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 June 30, 1997
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
Incorporation or Organization) Identification Number)
1000 Six PPG Place
Pittsburgh, Pennsylvania 15222-5479
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(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 July 31, 1997, Registrant had outstanding 175,929,919 shares of its Common
Stock.
ALLEGHENY TELEDYNE INCORPORATED
SEC FORM 10-Q
QUARTER ENDED JUNE 30, 1997
INDEX
Page No.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote
of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions except share and per share amounts)
June 30, December 31,
1997 1996
------- ------------
ASSETS
Cash and cash equivalents $ 46.2 $ 62.5
Accounts receivables 562.0 525.3
Inventories 506.9 518.4
Deferred income taxes 53.5 70.1
Tax refund 46.5 -
Prepaid expenses and other current assets 26.5 23.5
---------- -----------
Total Current Assets 1,241.6 1,199.8
Property, plant and equipment 705.9 731.4
Prepaid pension cost 378.5 352.5
Cost in excess of net assets acquired 176.2 177.1
Other assets 106.5 145.6
---------- -----------
Total Assets $ 2,608.7 $ 2,606.4
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 216.3 $ 241.7
Accrued liabilities 338.3 339.6
Current portion of long-term debt 5.3 4.5
---------- -----------
Total Current Liabilities 559.9 585.8
Long-term debt 386.0 443.4
Accrued postretirement benefits 575.4 567.5
Other 130.2 138.2
---------- -----------
Total Liabilities 1,651.5 1,734.9
---------- -----------
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 and outstanding-175,526,083
shares at June 30, 1997 and 174,389,377
shares at December 31, 1996 17.6 17.4
Additional paid-in capital 269.0 246.6
Retained earnings 690.9 596.7
Treasury Stock (21.7) -
Other 1.4 10.8
---------- -----------
Total Stockholders' Equity 957.2 871.5
---------- -----------
Total Liabilities and Stockholders' Equity $ 2,608.7 $ 2,606.4
========== ===========
The accompanying notes are an integral part of these statements.
3
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions except per share amounts)
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Sales $1,915.0 $2,015.6 $957.1 $997.7
Costs and expenses:
Cost of sales 1,448.6 1,555.8 716.8 760.2
Selling and administrative
expenses 239.0 250.8 118.8 127.8
Merger and restructuring costs 10.4 6.7 3.2 6.7
Interest expense, net 10.2 19.7 4.5 9.7
------- ------- ------- -------
1,708.2 1,833.0 843.3 904.4
------- ------- ------- -------
Earnings Before Other Income 206.8 182.6 113.8 93.3
Other Income 38.1 51.1 27.3 7.0
------- ------- ------- -------
Income before Income Taxes 244.9 233.7 141.1 100.3
Provision for Income Taxes 94.5 91.7 54.1 39.9
------- ------- ------- -------
Net Income 150.4 142.0 87.0 60.4
Dividends on Preferred Stock - 2.0 - 1.3
------- ------- ------- -------
Net Income Available to
Common Stockholders $150.4 $140.0 $87.0 $59.1
======= ======= ======= =======
Net Income Per Common Share $0.86 $0.80 $0.50 $0.34
======= ======= ======= =======
Cash Dividends Per Equivalent
Common Share $0.32 $0.27 $0.16 $0.15
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
4
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Six Months Ended
June 30,
1997 1996
---------- ----------
Operating Activities:
Net income $ 150.4 $ 142.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 49.7 59.1
Gains on sales of businesses and investments (45.3) (43.7)
Deferred income taxes 8.5 21.3
Change in operating assets and liabilities:
Accounts receivables (44.3) (20.5)
Accounts payables (25.5) (17.9)
Prepaid pension cost (24.5) (34.5)
Inventories 10.2 4.3
Accrued postretirement benefits 7.9 7.0
Accrued liabilities 0.5 (10.5)
Other 7.1 (13.5)
---------- ----------
Cash provided by operating activities 94.7 93.1
---------- ----------
Investing Activities:
Proceeds from the sales of businesses and
investments 58.4 104.2
Purchases of property, plant and equipment (38.3) (34.8)
Disposals of property, plant and equipment 8.2 5.7
Purchases of businesses (2.5) (13.5
Other (13.1) (10.2)
---------- ----------
Cash provided by investing activities 12.7 51.4
---------- ----------
Financing Activities:
Payments on long-term debt (49.9) (4.1)
Increase in long-term debt 1.9 1.4
---------- ----------
Net decrease in long-term debt (48.0) (2.7)
Cash dividends (56.2) (41.6)
Purchases of treasury stock (46.1) (23.7)
Exercises of stock options 26.6 4.9
Other - 0.5
---------- ----------
Cash used in financing activities (123.7) (62.6)
---------- ----------
Increase in cash and cash equivalents (16.3) 81.9
---------- ---------
Cash and cash equivalents at beginning of the year 62.5 112.6
---------- ---------
Cash and cash equivalents at end of period $ 46.2 $ 194.5
========= ========
The accompanying notes are an integral part of these statements.
5
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies -
Basis of Presentation
- ---------------------
The interim consolidated financial statements include the accounts of
Allegheny Teledyne Incorporated and its subsidiaries.
These unaudited 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 recurring normal
adjustments) considered necessary for a fair presentation have been included.
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report. The results of operations for these interim periods are not
necessarily indicative of the operating results for a full year.
Accounting Pronouncements
- -------------------------
FAS No. 130, "Reporting Comprehensive Income," and FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued in 1997. These statements will be adopted by the Company when required,
and are not expected to have a material effect on the consolidated financial
statements.
Note 2. Inventories -
Inventories were as follows (in millions):
June 30, December 31,
1997 1996
-------- ------------
Raw materials and supplies $ 130.4 $ 153.8
Work-in-process 517.4 515.1
Finished goods 109.2 104.8
--------- ---------
Total inventories at current cost 757.0 773.7
Less allowances to reduce current cost
values to LIFO basis (228.0) (229.6)
Progress payments (22.1) (25.7)
--------- ---------
Total Inventories $ 506.9 $ 518.4
========= =========
Note 3. Business Segments -
Information on the Company's business segments was as follows (in
millions):
6
ALLEGHENY TELEDYNE INCORPORATED AND SUBSIDIARIES
SALES AND OPERATING PROFIT BY BUSINESS SEGMENT
(In millions)
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Sales
Specialty metals $1,074.2 $1,076.0 $530.7 $538.6
Aerospace and electronics 466.0 511.3 229.7 251.9
Industrial 223.3 243.0 113.9 125.0
Consumer 151.5 139.0 82.8 73.0
------- ------- ----- -----
Total continuing operations 1,915.0 1,969.3 957.1 988.5
Operations sold or held for sale - 46.3 - 9.2
------- -------- ----- ------
Total Sales $1,915.0 $2,015.6 $957.1 $997.7
======== ======== ====== ======
Operating Profit
Specialty metals $ 153.4 $ 149.1 $ 81.1 $ 81.2
Aerospace and electronics 44.5 46.1 20.0 21.7
Industrial 27.9 24.2 14.9 11.9
Consumer 16.6 9.3 13.2 5.9
------- ------ ----- -----
Total operating profit 242.4 228.7 129.2 120.7
------- ------ ----- -----
Merger and restructuring costs (10.4) (6.7) (3.2) (6.7)
Corporate expenses (16.2) (20.1) (7.5) (9.7)
Interest expense, net (10.2) (19.7) (4.5) (9.7)
Investments and operations sold or
held for sale 31.3 45.5 23.1 2.8
Excess pension income 8.0 6.0 4.0 2.9
------- ------ ----- -----
Income before income taxes $ 244.9 $233.7 $141.1 $100.3
======= ====== ====== ======
Investments and operations sold or held for sale in the 1997 second
quarter included a $27.6 million gain on sale of the company's investment in
Semtech Corporation common stock and a $3.1 million gain on other investments.
These 1997 second quarter gains were partially offset by a charge of $6.8
million for a legal settlement of a U.S. government contract dispute related to
a unit divested in 1995. The 1997 first quarter included a gain of $15.3 million
on the sale of the company's investment in Nitinol Development Corporation
partially offset by a charge of $5.3 million to write-off of a research and
development venture.
7
In the 1996 first quarter, investments and operations sold or held for sale
included a gain of $41.0 million on the sale of the company's defense vehicle
business.
Pension income in excess of amounts allocated to business segments to offset
pension and other postretirement benefit expenses is presented separately.
Note 4. Net Income Per Share -
The weighted average number of shares of common stock used in the
computation of net income per share for the three and six months ended June 30,
1997, was 175,766,313 and 175,464,894, respectively, and 173,841,171 and
173,981,627 for the same periods in 1996.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of this change on earnings per
share for the three and six months ended June 30, 1997 and for the same periods
in 1996 was not material.
Note 5. 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 proceed, it is likely that adjustments in the
Company's accruals will be necessary to reflect new information. The amounts of
any such adjustments could have a material adverse effect on the Company's
results of operations in a given period, but are not reasonably estimable. Based
on currently available information, however, management does not believe future
environmental costs 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.
8
At June 30, 1997, the Company's reserves for environmental remediation
obligations totaled approximately $39 million, of which approximately $9 million
was included in other current liabilities. The reserve includes estimated
probable future costs of $14 million for federal Superfund and comparable
state-managed sites; $4 million for formerly owned or operated sites for which
the Company has remediation or indemnification obligations; $9 million for owned
or controlled sites at which Company operations have been discontinued; and $12
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 with which it has been
identified in up to thirty years.
In 1996, Statement of Position 96-1, Environmental Remediation Liabilities,
which was issued by the American Institute of Certified Public Accountants,
establishes accounting standards for recognition of environmental costs. This
statement, which became effective in 1997, did not have a material effect on the
consolidated financial statements.
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, and stockholder matters. While the outcome of
9
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.
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 companies with significant concentration in specialty metals
complemented by aerospace and electronics, industrial, and consumer products.
This discussion should be read in conjunction with the information in the
Consolidated Financial Statements and Notes to the Consolidated Financial
Statements.
Sales and operating profit for the Company's four business segments are
discussed below.
SPECIALTY METALS
Operating profit was $81.1 million in the second quarter 1997 and almost
equal to the 1996 second quarter. Sales for the 1997 second quarter decreased 1
percent to $530.7 million. For the 1997 six months, operating profit increased 3
percent to $153.4 million while sales remained essentially constant at $1,074.2
million. Tight operating cost controls remained in effect throughout the
specialty metals segment.
Operating profit and sales from businesses other than flat-rolled products
increased 67 percent and 18 percent, respectively, over the 1996 second quarter
and increased 81 percent and 21 percent, respectively, over the 1996 six months.
These results reflected strong commercial aerospace demand and increased prices
for specialized metals, such as nickel-based superalloys, titanium, and
zirconium and its byproducts.
Combined operating profits and sales from Allegheny Ludlum and Rodney
Metals fell 27 percent and 10 percent, respectively, for the quarter and 24
percent and 9 percent, respectively, for the six months from the stronger 1996
periods. These results reflected weakness in U.S. commodity stainless steel
prices compared to the same periods last year. Price comparisons with 1996 are
expected to improve in the second half.
Tons of flat-rolled specialty metals shipped in the second quarter and six
months of 1997 were 137,000 and 284,000, respectively, compared to 142,000 and
282,000 for the same periods of 1996. The average price per ton shipped in the
second quarter 1997 was $2,416 compared to $2,593 in the 1996 second quarter.
The average price per ton for commodity stainless steel products improved
somewhat from 1997's first quarter even though the average price per ton for all
flat-rolled products was unchanged due to variations in product mix.
10
AEROSPACE AND ELECTRONICS SEGMENT
Second quarter 1997 operating profit decreased 8 percent to $20.0 million
compared to the same period in 1996, and sales decreased 9 percent to $229.7
million. For the 1997 six months, operating profit decreased 3 percent to $44.5
million and sales decreased 9 percent to $466.0 million.
Nonrecurring write-offs, primarily research and development-related
expenses for avionics, resulted in a loss for the 1997 second quarter and six
months at Controls. New process manufacturing difficulties reduced both sales
and operating profit at Continental Motors. Ryan Aeronautical experienced
declines in sales and operating profit primarily due to the scheduled wind-down
of the current phases of the Apache helicopter and the Global Hawk unmanned
aerial vehicle programs. Partially offsetting these declines, sales and
operating profit increased for Electronic Technologies as demand continued to
improve for electromechanical relays and electronic components.
INDUSTRIAL SEGMENT
Operating profit for the second quarter 1997 increased 25 percent to $14.9
million while sales decreased 9 percent to $113.9 million compared to the same
period of 1996. For the 1997 six months, operating profit increased 15 percent
to $27.9 million while sales decreased 8 percent to $223.3 million.
Shipments of Fluid Systems' metal stamping dies and plastic compression
molds declined for the 1997 second quarter and six months as the company phases
down this business. Although Advanced Materials experienced lower sales of
cutting tools in Europe, operating profits and margins improved for this
business unit due to cost reductions. Margins also improved for Specialty
Equipment's material handlers and mining and construction equipment, and at
Fluid Systems' remaining businesses.
CONSUMER SEGMENT
Operating profit in the 1997 second quarter more than doubled to $13.2
million compared to the second quarter of 1996 and sales climbed 13 percent to
$82.8 million. For the 1997 six months, operating profit increased 78 percent to
$16.6 million and sales increased 9 percent to $151.5 million from the
comparable 1996 period.
Sales and margins improved for Teledyne Laars swimming pool products and
commercial heating systems due to cost reductions and the effect of a May, 1996
acquisition. In addition, operating results for Teledyne Water Pik shower and
oral health products increased due to favorable product performance and improved
margins from cost reductions.
SPECIAL ITEMS
Special items resulted in a net after-tax gain of $12.2 million, or $0.07
per share, in the 1997 second quarter. This after-tax gain included a $17.0
million gain on sale of the company's investment in Semtech Corporation common
stock and a $1.9 million gain on other investments. These gains were partially
offset by after-tax charges of $4.1 million for a legal settlement of a U.S.
government contract dispute related to a unit divested in 1995 and $2.6 million
related to merger and restructuring costs. Special items in the 1997 first
quarter included a net after-tax gain of $9.2 million on the sale of the
company's investment in Nitinol Development Corporation. This gain was largely
offset by an after-tax charge of $7.9 million from merger and restructuring
costs and the write-off of a research and development venture.
Second quarter 1996 unusual items resulted in a decrease in after-tax
income of $3.6 million, or $0.02 per share due to a charge for costs related to
a Teledyne, Inc. proxy contest and merger and restructuring costs which were
11
partially offset by a gain on the sale of a business. First quarter 1996 net
income included an after-tax gain of $24.8 million or $0.14 per share, on the
sale of the Company's defense vehicle business.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of this change on earnings per
share for the three and six months ended June 30, 1997 and for the same periods
in 1996 was not material.
INCOME TAXES
The Company's effective tax rate declined to 38.3 percent and 38.6 percent,
respectively, for the 1997 second quarter and six months from 39.8 percent and
39.2 percent, respectively, for the same periods in 1996 primarily due to
non-deductible business combination costs incurred in 1996.
FINANCIAL CONDITION AND LIQUIDITY
Working capital increased to $681.7 million at June 30, 1997, compared to
$614.0 million at December 31, 1996. The current ratio increased to 2.2 from 2.0
in this same period. The increase in working capital was primarily due to a
reclassification to current assets of a tax refund formerly carried in other
assets, higher accounts receivable and lower accounts payable balances.
In the first six months of 1997, cash generated from operations of $94.7
million, proceeds from the sales of businesses and investments of $58.4 million
and proceeds from the exercise of stock options of $26.6 million were used to
pay dividends of $56.2 million, reduce long-term debt $48.0 million, repurchase
treasury stock of $46.1 million, and invest $45.7 million in capital equipment
and business expansion. These transactions plus cash on hand at the beginning of
the year resulted in a cash position of $46.2 million at June 30, 1997. Capital
expenditures for 1997 are expected to approximate $130 million.
In mid-March, the Company's board of directors authorized a 12 million
share repurchase program. As of July 31, 1997, the company had repurchased 1.9
million shares on the open market for a cost of $52.2 million at per-share
prices ranging from $25 1/8 to $31. Average common shares outstanding increased
1 percent from the second quarter of 1996 due to stock option exercises net of
share repurchases.
On July 31, 1997, the board of directors declared a regular quarterly
dividend of $0.16 per share of common stock. The dividend is payable August 29,
1997 to shareholders of record at the close of business August 15, 1997.
The Company has announced that the Teledyne, Inc. 7% subordinated
debentures, due 1999 are being called for redemption. The redemption date is on
September 23, 1997. Payment will be made upon redemption of the debentures in an
amount equal to 100% of the principal amount of the debentures, in the aggregate
amount of approximately $20 million, plus accrued interest to the redemption
date.
The Company believes that internally generated funds, current cash on hand
and borrowing from existing credit lines will be adequate to meet foreseeable
needs.
12
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 investigation and
remediation of a number of sites under these laws. The Company's reserves for
environmental investigation and remediation totaled approximately $39 million at
June 30, 1997. 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 55 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 40 of these sites, and the potential loss
exposure with respect to any individual site is not considered to be material.
In 1996, Statement of Position 96-1, Environmental Remediation Liabilities,
which was issued by the American Institute of Certified Public Accountants,
establishes accounting standards for recognition of environmental costs. This
statement, which became effective in 1997, did not have a material effect on the
consolidated financial statements.
For additional discussion of environmental matters, see Note 5 to the
consolidated financial statements of the Company.
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.
13
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 5 to the
consolidated financial statements of the Company.
ELECTION OF OFFICERS
The Company's Board of Directors has elected Robert Mehrabian, a member of
the Company's Board of Directors, to serve as Senior Vice President and the
segment executive for the Company's Aerospace and Electronics division. The
Board of Directors has also elected Jon D. Walton to serve as the Company's
Senior Vice President, General Counsel and Secretary. Formerly, Mr. Walton
served as Vice President, General Counsel and Secretary.
FORWARD-LOOKING STATEMENTS
Certain forward-looking statements are contained in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 5 to the consolidated financial statements of the Company, including
statements concerning the expected adequacy of available funds to meet
foreseeable needs, proposed divestitures, 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." In addition, realization of the anticipated
benefits of the combination of Allegheny Ludlum and Teledyne could take longer
than expected and implementation difficulties and market factors 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, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company becomes involved from time to time in various lawsuits, claims
and proceedings relating to the conduct of its business, including those
pertaining to environmental, government contracting, product liability, patent
infringement, commercial, employment, employee benefits and stockholder matters.
14
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
matter is likely to have a material adverse effect on the Company's results of
operations for that period.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1997 annual meeting of stockholders was held on May 1, 1997.
At that meeting, the four nominees for director named in the proxy statement for
the meeting were elected, having received the following number of votes:
Name No. of Votes For No of Votes Withheld
Diane C. Creel 152,882,188 1,409,852
C. Fred Fetterolf 152,869,351 1,422,689
Robert Mehrabian 152,882,932 1,409,108
Richard P. Simmons 152,863,117 1,428,923
In addition, the stockholders voted on and approved the ratification of the
selection of Ernst & Young LLP as independent auditors of the Company for the
1997 fiscal year. The number of votes cast for approval was 153,600,750, against
was 364,867, and to abstain was 326,423 and there were no broker non-votes in
connection with the ratification of the selection of Ernst & Young LLP.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
27 Financial data schedule
(b) Registrant did not file any Form 8-K reports during the period
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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: August 14, 1997 By /s/ James L. Murdy
_____________________________________
James L. Murdy
Executive Vice President, Finance and
Administration and Chief Financial
Officer
(Duly Authorized Officer)
Date: August 14, 1997 By /s/ Dale G. Reid
______________________________________
Dale G. Reid
Vice President-Controller
(Principal Accounting Officer)
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