profit in the 1999 third quarter and nine months resulted primarily from reduced demand for tungsten, tungsten carbide, and carbide cutting tools due to weaker global market conditions affecting Metalworking Products. In addition, the 1999 third quarter and nine months operating profit includes $2.1 million and $3.6 million, respectively, in costs related to a workforce reduction at Metalworking Products. Consumer Segment Operating profit decreased to $3.9 million in the 1999 third quarter from $5.7 million in the same 1998 period and sales increased 3 percent to $58.0 million. For the 1999 nine months, operating profit decreased to $12.0 million from $13.1 million and sales increased 9 percent to $176.5 million from the comparable 1998 period. Corporate Items Corporate expenses increased by 21 percent to $10.8 million for the 1999 third quarter primarily due to one-time costs related to executive management transition. Corporate expenses increased 2 percent to $27.8 million for the 1999 nine months. Net interest expense decreased $1.5 million from the third quarter 1998 as substantial proceeds received from asset sales completed during the quarter were used to reduce debt. Net interest expense for the 1999 nine months increased $7.1 million from the nine months 1998 due to higher levels of debt resulting from more than $400 million of purchases of businesses and investments in ventures and increased capital spending during 1998. Excess pension income increased to $17.4 million in the third quarter 1999 and $49.2 million in the 1999 nine months compared to $10.6 million in the third quarter 1998 and $31.8 million in the 1998 nine months due to higher pension assets as a result of strong investment performance during 1998. 21 23 Special and Extraordinary Items Net income in the 1999 third quarter was reduced by special items of $5.6 million, or $0.03 per diluted share, relating to costs associated with the previously announced spin-offs of certain businesses of the Aerospace and Electronics and Consumer segments, workforce reductions at Metalworking Products, Water Pik and Teledyne Electronic Technologies and facilities start-up costs at Oremet-Wah Chang and Allegheny Ludlum's joint venture in China. Also, net income in the third quarter 1999 includes $129.6 million, or $0.68 per diluted share, from extraordinary gains on the sale of several businesses including Fluid Systems, McCormick Selph Ordnance Unit, Ryan Aeronautical and Specialty Equipment's construction and mining business. In addition to the items described above, net income in the 1999 nine months was reduced by special items of $10.8 million, or $0.05 per diluted share, relating to costs associated with the previously announced spin-offs of the Aerospace and Electronics and Consumer segments, facility consolidations in the Consumer segment, workforce reductions at Allvac's operations in the United Kingdom, Metalworking Products and Teledyne Electronic Technologies, start-up costs relating to Oremet-Wah Chang's new electron beam melt facility and Allegheny Ludlum's joint venture in China and operating losses on certain businesses sold in the 1999 first quarter. Non-recurring events resulted in an after-tax charge of $45.8 million, or $0.23 per diluted share in the 1998 nine months. These events included deal costs of $10.3 million, or $0.05 per share, related to the acquisition of OREMET, along with charges of $3.5 million, or $0.02 per share, for a planned salaried workforce reduction related to integrating the operations of OREMET and Wah Chang. Also, Allegheny Ludlum recorded a $12.3 million charge, or $0.06 per share, due to a planned salaried workforce reduction. In addition, charges of $19.7 million, or $0.10 per share, relating to the Specialty Metals segment were recorded associated with exiting certain product lines and asset impairments resulting from capital expenditure programs. Transformation Initiatives Following extensive studies and strategic analyses initiated in the summer of 1998, the Company announced in January 1999 that it would pursue a significant strategic transformation and reconfiguration of the Company. As part of this transformation, the Company is spinning off certain businesses of its Aerospace and Electronics segment as a stand-alone company (which will be called Teledyne Technologies Incorporated) and its Consumer segment as a stand-alone company (which will be called Water Pik Technologies, Inc.). On November 12, 1999, the Company announced that its board of directors had set November 22, 1999 as the record date and November 29, 1999 as the distribution date for the spin-offs of the two new companies. Teledyne Technologies Incorporated will be spun off to Allegheny Teledyne's stockholders at the ratio of one share of the common stock of Teledyne Technologies for each seven shares of Allegheny Teledyne common stock. Water Pik Technologies, Inc. will be spun off to Allegheny Teledyne's stockholders at the ratio of one share of the common stock of Water Pik Technologies for each 20 shares of Allegheny Teledyne common stock. 22 24 At a special meeting held on November 11, 1999, Allegheny Teledyne's stockholders approved a one-for-two reverse split of the Company's stock. The reverse split will be effective immediately following the spin-offs of the Company's Aerospace and Electronics and Consumer segments to Allegheny Teledyne's stockholders. At the time of the spin-offs, Allegheny Teledyne will change its name to Allegheny Technologies Incorporated. After the spin-offs, Allegheny Technologies common stock will be traded on the New York Stock Exchange under the symbol "ATI." Additionally, as part of this strategic transformation, the Company sold several of its businesses. In the 1999 third quarter, the Company completed the sale of its unmanned aerial vehicle and its pyrotechnic components and systems businesses, Ryan Aeronautical and McCormick Selph Ordnance Unit. In addition, the Company sold its pressure relief valve, vehicle control valve, nitrogen gas springs, consumer drinkware and its construction and mining equipment businesses. During the 1999 third quarter, the Company realized more than $340 million in gross proceeds and recognized extraordinary gains of $129.6 million, net of $79.9 million in taxes in connection with the sales of these businesses. New Accounting Pronouncements Financial Accounting Standards Board ("FASB") Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. This statement establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, FASB Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities: Deferral of the Effective Date of FASB Statement No. 133" was issued. This statement delays the effective date of FASB Statement No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company is presently evaluating the effect of adopting this statement. Income Taxes The Company's effective tax rate decreased to 35.8 percent and 35.9 percent, respectively, for the 1999 third quarter and nine months from 38.8 percent and 38.2 percent, respectively, for the same periods in 1998. The decrease in the 1999 rate reflects the impact of non-deductible merger and restructuring charges in the first quarter of 1998, favorable adjustments to prior years' tax liabilities, and favorable effects of tax planning initiatives. Financial Condition and Liquidity Working capital decreased to $652.6 million at September 30, 1999, compared to $742.2 million at December 31, 1998. The current ratio decreased to 2.0 from 2.2 in this same period. The decrease in working capital was primarily due to lower cash, accounts receivable and inventories balances and higher accounts payable balances. 23 25 In the first nine months of 1999, cash generated from operations of $139.5 million, proceeds from the sale of businesses and investments and disposals of property, plant and equipment of $356.8 million and proceeds from the exercise of stock options of $6.4 million were used to pay net debt of $198.3 million, repurchase common stock for $148.3 million, pay dividends of $92.2 million and to invest $88.0 million in capital equipment and business expansion. Cash generated from operations of $139.5 million is net of payments of taxes on gains on sales of businesses of $79.9 million. Excluding these tax payments, cash generated from operations is $219.4 million. Cash transactions plus cash on hand at the beginning of the year resulted in a cash position of $49.2 million at September 30, 1999. Capital expenditures for 1999 are expected to approximate $115 million, of which $78.6 million were spent during the first nine months. On October 1, 1998, the Company's Board of Directors authorized a stock repurchase program to acquire up to 20 million shares of Allegheny Teledyne's common stock. The shares may be repurchased from time-to-time in the open market. During the third quarter of 1999, the Company repurchased 2.1 million shares at a cost of $39.7 million. During the 1999 nine months, the Company repurchased 7.3 million shares at a cost of $148.3 million. During the month of October 1999, the Company purchased over 1.7 million shares at a cost of approximately $28 million. From the inception of the share repurchase program through November 9, 1999, the Company has repurchased a total of approximately 12.0 million shares at a cost of $232.5 million. The Company will effect a one-for-two reverse split of its common stock immediately after the completion of the previously announced spin-offs of certain businesses of its Aerospace and Electronics and its Consumer segments. The reverse stock split was approved by Allegheny Teledyne's stockholders at a special meeting held on November 11, 1999. The spin-offs will be completed on November 29, 1999. On November 11, 1999, the Board of Directors declared a regular quarterly dividend of $0.16 per share of common stock. The dividend is payable on December 14, 1999 to stockholders of record at the close of business on November 22, 1999. The Board of Directors has preliminarily approved setting the regular quarterly dividend at $0.10 per share of common stock, or $0.20 per share after giving effect to the reverse split. It is anticipated that this new dividend rate will be implemented with the regular quarterly dividend payable in March 2000. The Company believes that internally generated funds, current cash on hand and borrowing from existing credit lines will be adequate to meet foreseeable needs. The Company may choose, however, to issue additional debt depending on market conditions. Other Matters Environmental The Company is subject to federal, state and local environmental laws and regulations which require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws. The Company is currently involved in the 24 26 investigation and remediation of a number of sites under these laws. The Company's reserves for environmental investigation and remediation totaled approximately $44.0 million at September 30, 1999. Based on currently available information, 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, 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. With respect to proceedings brought under the federal Superfund laws, or similar state statutes, the Company has been identified as a potentially responsible party at approximately 36 such sites, excluding those at which it believes it has no future liability. The Company's involvement is very limited or de minimus at approximately 14 of these sites, and the potential loss exposure with respect to any of these 36 sites is not considered to be material. For additional discussion of environmental matters, see Note 8 to the consolidated financial statements of the Company. 25 27 Government Contracts A number of the Company's subsidiaries perform work on contracts with the U.S. government. Many of these contracts include price redetermination clauses, and most are terminable at the convenience of the government. Certain of these contracts are fixed-price or fixed-price incentive development contracts which involve a risk that costs may exceed those expected when the contracts were negotiated. Absent modification of these contracts, any costs incurred in excess of the fixed or ceiling prices must be borne by the Company. In addition, virtually all defense programs are subject to curtailment or cancellation due to the year-to-year nature of the government appropriations and allocations process. A material reduction in U.S. Government appropriations may have an adverse effect on the Company's business, depending upon the specific programs affected by any such reduction. Since certain contracts extend over a long period of time, all revisions in cost and funding estimates during the progress of work have the effect of adjusting the current period earnings on a cumulative catch-up basis. When the current contract estimate indicates a loss, provision is made for the total anticipated loss. The Company obtains many U.S. Government contracts through the process of competitive bidding. There can be no assurance that the Company will continue to be successful in having its bids accepted. Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) have been or may be asserted against the Company related to its U.S. Government contract work, including claims based on business practices and cost classifications and actions under the False Claims Act. The False Claims Act permits a person to assert the rights of the U.S. Government by initiating a suit under seal against a contractor if such person purports to have information that the contractor falsely submitted a claim to the U.S. Government for payment. If it chooses, the U.S. Government may intervene and assume control of the case. Although government contracting claims may be resolved by detailed fact-finding and negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations. Given the extent of the Company's business with the U.S. Government, a suspension or debarment of the Company could have a material adverse effect on the future operating results and consolidated financial condition of the Company. However, although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to result in suspension or debarment of the Company, or that is otherwise likely to have a material adverse effect on the Company's financial condition 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. For additional discussion of government contract matters, see Note 8 to the consolidated financial statements of the Company. 26 28 Impact of the Introduction of the Euro The Company has continued to evaluate effects of the January 1, 1999 conversion and related transition by 11 member states of the European Union to a common currency, the "Euro". The United Kingdom, where a significant portion of the Company's European operations is located, is not currently a participating country. Based on its evaluation, the Company currently does not expect the euro conversion to have a material impact on the Company's results of operation or financial condition. Like other companies with European sales and operations, the Company anticipates that it will face wage and product pricing transparency issues in participating countries; however, the Company does not expect the resolution of these issues to have a material adverse effect on the Company. Additionally, while the Company expects to encounter some technical challenges to adapt information technology and other systems to accommodate Euro-denominated transactions, associated costs to date have not been material. Mostly due to evolving business needs and continuing technological advances, the Company has been modifying and replacing its computer software and hardware at its European operations. The Company believes that the euro conversion will not have a material adverse effect on its foreign currency activities described below. Year 2000 Readiness Disclosure Over the past several years, the Company has put in place management task forces at its operating companies to identify whether its computer systems, which include business computers, mill equipment and process control computers and other devices using a microprocessor, as well as telecommunication and payroll and employee benefit processing systems, would function properly with respect to dates in the Year 2000 and thereafter. These task forces report to the Executive Resource Information Committee, a senior management committee charged with reviewing and establishing priorities for information technology-related matters, including Year 2000 issues, and which reports to the Audit and Finance Committee of the Company's Board of Directors. Through these efforts, Year 2000 identification, solution development, testing and implementation initiatives and contingency planning initiatives have proceeded at Allegheny Teledyne and each of the operating companies. In part as a result of its Year 2000 initiatives, but mostly due to evolving business needs and continuing technological advancements, the Company has been modifying and replacing portions of its computer software and hardware systems. The Company estimates, based on dollars expended, that installation of solutions to identified Year 2000 issues relating to its information technology systems is nearly 100 percent complete. While the Company estimates that based on dollars expended, nearly 100 percent of solutions have been implemented for its non-information technology systems, the Company continues to work to resolve various manufacturing-related Year 2000 issues. The Company believes that a substantial portion of its internal solutions relating to Year 2000 functionality of its computer systems have been completed and implemented. Confirmatory testing of implemented solutions is ongoing. We have provided many customers and suppliers who we believe to be material to our business with Year 2000 questionnaires. None of the responding customers and suppliers have identified for the Company any material Year 27 29 2000 issues. Efforts continue to be made to identify and resolve customer- and supplier-based Year 2000 issues that could affect the Company and its operating and support systems. The Company believes that it has identified substantially all material customer- and supplier-based Year 2000 issues. Efforts also continue to identify whether products produced and sold by Allegheny Teledyne's operating companies have Year 2000 issues. The Company believes that it has identified substantially all products that have Year 2000 issues, primarily a limited number of products of Teledyne Electronic Technologies and Teledyne Brown Engineering, and is working to resolve such issues. The Company believes that there are no significant product-related Year 2000 issues. The Company has not conducted any extensive review of products manufactured and sold by discontinued businesses or businesses that it has sold. Excluding expenditures necessitated by ordinary business needs and continuing technological advancements in the computer industry, the Company spent approximately $11 million in 1998 and anticipates spending another estimated $7 million in 1999 to address Year 2000 issues. These expenditures do not include expenditures relating to Year 2000 issues associated with the products identified above. Substantially all costs related to the Company's Year 2000 initiatives are expensed as incurred and funded through operating cash flows. Although we currently do not have any plans for additional expenditures, additional amounts may be spent in subsequent years. Based upon internal assessments, formal communications with suppliers and customers with which the Company exchanges electronic data, and work completed to date, the Company believes that Year 2000 issues should not pose significant operational problems or have a material impact on the Company's consolidated financial position, results of operations or cash flow. A failure of third party vendors or customers to be Year 2000 ready, however, could adversely affect these beliefs and is not quantifiable. Such failure could have a material adverse effect on the Company's consolidated financial position, results of operations or cash flow in a given period, but probably not over the long-term. The most reasonably likely worse case scenario of failure by the Company or its suppliers or customers to resolve Year 2000 problems would be a temporary slowdown or cessation of manufacturing operations at one or more of the Company's facilities and a temporary inability on the part of the Company to timely process orders and to deliver finished products to customers. Delays in meeting customers' orders would affect the timing of billings to and payments received from customers in respect to orders and could result in other liabilities. Customers' Year 2000 problems could also delay the timing of payments to the Company for orders. The Company has been working to establish contingency plans with respect to our critical business and operating systems should unplanned situations arise on or after January 1, 2000, and expect such contingency plans to be in place prior to December 31, 1999. Most of the Company's current contingency plans contemplate the use of current personnel to make certain manual adjustments to systems or to perform various tasks manually. Vacations for information technology professionals and other relevant personnel are expected to be limited toward the end of December 1999 and the early part of 2000 in order to have employees on hand to assist in avoiding and responding to adverse scenarios. The Company is also considering establishing additional inventories and back-up procedures in the event suppliers are unable to deliver raw materials and services in a timely manner. 28 30 While the Company has been conducting a comprehensive Year 2000 review of its computer systems, there may be Year 2000-related matters that have not been identified. Actual dollar amounts spent by the Company to address Year 2000 issues could materially differ from the estimates for a number of reasons, including changes in the availability or costs of personnel trained in this area, changes made to the Company's remediation plans, the ability of the Company's significant suppliers, customers and others with which it conducts business, including governmental agencies, to identify and resolve their own Year 2000 issues or identification of other Year 2000-related matters. Forward-Looking Statements From time to time the Company has made and may continue to make forward-looking statements. Certain forward-looking statements are contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 8 to the consolidated financial statements of the Company, including statements concerning the transformation of the Company, pricing, cost savings, raw material costs, market conditions, capital spending plans, the amount of dividends to be paid to the Company's stockholders, the adequacy of available funds to meet foreseeable needs, anticipated effects of the Euro conversion, anticipated expenditures to address Year 2000-computer-systems issues, the impact of Year 2000-computer-systems issues, the Company's use of derivative instruments, the outcome of any government inquiries, litigation or other future proceedings related to government contract or other matters and environmental costs. These statements are based on current expectations that involve a number of risks and uncertainties, including those described above under the captions "Other Matters - Environmental" and "Other Matters - Government Contracts" and elsewhere herein. Completion of the previously announced spin-offs and public offerings by the new companies being formed in the spin-offs and achieving anticipated results involve inherent uncertainties, including those related to whether legal, tax, financial and other considerations can be successfully resolved. Realization of the anticipated benefits described in the forward-looking statements could take longer than expected and implementation difficulties, market factors and further deterioration in domestic or global economic conditions could alter the anticipated benefits. Actual results may differ materially from the results anticipated in the forward-looking statements. Additional risk factors are described from time to time in the Company's filings with the Securities and Exchange Commission, including its Report on Form 10-K for the year ended December 31, 1998. The Company assumes no duty to update its forward-looking statements. 29 31 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company uses derivative financial instruments from time to time to hedge ordinary business risks regarding foreign currencies on product sales and to partially hedge against volatile raw material cost fluctuations in the Specialty Metals segment. Foreign currency exchange contracts are used to limit transactional exposure to changes in currency exchange rates. The Company sometimes purchases foreign currency forward contracts that effectively permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts, which are not financially material, are designated as hedges of export sales transactions in which settlement will occur in future periods, which otherwise would expose the Company, on the basis of its aggregate net cash flows in respective currencies, to foreign currency risk. A portion of the Company's operations consists of investments in foreign subsidiaries. As a result, the Company's financial results could be affected by changes in foreign currency exchange rates. To mitigate this foreign currency translation risk, the Company has a practice of recapitalizing operations using local foreign currency debt to replace direct equity investment. The average interest rate to service this foreign debt is favorable to current U.S. interest rates. As part of its risk management strategy, the Company purchases exchange-traded futures contracts to manage exposure to changes in nickel prices, a component of raw material cost for some of the specialty metals companies. The nickel futures contracts obligate the Company to make or receive a payment equal to the net change in value of the contract at its maturity. These contracts can also be designated as hedges of the Company' firm sales commitments, are short-term in nature to correspond to the commitment period, and are effective in hedging the Company's exposure to changes in nickel prices during the cycle. The gains and losses on these contracts are deferred and recognized in earnings when realized as an adjustment to cost of goods sold. Historically, the Company has not closed any significant contracts prior to the execution of the underlying sale transaction, nor has any of the underlying sales transactions failed to occur which resulted in a material adverse effect on the Company. The Company guarantees the outstanding Allegheny Ludlum fixed rate 6.95% debentures due in 2025. In a period of declining interest rates, the Company faces the risk of required interest payments exceeding those based on the current market rate. To mitigate interest rate risk, the Company attempts to maintain a reasonable balance between fixed and variable rate debt to keep financing costs as low as possible. The Company believes that adequate controls are in place to monitor these activities, which are not financially material. However, many factors, including those beyond the control of the Company such as changes in domestic and foreign political and economic conditions, as well as the magnitude and timing of interest rate changes, could adversely affect these activities. 30 32 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - 10(a) Employment Agreement made August 17, 1999 between Allegheny Teledyne and Thomas A. Corcoran 10(b) Restricted Stock Agreement made September 16, 1999 between Allegheny Teledyne Incorporated and Thomas A. Corcoran 10(c) Supplemental Pension Plan Agreement made September 16, 1999 between Allegheny Teledyne Incorporated and Thomas A. Corcoran 27 Financial Data Schedule for Nine Months Ended September 30, 1999. (b) The Registrant did not file any Current Reports on Form 8-K during the quarter for which this report is filed. 31 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLEGHENY TELEDYNE INCORPORATED (Registrant) Date: November 15, 1999 By /s/ James L. Murdy -------------------------------------- James L. Murdy Executive Vice President, Finance and Administration and Chief Financial Officer (Duly Authorized Officer) Date: November 15, 1999 By /s/ Dale G. Reid -------------------------------------- Dale G. Reid Vice President - Controller and Chief Accounting Officer (Principal Accounting Officer) 32 34 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10(a) Employment Agreement made August 17, 1999 between Allegheny Teledyne and Thomas A. Corcoran 10(b) Restricted Stock Agreement made September 16, 1999 between Allegheny Teledyne Incorporated and Thomas A. Corcoran 10(c) Supplemental Pension Plan Agreement made September 16, 1999 between Allegheny Teledyne Incorporated and Thomas A. Corcoran 27 Financial Data Schedule for Nine Months Ended September 30, 1999. 33 EX-10.A 2 EMPLOYMENT AGREEMENT 1 Exhibit 10(a) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is executed this 17 day of August, 1999, by and between ALLEGHENY TELEDYNE INCORPORATED, a Delaware corporation with its principal place of business at 10th Floor, Six PPG Place, Pittsburgh, PA 15222 (with all of its direct and indirect subsidiaries, "ATI" or the "Employer"), and THOMAS A. CORCORAN, an individual residing in the State of Maryland (the "Executive"). In consideration of the premises, mutual covenants and agreements of the parties contained herein, and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the Employer and the Executive hereby agree as follows: 1. Employment. The Executive represents and warrants that he is not a party to any existing agreement or obligation that would prevent him from entering into an employment relationship with the Employer and performing his obligations and duties thereunder. The Executive further represents and warrants that he is not a party to any existing agreement or obligation that would cause the Employer to be in violation of any third party's rights. Commencing on September 16, 1999 (the "Effective Date"), the Employer, in reliance on such representations, shall employ the Executive and the Executive shall accept employment by the Employer upon the terms and conditions set forth in this Agreement. 2. Term. The term of employment (the "Term") shall begin on the Effective Date and, except as otherwise provided in Sections 6, 7, 8, 9, 10 and 11 below, shall end on July 16, 2004. The Term shall be automatically extended for one additional month commencing on July 16, 2003 and, if initially extended, on the last day of each calendar month thereafter (each, an "Extension Date") unless one party gives written notice to the other on or before an Extension Date. As of the last day of the month in which a notice not to renew is delivered, the Term of this Agreement shall be twelve months and shall not be further extended. The last day of the calendar month in which the Term hereof, as extended from time to time, is then due to expire is hereinafter referred to as the "Expiration Date." 3. Duties. The Executive will serve as President and Chief Executive Officer ("CEO") of ATI. As President and CEO of ATI, the Executive shall have the primary responsibility to manage and direct the day-to-day business of ATI, including the generation of income and control of expenses and principal responsibility for strategic planning and direction. The Executive shall perform such duties as are consistent with the role of President and CEO of ATI and such other duties as may be reasonably assigned to him from time-to-time by ATI's Board of Directors (the "Board"). With the written consent of the Board, the Executive may (i) devote a reasonable amount of time and effort to charitable, industry or community organizations and (ii) subject to the provisions of Section 6 hereof, the Executive may serve as a director of other companies. As of the Board meeting next following the Effective Date, the Chairman of the Board of Directors shall nominate the Executive for a seat on the Board and shall recommend to the Board that they each and all vote in favor of such nomination. 2 4. Compensation. During the Term, the Executive shall be compensated as follows: (a) Salary. The Executive shall be paid an annual salary of not less than $800,000 (the "Annual Base Salary"), to be distributed in equal periodic installments according to the Employer's customary payroll practices. The Annual Base Salary will be reviewed annually by the Personnel and Compensation Committee of the Board (the "Committee") and increased (but not decreased) if the Committee, in its discretion, determines an increase to be appropriate, based on the types of factors the Committee usually takes into account in reviewing executive level salaries, including, but not limited to, cost-of-living factors, ATI's financial performance, and the Executive's performance. Nothing contained herein shall be construed to prevent the Employer from increasing the Executive's Annual Base Salary more often than annually. (b) Bonuses. The bonus arrangements applicable to the Executive shall be as follows: (i) Signing Bonus. Promptly following the Effective Date, the Executive shall receive a one-time signing bonus of $2 million in cash. (ii) Special Bonuses. The Executive shall receive (A) a special bonus of $600,000 in cash on February 1, 2000, (B) a special bonus of $375,000 in cash on January 31, 2001 and a special bonus of $375,000 in cash on January 31, 2002. In general, for purposes of the foregoing, the Executive must be an employee of ATI on the applicable date in order to be entitled to receive the bonus payable on that date; provided, however, that Section 10 contains special provisions concerning the payment of these bonuses in the event that the Executive's employment is terminated by ATI without Cause (as defined in Section 9(b)). (iii) AIP Participation. Effective January 1, 2000, the Executive shall be eligible to participate in ATI's Annual Incentive Plan (the "AIP"). Under the AIP, the Executive's annual bonus (the "Performance Bonus") will depend upon the extent to which individual and corporate performance goals (the "Goals") are achieved. If 100% of the Goals is achieved, the Executive shall earn a Performance Bonus equal to 80% of the Annual Base Salary. A sliding scale shall determine the Performance Bonus if achievement of the Goals is less than or greater than 100%. If 120% of the Goals is achieved, the Executive may earn a Performance Bonus of up to 160% of the Annual Base Salary. Achievement of 75% of the Goals shall be the minimum required to earn a threshold Performance Bonus of 20% of the Annual Base Salary. The Board, in its sole discretion, reserves the right to modify or eliminate these thresholds. (c) Performance Share Plan. Effective January 1, 2000, the Executive shall be eligible to participate in ATI's Performance Share Plan (the "PSP"). Under the PSP, the Executive may earn an award of cash or the common stock of ATI ("ATI Common Stock" or the "Common Stock of ATI") (denominated at the grant date) or a combination of both, with an aggregate value up to 150% of the Annual Base Salary at the grant date. Payment of the award shall be based upon the extent to which three-year performance goals are achieved by ATI and shall be made in three installments over a period of three years. 2 3 (d) Retirement Savings Plan. Effective on the earliest date permitted under the Retirement Savings Plan, the Executive shall participate in the Retirement Savings Plan. ATI has a tax-qualified defined contribution plan under which (i) ATI contributes 6.5% of the Executive's base salary, up to applicable Internal Revenue Service ("IRS") limits and (ii) the Executive may defer a maximum of 5% to 8% of his compensation (the actual limit depending on seniority), with ATI matching such deferrals at 50%. All such contributions are subject to the applicable IRS limits. (e) Supplemental Pension Plan. The Executive shall participate in ATI's Supplemental Pension Plan in accordance with its terms except to the extent such terms are modified with respect to the Executive in this subsection. Under ATI's Supplemental Pension Plan, the Executive's accrued benefit will equal 50% of his base salary at termination of employment. This benefit will be payable beginning at age 62 or, if later, upon actual retirement, and will continue for 120 months or, if less, for a number of months equal to 12 times the Executive's years of employment with ATI. Notwithstanding any contrary provision in the Supplemental Pension Plan, (i) if the Executive resigns from employment with ATI at any time prior to attaining age 58 and does not accept employment with a third party, ATI shall pay to or with respect to him an amount equal to 50% of the amount earned from his date of hire to his resignation in equal monthly installments over the period equal to his period of employment commencing at the Executive's 62nd birthday and ATI shall pay each such installment so long as the Executive is not then in the employ of a for-profit corporation, (ii) if the Executive resigns at any time after attaining age 58, ATI shall pay him a benefit equal to the benefit he would have accrued if he was then employed by ATI for the greater of five (5) years or the number of years of actual employment in equal monthly installments over the period equal to the applicable of five (5) years or the number of years of actual employment (but not greater than ten (10) commencing at his age 62 and ATI shall pay each such installment so long as the Executive is not then in the employ of a for profit corporation and (iii) the Executive shall forfeit his right to this supplemental pension if before the Executive attains age 62 his employment is terminated by the Employer for Cause (as set forth in Section 9 hereof). (f) Stock Acquisition and Retention Plan. The Executive shall be eligible to elect to participate in the Stock Acquisition and Retention Plan ("SARP") for the 2000 plan year and for each year thereafter during his employment by ATI in accordance with the terms and conditions of the SARP. Under the SARP, one share of restricted stock is awarded for each two shares purchased from ATI or designated by the Executive from previously owned shares (the Executive may not purchase of designate in any year stock having a value in excess one year's base salary). The restricted stock will vest if the Executive remains an employee of ATI and holds the purchased and/or designated stock for five years after the date of purchase and/or designation. 5. Expense Reimbursement and Other Benefits. (a) Reimbursement of Expenses. During the Term, the Employer, upon the submission by the Executive of proper substantiation, including copies of all relevant invoices, receipts or other evidence reasonably requested by Employer, shall reimburse the Executive for all reasonable expenses actually paid or incurred by the Executive in the course of and pursuant 3 4 to the business of the Employer, including first class or business class air travel of the Executive and his spouse. (b) Other Employee Benefits. During the Term, the Executive will be eligible to participate in ATI's employee benefit, fringe benefit and executive perquisite plans and programs on a basis no less favorable than is made available to other senior executives of ATI. Such plans and programs shall include, but not be limited to, ATI's vacation policy (the Executive will be entitled to no less than 4 weeks' vacation each year), the Non-Qualified Deferred Compensation Plan (at the Executive's election, some or substantially all of the Executive's compensation may be deferred), the Supplemental Savings Plan, the Employee Stock Purchase Plan, ATI's Health, Accident, Disability Plans, company-paid car, Duquesne Club and one country club membership, financial planning assistance (at a cost not to exceed $15,000 in any calendar year), coverage under ATI's directors and officers liability insurance, participation in the annual executive physical program, spousal travel for company business and the use of a company plane with personal use charged back to the Executive at cost. The Executive shall also be eligible to participate in the ATI relocation policy applicable to new executive hires (c) Stock Options. As of the Effective Date, the Executive shall be granted a non-qualified stock option (the "Option") to purchase 200,000 shares of ATI Common Stock. The exercise price per share of the Option shall equal the fair market value per share of ATI Common Stock on the Effective Date. The Option will vest and become exercisable in three equal installments on the first, second and third anniversaries of the Effective Date. All terms and conditions of the Option will be governed by ATI's Incentive Plan and a written stock option agreement containing the terms and conditions customarily used by ATI in connection with its executive stock option program. The Executive shall be eligible for additional option grants in future years to the extent such grants are approved by the Personnel & Compensation Committee of the Board. (d) Restricted Stock. As of the Effective Date, ATI shall award to the Executive 150,000 shares of ATI Common Stock (the "Restricted Stock") subject to restrictions which shall provide that the Executive shall not transfer such shares during the restriction period and shall forfeit such shares if during the restriction period his employment with ATI terminates for any reason other than death. The restriction period shall lapse as to all of such shares on July 16, 2004, or if earlier, on the date of the Executive's death. The certificates evidencing such restricted shares of Restricted Stock shall be held in custody by the Secretary of the Employer until the restriction period with respect thereto shall have lapsed, and the Executive shall deliver to the Employer a stock power endorsed in blank relating to such shares. The Executive shall be entitled to receive any dividends payable with respect to such shares of Restricted Stock beginning on the date of award of such shares. Such stock award shall be evidenced by a written agreement between ATI and the Executive in form and substance reasonably satisfactory to the Employer and the Executive, which agreement shall set forth the terms and conditions of such stock award consistent with this Agreement. (e) Terms of Participation in Benefit Plans and Programs. The Executive's participation in ATI's employee and executive benefit plans, programs and arrangements, as provided in this Agreement, shall be subject in each case to the applicable terms and conditions 4 5 of such plans, programs and arrangements. All such plans, programs and arrangements are subject to amendment or termination by ATI at any time. 6. Restrictions. (a) Non-competition. During the Term and for a one year period after the termination of the Term for any reason, the Executive shall not, directly or indirectly, engage in or have any interest in any sole proprietorship, partnership, corporation or business or any other person or entity (whether as an executive, officer, director, partner, agent, security holder, creditor, consultant or otherwise) that directly or indirectly (or through any affiliated entity) engages in competition with ATI (for this purpose, any business that engages in the manufacture or distribution of products similar to those products manufactured or distributed by ATI at the time of termination of the Agreement shall be deemed to be in competition with ATI); provided that such provision shall not apply to the Executive's ownership of Common Stock of ATI or the acquisition by the Executive, solely as an investment, of securities of any issuer that is registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"), and that are listed or admitted for trading on any United States national securities exchange or that are quoted on the National Association of Securities Dealers Automated Quotation System, or any similar system or automated dissemination of quotations of securities prices in common use, so long as the Executive does not control, acquire a controlling interest in or become a member of a group which exercises direct or indirect control or, more than five percent of any class of capital stock of such corporation. (b) Nondisclosure. During the Term and at all times after the termination of the Term for any reason, the Executive shall not at any time divulge, communicate, use to the detriment of ATI or for the benefit of any other person or persons, or misuse in any way, any Confidential Information (as hereinafter defined) pertaining to the business of ATI. Any Confidential Information or data now or hereafter acquired by the Executive with respect to the business of ATI (which shall include, but not be limited to, information concerning ATI's financial condition, prospects, technology, customers, suppliers, sources of leads and methods of doing business) shall be deemed a valuable, special and unique asset of ATI that is received by the Executive in confidence and as a fiduciary, and Executive shall remain a fiduciary to ATI with respect to all of such information. For purposes of this Agreement, "Confidential Information" means information disclosed to the Executive or known by the Executive as a consequence of or through his employment by ATI (including information conceived, originated, discovered or developed by the Executive) prior to or after the date hereof, and not generally known, about ATI or its respective businesses. Notwithstanding the foregoing, nothing herein shall be deemed to restrict the Executive from disclosing Confidential Information to the extent required by law. None of the foregoing obligations and restrictions apply to any Confidential Information that the Executive demonstrates was or became generally available to the public other than as a result of disclosure by the Executive. (c) Nonsolicitation of Employees and Clients. During the Term and for a one year period after the termination of the Term for any reason, the Executive shall not, directly or indirectly, for himself or for any other person, firm, corporation, partnership, association or other entity, other than in connection with the performance of Executive's duties under this Agreement, (i) employ or attempt to employ or enter into any contractual arrangement with any employee or 5 6 former employee of the Employer, unless such employee or former employee has not been employed by the Employer for a period in excess of six months, (ii) call on or solicit any of the actual or targeted prospective clients of the Employer on behalf of any person or entity in connection with any business competitive with the business of the Employer, and/or (iii) make known the names and addresses of such clients or any information relating in any manner to the Employer's trade or business relationships with such customers (unless the Executive can demonstrate that such information was or became generally available to the public other than as a result of a disclosure by the Executive). (d) Ownership of Developments. All copyrights, patents, trade secrets, or other intellectual property rights associated with any ideas, concepts, techniques, inventions, processes, or works of authorship developed or created by the Executive during the course of performing work for the Employer or its customers (collectively, the "Work Product") shall belong exclusively to the Employer and shall, to the extent possible, be considered a work made by the Executive for hire for the Employer within the meaning of Title 17 of the United States Code. To the extent the Work Product may not be considered work made by the Executive for hire for the Employer, the Executive agrees to assign, and automatically assign at the time of creation of the Work Product, without any requirement of further consideration, any right, title, or interest the Executive may have in such Work Product. Upon the request of the Employer, the Executive shall take such further actions, including execution and delivery of instruments of conveyance, as may be appropriate to give full and proper effect to such assignment. (e) Books and Records. All books, records, and accounts relating in any manner to the customers of the Employer, whether prepared by the Executive or otherwise coming into the Executive's possession, shall be the exclusive property of the Employer and shall be returned immediately to the Employer on termination of the Executive's employment hereunder or on the Employer's request at any time. (f) Definition of ATI. Solely for purposes of this Section 6, the terms "ATI" and the "Employer" shall include all current direct and indirect subsidiaries of ATI, any future subsidiaries of ATI that are operating during the time periods described herein and any other entities that directly or indirectly, through one or more intermediaries, control, are controlled by or are under common control with ATI during the periods described herein. (g) Acknowledgment by Executive. The Executive acknowledges and confirms that (i) the restrictive covenants contained in this Section 6 are reasonably necessary to protect the legitimate business interest of the Employer including the legitimate interests of ATI, and (ii) the restrictions contained in this Section 6 (including without limitation the length of the term of the provisions of this Section 6) are not overbroad, over long, or unfair and are not the result of overreaching, duress or coercion of any kind. The Executive further acknowledges and confirms that his full, uninhibited and faithful observance of each of the covenants contained in this Section 6 will not cause him any undue hardship, financial, or otherwise, and that enforcement of each of the covenants contained herein will not impair his ability to obtain employment commensurate with his abilities and on terms fully acceptable to him or otherwise to obtain income required for the comfortable support of him and his family and the satisfaction of the needs of his creditors. The Executive acknowledges and confirms that his special knowledge of the business of ATI is such as would cause the Employer serious injury or loss if 6 7 he were to use such ability and knowledge to the benefit of a competitor or were to compete with ATI in violation of the terms of this Section 6. The Executive further acknowledges that the restrictions contained in this Section 6 are intended to be, and shall be, for the benefit of and shall be enforceable by, the Employer's successors and assigns. (h) Reformation by Court. In the event that a court of competent jurisdiction shall determine that any provision of this Section 6 is invalid or more restrictive than permitted under the governing law of such jurisdiction, then only as to enforcement of this Section 6 within the jurisdiction of such court, such provision shall be interpreted and enforced as if it provided for the maximum restriction permitted under such governing law. (i) Extension of Time. If the Executive shall be in violation of any provision of this Section 6 then each time limitation set forth in this Section 6 shall be extended for a period of time equal to the period of time during which such violation or violations occur. If the Employer seeks injunctive relief from such violation in any court, then the covenants set forth in this Section 6 shall be extended for a period of time equal to the pendency of such proceeding including all appeals by the Executive. (j) Survival. The provisions of this Section 6 shall survive the termination of this Agreement, as applicable. 7. Death. The Term shall terminate upon the death of the Executive and be of no further force or effect. Upon such termination, (i) the Employer will pay the Executive's estate a lump sum equal to the sum of the following (referred to herein as the "Accrued Obligations"): (A) the Executive's base salary through the date of termination but not previously paid, (B) the amount of any bonus, incentive compensation, deferred compensation and other cash compensation earned by the Executive as of the date of termination under the terms of the applicable compensation arrangement but not previously paid and (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the date of termination but not previously paid, (ii) the Executive's beneficiary, heirs or estate shall be entitled to receive all benefits accrued by him as of the date of termination under all qualified and nonqualified retirement, pension, profit sharing and similar plans and welfare benefits plans of the Employer to such extent, in such manner and at such time as are provided under the terms of such plans and arrangements (referred to herein as the "Accrued Benefits") and (iii) all other obligations of ATI hereunder shall cease forthwith. 8. Disability. If during the Term Executive is unable to perform his services, by reason of illness or incapacity, for a period of 180 consecutive days or more, the Employer may, at its option, upon written notice to the Executive, terminate the Term and his employment hereunder. Upon such termination, the Employer will pay the Accrued Obligations to the Executive in a lump sum, the Executive shall be entitled to the Accrued Benefits, and all other obligations of ATI hereunder shall cease forthwith. 9. Termination for Cause. (a) The Employer shall have the right to terminate the Term and the Executive's employment hereunder for Cause (as defined below). Upon such termination, the 7 8 Employer will pay the Accrued Obligations to the Executive in a lump sum, the Executive shall be entitled to the Accrued Benefits, and all other obligations of ATI hereunder shall cease forthwith. (b) For purposes hereof, the term "Cause" shall mean the Executive's conviction of a felony, personal dishonesty directly affecting ATI, willful misconduct, breach of a fiduciary duty involving personal profit to the Executive or intentional failure to perform stated duties provided, however, an intentional failure to perform stated duties shall not constitute Cause until the Board provides the Executive with written notice setting forth the specific duties that, in the Board's view, the Executive has failed to perform and the Executive is provided a period of thirty (30) days to cure such specific failure(s) to the satisfaction of the Board. 10. Termination Without Cause. At any time the Employer shall have the right to terminate the Term and the Executive's employment hereunder by written notice to the Executive. Upon any termination pursuant to this Section 10 (that is not a termination under any of Sections 7, 8, 9 or 11), the Employer shall pay to the Executive a lump sum equal to the sum of (A) the Annual Base Salary at the date of termination multiplied by the greater of (i) the number of years remaining in the Term or (ii) two, (B) the product of the Executive's bonus for the prior year (not including the bonuses described in Section 4(b)(i) and (ii)) multiplied by the greater of (i) the number of years remaining in the Term or (ii) two and (C) the amount of any of the special bonuses under Section 4(b)(ii) that remains unpaid as of the date of termination. The Employer shall also, for the greater of (i) the remainder of the Term or (ii) two years, continue to pay its share of the cost of participation by the Executive and his dependents in health, life and long-term disability benefits that are the same as or substantially similar to those applicable to the Executive and his dependents at the date of termination. ATI shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a)). The Executive shall be entitled to receive all severance payments and benefits hereunder regardless of any future employment undertaken by the Executive as long as he is in full compliance with the terms of this Agreement. 11. Termination by the Executive. (a) The Executive shall at all times have the right, upon 60 days written notice to the Employer, to terminate the Term and his employment hereunder. (b) Upon any termination pursuant to this Section 11 by the Executive without Good Reason (as defined below), the Employer will pay the Accrued Obligations to the Executive in a lump sum, the Executive shall be entitled to the Accrued Benefits, and all other obligations of ATI hereunder shall cease forthwith. (c) Upon any termination pursuant to this Section 11 by the Executive for Good Reason, the Employer shall pay to the Executive the same amounts that would have been payable by the Employer to the Executive under Section 10 of this Agreement if the Executive's employment had been terminated by the Employer without Cause. The Employer shall have no further liability hereunder (other than for reimbursement for reasonable business expenses incurred prior to the date of termination, subject, however, to the provisions of Section 5(a)). 8 9 The Executive shall be entitled to receive all severance payments and benefits hereunder regardless of any future employment undertaken by the Executive as long as he is in full compliance with the terms of this Agreement. (d) For purposes of this Agreement, "Good Reason" shall mean (i) the assignment to the Executive of any duties inconsistent in any material respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 of this Agreement, or any other action by the Employer which results in a material diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Employer promptly after receipt of notice thereof given by the Executive; or (ii) any failure by the Employer to comply with any of the material provisions of Section 4 or Section 5 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Employer promptly after receipt of notice thereof given by the Executive. 12. Waivers. It is understood that either party may waive the strict performance of any covenant or agreement made herein; however, any waiver made by a party hereto must be duly made in writing in order to be considered a waiver, and the waiver of one covenant or agreement shall not be considered a waiver of any other covenant or agreement unless specifically in writing as aforementioned. 13. Savings Provisions. The invalidity, in whole or in part, of any covenant or restriction, or any section, subsection, sentence, clause, phrase or word, or other provisions of this Agreement, as the same may be amended from time to time shall not affect the validity of the remaining portions thereof. 14. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Pennsylvania without giving effect to its choice of law provision. 15. Notices. If either party desires to give notice to the other in connection with any of the terms and provisions of this Agreement, said notice must be in writing and shall be deemed given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case addressed to the party for whom it is intended as follows (or such other addresses as either party may designate by notice to the other party): If to the Employer Allegheny Teledyne Incorporated 10th Floor, Six PPG Place Pittsburgh, PA 15222 Attn: Chairman of the Board 9 10 with a copy to: Jon D. Walton Senior Vice President, General Counsel and Secretary Allegheny Teledyne Incorporated 10th Floor, Six PPG Place Pittsburgh, PA 15222 If to the Executive: At the most recent home address of the Executive on the official records of the Employer 16. Default. In the event either party defaults in the performance of its obligations under this Agreement, the non-defaulting party may, after giving 30 days notice to the defaulting party to provide a reasonable opportunity to cure such default, proceed to protect its rights by suit in equity, action at law, or, where specifically provided for herein, by arbitration, to enforce performance under this Agreement or to recover damages for breach thereof, including all costs and attorneys' fees, whether settled out of court, arbitrated, or tried (at both trial and appellate levels). 17. The Executive's Legal Counsel; Reimbursement of Attorneys Fees. Executive has been advised by legal counsel in connection with the negotiation, preparation and execution of this Agreement. Promptly upon the Executive's demand (accompanied by reasonable documentation), Employer shall reimburse the Executive his reasonable attorney's fees and costs relating to the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated thereby. 18. No Third Party Beneficiary. Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person other than the Employer, the parties hereto and their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement. 19. Successors. (a) This Agreement shall inure to the benefit of and be binding upon the Executive and the Executive's assigns, heirs, representatives or estate. (b) This Agreement shall inure to the benefit of and be binding upon ATI (including each direct and indirect subsidiary) and its successors and assigns. 20. Liability for Taxes. The Employer shall have no liability for any tax liability of Executive attributable to any payment made under this Agreement except for customary employer liability for federal and state employee taxes (e.g., social security, Medicare, etc.). The Employer may withhold from any such payment such amounts as may be required by applicable provisions of the Internal Revenue Code, other tax laws, and the rules and regulations of the Internal Revenue Service and other tax agencies in effect at the time of any such payment. 21. Prior Understandings. This Agreement embodies the entire understanding of the parties hereof, and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. No change, alteration or modification hereof may be made except in a writing, signed by each of the parties hereto. The headings in this Agreement 10 11 are for convenience and reference only and shall not be construed as part of this Agreement or to limit or otherwise affect the meaning hereof. [The remainder of this page has been left blank intentionally.] 11 12 IN WITNESS WHEREOF, ATI, by its appropriate officer, signed this Agreement and Executive signed this Agreement, as of the day and year first above written. WITNESS ALLEGHENY TELEDYNE INCORPORATED /s/ Judd R. Cool By: /s/ Jon D. Walton - -------------------------- ------------------------------------- Title: Senior Vice President, General ------------------------------ Counsel and Secretary EXECUTIVE /s/ Claudia Ann Corcoran /s/ Thomas A. Corcoran - -------------------------- ------------------------------------- Thomas A. Corcoran 12 EX-10.B 3 RESTRICTED STOCK AGREEMENT 1 Exhibit 10(b) RESTRICTED STOCK AGREEMENT THIS RESTRICTED STOCK AGREEMENT (the "Agreement") is made and executed as of the 16th day of September, 1999, by and between ALLEGHENY TELEDYNE INCORPORATED, a Delaware corporation with its principal place of business at 10th Floor, Six PPG Place, Pittsburgh, PA 15222 (with all of its direct and indirect subsidiaries, "ATI") and THOMAS A. CORCORAN, an individual residing in the State of Maryland (the "Executive"). WHEREAS, as of the date hereof, the Executive is beginning employment with ATI under an Employment Agreement effective as of September 16, 1999 between the parties (the "Employment Agreement") and, effective October 1, 1999, will become President and Chief Executive Officer of ATI and a member of its Board of Directors; WHEREAS, pursuant to Section 5(d) of the Employment Agreement, ATI has agreed to award to the Executive 150,000 shares of common stock, $0.10 par value per share ("ATI Stock") subject to certain restrictions and forfeiture provisions; and WHEREAS, the parties intend for this Agreement to evidence the award of restricted shares and set forth the terms and conditions thereof. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and intending to be legally bound hereby, the parties hereto agree as follows: 1. Award and Issuance of the Shares. (a) In addition to any other compensation the Executive may be entitled under the Employment Agreement or otherwise in connection with his service as an employee of ATI, ATI hereby awards to the Executive 150,000 shares of ATI Stock (the "Shares"). As soon as practicable following the execution and delivery of this Agreement, ATI shall issue in the Executive's name and deliver to the Executive a stock certificate or stock certificates representing the Shares. The Shares shall be subject to the transferability restrictions set forth in Section 2 of this Agreement (the "Restrictions") for the period set forth in Section 3(a) of this Agreement and shall be subject to forfeiture as set forth in Section 3(b) of this Agreement. 2 (b) In order to reflect the restrictions on disposition of the Shares, the stock certificate(s) for the Shares may be endorsed with restrictive legends, including one or both of the following: "THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL TO THE STOCKHOLDER, WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF WHICH OPINION ARE, SATISFACTORY TO THE ISSUER, SUCH OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS." "THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN AGREEMENT ENTERED INTO BETWEEN ALLEGHENY TELEDYNE INCORPORATED AND THOMAS A. CORCORAN DATED AS OF SEPTEMBER 16, 1999 WHICH PROVIDES, GENERALLY, THAT THE SHARES CANNOT BE TRANSFERRED, PLEDGED OR HYPOTHECATED FOR ANY REASON PRIOR TO JULY 16, 2004 OR, IF EARLIER, THE DEATH OF THOMAS A. CORCORAN WHILE THEN AN EMPLOYEE OF ALLEGHENY TELEDYNE INCORPORATED. COPIES OF SUCH AGREEMENT ARE ON FILE IN THE OFFICES OF ALLEGHENY TELEDYNE INCORPORATED, 10th FLOOR, SIX PPG PLACE, PITTSBURGH, PA 15222." (c) If required by the authorities of any state in connection with the issuance of the Shares, the legend or legends required by such state authorities shall also be endorsed on all such certificates. (d) Simultaneously with the execution and delivery of this Agreement, the Executive shall deliver to ATI one or more stock powers endorsed in blank relating to the Shares. In the event of forfeiture of the Shares under Section 3(b) of this Agreement, the certificate or certificates representing the forfeited Shares shall be canceled. 2. Restrictions on the Shares. Except as provided in this Section 2, the Executive shall have all rights and privileges of a stockholder as to 2 3 the Shares, including, without limitation, voting rights and the right to receive, without restriction on disposition or forfeiture conditions, cash dividends and the contemplated distribution of shares of stock to ATI shareholders of Teledyne Technologies Incorporated and Water Pik Technologies, Inc. The following Restrictions shall apply to the Shares unless and until such Restrictions expire as to all or any portion of the Shares in accordance with Section 3 of this Agreement: (i) any distribution with respect to the Shares made in the form of stock, including, other than the contemplated distribution of shares of stock to ATI shareholders of Teledyne Technologies Incorporated and Water Pik Technologies, Inc., shall be and become subject to the Restrictions; (ii) none of the Shares may be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of; and (iii) all of the Shares shall be subject to forfeiture as set forth in Section 3(b) of this Agreement. Any attempt to dispose of Shares in a manner contrary to the foregoing restrictions set forth in this Agreement shall be null, void and ineffective and shall result in the forfeiture of the Shares. 3. Expiration of the Restrictions; Forfeiture of the Shares. (a) The Restrictions shall expire with respect to the Shares upon the earlier to occur of (i) July 16, 2004; (ii) the date of the Executive's death if he is an employee of ATI on the date of his death; or (iii) termination of his employment by ATI without Cause, as Cause is defined in Section 9(b) of that certain Employment Agreement dated the 17th day of August, 1999, between ATI and the Executive (whether or not the Employment Agreement is in effect on the date of such termination). Such Employment Agreement is hereby incorporated herein as if set forth at length. (b) If, before the Restrictions expire in accordance with Section 3(a), either (i) the Executive's employment with ATI shall terminate for any reason other than his death or as specified in Section 3(a)(iii), or (ii) the Executive breaches any of his material obligations under the Employment Agreement, all rights of the Executive to the Shares shall forthwith terminate and be forfeited in their entirety. In the event of any 3 4 such forfeiture, the certificate or certificates representing the forfeited Shares shall be canceled. 4. Restricted Securities. The Executive hereby confirms that he has been informed that the Shares are restricted securities under the Securities Act of 1933, as amended (the "Securities Act") and may not be resold or transferred unless the Shares are first registered under the federal securities laws or unless an exemption from such registration is available. Accordingly, the Executive hereby acknowledges that he is prepared to hold the Shares for an indefinite period, including such period as may be necessary after the Restrictions expire, and that he is aware that Rule 144 of the Securities and Exchange Commission (the "Commission") issued under the Securities Act is not presently available to exempt the sale of the Shares from the registration requirements of the Securities Act. The Executive is aware of the adoption of Rule 144 by the Commission, promulgated under the Securities Act, which permits limited public resales of securities acquired in a nonpublic offering, subject to the satisfaction of certain conditions. The Executive understands that under Rule 144, the conditions include, among other things: the availability of certain current public information about the issuer, the resale occurring not fewer than one year after the party has acquired the securities to be sold, the sale being through a broker is an unsolicited "broker's transaction" and the amount of securities being sold during any three-month period not exceeding specified limitations. The Executive acknowledges and understands that ATI may not be satisfying the current public information requirement of Rule 144 at the time he wishes to sell the Shares or other conditions under Rule 144 which are required of ATI. If so, he understands that he will be precluded from selling the securities under Rule 144 even if the one-year holding period of said Rule has been satisfied. Prior to his acquisition of the Shares, the Executive acquired sufficient information about ATI to reach an informed knowledgeable decision to acquire the Shares. The Executive has such knowledge and experience in financial and business matters as to make him capable of utilizing said information to evaluate the risks of the prospective investment and to make an informed investment decision. The Executive is able to bear the economic risk of his investment in the Shares. 5. Disposition of Shares. Prior to the expiration of the Restrictions, the plenary transfer restriction set forth in of Section 2 of this Agreement shall apply to the Shares. The Executive hereby agrees that following the expiration of the Restrictions he shall make no disposition of the Shares except in a transaction which counsel to ATI has determined 4 5 complies with the various then applicable securities laws of the United State and any state with jurisdiction. 6. Tax Payments; Withholding. ATI may withhold from the Shares or any cash amount payable with respect to the Shares from ATI to the Executive all taxes which ATI is required or otherwise authorized to withhold under applicable law as determined by ATI in good faith. 7. Notices. All notices or communications hereunder shall be in writing, addressed as follows: 5 6 To ATI: Allegheny Teledyne Incorporated 10th Floor Six PPG Place Pittsburgh, PA 15222 Attention: Senior Vice President, General Counsel and Secretary To the Executive: Thomas A. Corcoran _______________________ _______________________ or such other address as one party may supply to the other in writing from time to time. Any such notice or communication shall be sent certified or registered mail, return receipt requested, postage prepaid, addressed as above (or to such other address as such party may designate in writing from time to time), and the actual date of receipt, as shown by the receipt therefor, shall determine the time at which notice was given. 8. Assignment; Agreement. This Agreement shall be binding upon and inure to the benefit of the respective heirs and representatives of the Executive and the assigns and successors of ATI, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive. 9. Entire Agreement; Amendment or Termination. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof. The Agreement may be amended or terminated at any time by written agreement of the parties hereto. 10. Governing Law. This Agreement and its validity, interpretation, performance, and enforcement shall be governed by the laws of the Commonwealth of Pennsylvania other than the conflict of laws provisions of such laws. 11. Severability. If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall to the full extent consistent with law continue in full force 6 7 and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. 12. Certain References. References to "the Executive" in any provision of this Agreement under circumstances where the provision should logically be construed to apply to the Executive's executors or the administrators, or the person or persons to whom all or any portion of the Shares may be transferred by will or the laws of descent and distribution, such references to the Executive shall be deemed to include such person or persons. 13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14. Satisfaction of Section 5(d) of Employment Agreement. The Executive acknowledges that, upon the execution and delivery of this Agreement by the parties hereto, ATI's obligation under Section 5(d) of the Employment Agreement has been satisfied. 7 8 IN WITNESS WHEREOF, ATI has caused this Agreement to be duly executed and the Executive has set his hand, as of the day and year first above written. ALLEGHENY TELEDYNE INCORPORATED By: /s/ Richard P. Simmons ---------------------- Richard P. Simmons Chairman THE EXECUTIVE /s/ Thomas A. Corcoran --------------------- Thomas A. Corcoran 8 EX-10.C 4 SUPPLEMENTAL PENSION PLAN AGREEMENT 1 Exhibit 10(c) SUPPLEMENTAL PENSION PLAN AGREEMENT MADE as of this 16th day of September, 1999, between ALLEGHENY TELEDYNE INCORPORATED, a Delaware corporation (hereinafter called "Allegheny Teledyne"), and THOMAS A. CORCORAN of Pittsburgh, Pennsylvania (hereinafter called the "Executive"), WITNESSETH: WHEREAS, the Executive commenced employment with Allegheny Teledyne or a subsidiary or a division of a subsidiary of Allegheny Teledyne (hereinafter called the "Corporation") on September 16, 1999: WHEREAS, the Executive has been designated as a participant in Allegheny Teledyne's Supplemental Pension Plan on the terms and conditions described herein; WHEREAS, the Executive and Allegheny Teledyne desire to enter into an agreement to reflect the Executive's participation in Allegheny Teledyne's Supplemental Pension Plan; NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Subject to the terms and conditions of the Executive's present employment arrangement with the Corporation, or as such terms and conditions may be modified and amended from time to time, Executive shall remain in the service of the Corporation until the Executive's normal retirement age of 65 and shall fully and faithfully perform such duties as an employee of the Corporation, as may properly be assigned to the Executive or, 2. The Executive (or in the event of the Executive's death, the Executive's designated beneficiary) shall be entitled to receive supplemental pension payments under this 2 Agreement if (i) the Executive retires on or after Normal Retirement Age within the meaning of the part of the Corporation's pension plan for salaried employees applicable to the Executive (the "Pension Plan") or on or after age 58 under conditions whereby the Executive is entitled to receive an immediate pension under the Pension Plan or if the Executive would be entitled to receive such a pension but for the fact that the Executive has not had the necessary years of continuous service with the Corporation, (ii) becomes totally disabled within the meaning of the Corporation's long-term disability income plan or (iii) dies while actively employed by the Corporation or after becoming totally disabled and while still receiving disability payments for such disability or during the initial waiting period before the long-term disability income payments commence. Nothing contained in this Agreement shall affect the right of the Corporation to terminate the Executive's services, responsibilities, duties and authority to represent the Corporation at any time or for any reason whatsoever. 3. The payments under this Agreement shall be made as supplemental pension income for a number of months equal to twelve times the Executive's years of service as an employee of the Corporation, up to a maximum payment period of 120 months (the "Payment Period") following the retirement of the Executive after attainment of age 62. If the Executive suffers a total disability while employed by the Corporation, the Executive may, by notice to Allegheny Teledyne during the initial 6 months' waiting period before the Executive's disability payments begin under the Corporation's long-term disability income plan, elect to receive supplemental pension payments monthly in the amount described in Paragraph 4 hereof. Any payments made to the Executive under the previous sentence while disabled shall reduce dollar for dollar the payments that may otherwise be payable under the Agreement to the Executive following retirement or to the Executive's designated beneficiary following the Executive's death. If the Executive dies following retirement during the Executive's Payment Period the balance of the payments will be made or continued to the Executive's surviving spouse and/or the Executive's estate or designated beneficiary for the remainder of such period, or, if the Executive dies after retirement but before payments have commenced or after becoming totally disabled or during the period of such disability but before expiration of the Payment Period, the balance of the payments will be made or continued to the Executive's surviving spouse and/or the Executive's estate or designated beneficiary for the remainder of such Payment Period. If the 2 3 Executive dies before retirement and while an active employee of the Corporation, monthly payments in the amount described in Paragraph 4 hereof will be paid to the Executive's surviving spouse and/or the Executive's estate or designated beneficiary for a period of twelve months for each year of service as an employee of the Corporation, up to a maximum payment period of 120 months following the Executive's death. 4. The monthly payments under this Agreement shall be equal to 50% of the Executive's monthly base salary in effect at the time of the Executive's retirement, death or total disability, whichever shall be relevant under Paragraph 2 hereof. 5. During the Payment Period the Executive shall refrain from entering the employ of or rendering any services to any competitor of Allegheny Teledyne or any of its subsidiaries (which for purposes of this Agreement shall include 50% owned corporations) without the prior written consent of Allegheny Teledyne. In addition, the Executive shall at all times refrain from taking any action that may, in the reasonable judgment of the Board, be considered to be contrary to the best interest of the Corporation. 6. If the regular employment of the Executive is terminated by discharge for Cause by the Corporation (as defined in Section 9(b) of that certain Employment Agreement dated the 17th day of August, 1999 between the Executive and Allegheny Teledyne, which is hereinafter referred to as the "Employment Agreement"), or the Executive voluntarily quits employment prior to age 58 and he accepts employment with a third party, all liability of Allegheny Teledyne under this Agreement shall thereby be terminated. Notwithstanding any contrary provision in the Supplemental Pension Plan, (i) if the Executive resigns from employment with the Corporation at any time prior to attaining age 58 and does not accept employment with a third party, the Corporation shall pay to or with respect to him an amount equal to 50% of the amount earned from his date of hire to his resignation in equal monthly installments over the period of employment commencing at the Executive's 62nd birthday and the Corporation shall pay each installment so long as the Executive is not then in the employ for a for-profit corporation, (ii) if the Executive resigns at any time after attaining age 58, the Corporation shall pay him a benefit equal to the benefit he would have accrued if he was then 3 4 employed by Corporation for the greater of five (5) years or the number of years of actual employment in equal monthly installments over the period equal to the applicable of five (5) years or the number of years of actual employment (but not greater than ten (10) commencing at his age 62 and the Corporation shall pay such installment so long as the Executive is not then in the employ of a for-profit corporation and (iii) the Executive shall forfeit his right to this supplemental pension if before the Executive attains age 62 his employment is terminated by the Employer for Cause (as set forth in Section 9(b) of the Employment Agreement). If the Executive fails to perform the Executive's obligation under Paragraph 5, the obligation of Allegheny Teledyne to make any further payments under this Agreement shall thereby be terminated. 7. Any benefits payable after the death of the Executive shall be paid to the person or persons named by the Executive in a written instrument filed with Allegheny Teledyne. 8. Nothing herein contained shall affect the right of the Executive to participate in and receive benefits under and in accordance with the then current provisions of any retirement income, profit sharing, pension, additional year-end or periodic remuneration or bonus, incentive compensation, insurance or any other employee welfare plan or program of the Corporation. 9. This Agreement and the payments provided for in Paragraph 4 are not assignable by the Executive or any beneficiary, and no payments to be made can be assigned, anticipated, alienated, sold, transferred, pledged or encumbered in any manner. 10. Any decision by Allegheny Teledyne's Board of Directors made pursuant to this agreement shall be made solely in the Board's discretion and the Board shall have no obligation to treat similarly situated individuals in the same manner. 4 5 IN WITNESS WHEREOF, Allegheny Teledyne Incorporated has caused these presents to be executed by its officers thereunto duly authorized and the Executive has hereunto set the Executive's hand and seal the day and year first above written. Attest: ALLEGHENY TELEDYNE INCORPORATED /s/ Mary W. Snyder By /s/ Jon D. Walton - ----------------------------------- ---------------------------- Witness: EXECUTIVE /s/ Tracy L. Paxinos /s/ Thomas A. Corcoran - ----------------------------------- ------------------------------- Name: Thomas A. Corcoran 5 EX-27 5 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001018963 ALLEGHENY TELEDYNE INCORPORATED 1,000,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 49 0 516 15 648 1,290 2,013 1,019 3,141 637 257 0 0 20 1,398 3,141 2,708 2,708 2,094 2,094 0 0 20 243 87 156 0 130 0 286 1.48 1.48
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