1 FILE NO. AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1999 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 TELEDYNE TECHNOLOGIES INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 25-1843385 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 2049 CENTURY PARK EAST LOS ANGELES, CALIFORNIA 90067-3101 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 277-3311 SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON WHICH TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED --------------------------------------- ------------------------------ COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ---------------- (TITLE OF CLASS) -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 2 TELEDYNE TECHNOLOGIES INCORPORATED INFORMATION INCLUDED IN INFORMATION STATEMENT AND INCORPORATED IN FORM 10 BY REFERENCE ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT ---- ------------ --------------------------------- 1 Business.............................. "Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Our Business" 2 Financial Information................. "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our Historical Selected Financial Data," "Our Unaudited Pro Forma Consolidated Financial Information," and "Index to Our Financial Statements" 3 Properties............................ "Our Business" 4 Security Ownership of Certain Beneficial Owners and Management...... "Security Ownership" 5 Directors and Officers................ "Management" and "Liability and Indemnification of Our Officers and Directors" 6 Executive Compensation................ "Management" 7 Certain Relationships and Related Transactions.......................... "Arrangements with ATI Relating to the Spin-Off" 8 Legal Proceedings..................... "Our Business" 9 Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters................... Not Applicable 10 Recent Sales of Unregistered Securities............................ Not Applicable 11 Description of Registrant's Securities to be Registered...................... "Description of Our Capital Stock" 12 Indemnification of Officers and Directors............................. "Liability and Indemnification of Our Officers and Directors" 13 Financial Statements and Supplementary Data.................... "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Our Historical Selected Financial Data," "Our Unaudited Pro Forma Consolidated Financial Information," and "Index to Our Financial Statements" 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................. Not Applicable 15 Financial Statements and Exhibits..... "Index to Our Financial Statements" and "Exhibit Index" 3 [ALLEGHENY TELEDYNE INCORPORATED LOGO] , 1999 To Our Stockholders: These are exciting times at your company. In January we announced our plans to effect a major transformation of Allegheny Teledyne that included the spin-offs of two of our business segments into independent, publicly-traded companies. This transformation is now being implemented. The businesses formerly comprising our Aerospace and Electronics segment will now be a separate company known as Teledyne Technologies Incorporated. The businesses formerly comprising our Consumer Products segment will be a separate company known as Water Pik Technologies, Inc. The common stock of these companies will be traded on the New York Stock Exchange under the symbols "TDY" and "PIK," respectively. Concurrently with the spin-offs we will change our name to "Allegheny Technologies Incorporated." We also intend to effect a one-for-two reverse split of our common stock. The spin-offs will allow Allegheny Technologies to focus exclusively on its strategic growth objectives as one of the largest and most diversified specialty metals companies in the world. ATI's strong base of companies provides an excellent foundation for enhanced operating synergies and for adding strategically complementary acquisitions. At the same time, the spin-offs provide each new company with a sharper focus, more efficient access to capital markets, and substantial growth opportunities in its respective areas of expertise. By creating these new companies, we believe that we will unlock greater value for their respective businesses and enhance their ability to thrive in today's competitive marketplace. Both of the spin-offs, which will be tax-free to U.S. stockholders and which do not require any action on your part, will be completed on , 1999. For every seven shares of ATI common stock that you own as of the close of business on , 1999, you will receive one share of Teledyne Technologies common stock. For every 20 shares of ATI common stock that you own as of the close of business on that date, you will receive one share of Water Pik Technologies common stock. The enclosed Information Statement contains information about the spin-off of Teledyne Technologies and about Teledyne Technologies' business, management and financial performance. Information about the Water Pik Technologies spin-off is being provided to you in a separate document. We encourage you to read all of these materials carefully. Very truly yours, Richard P. Simmons Chairman 4 [TELEDYNE TECHNOLOGIES INCORPORATED LOGO] , 1999 To Our Future Stockholders: Welcome to Teledyne Technologies Incorporated. On , 1999 you will become a stockholder of our company. We hope that you share our enthusiasm about our new company and its future. Teledyne Technologies has a strong foundation. We are a leading provider of sophisticated electronic and communication products, systems engineering solutions and information technology services, and aerospace engines and components. Our customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. The business operations of our company were carefully selected to create a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Our products include avionics systems that collect and communicate information for airlines and business aircraft systems; broadband communications subsystems for wireless and satellite systems; engineering and information technology services for space, defense and industrial customers; and engines for general aviation aircraft and for cruise missiles. Our goal is to become the leading provider of specialized products, systems engineering solutions and information services for a broad range of high technology applications. We are fortunate to have a technically-sophisticated and well-educated workforce. I am excited to be working with a management team that will provide high-caliber, experienced leadership and that is committed to our new company. Please read the enclosed material for more information about our company. We look forward to your support and are pleased to have you share in this exciting opportunity. Very truly yours, Robert Mehrabian President and Chief Executive Officer 5 PRELIMINARY INFORMATION STATEMENT DATED SEPTEMBER 13, 1999 -- FOR INFORMATION ONLY INFORMATION STATEMENT ------------------------- ALLEGHENY TELEDYNE INCORPORATED'S SPIN-OFF OF TELEDYNE TECHNOLOGIES INCORPORATED ------------------------- We are furnishing you with this Information Statement in connection with the spin-off by Allegheny Teledyne Incorporated ("ATI") of all of the outstanding common stock of Teledyne Technologies Incorporated to stockholders of ATI. We own and operate the businesses formerly comprising the Teledyne Electronic Technologies, Teledyne Brown Engineering, Teledyne Continental Motors and Teledyne Cast Parts divisions of ATI's Aerospace and Electronics segment. ATI will accomplish the spin-off by distributing all issued and outstanding shares of our common stock to holders of record of ATI common stock. ATI will distribute one share of our common stock for every seven ATI shares held as of the close of business on , 1999. The actual number of our shares to be distributed will depend on the number of ATI shares outstanding on that date. Concurrently with the spin-off, ATI will change its name to "Allegheny Technologies Incorporated." OWNING SHARES OF OUR COMMON STOCK WILL ENTAIL RISKS. PLEASE READ "RISK FACTORS" BEGINNING ON PAGE 16. NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE SPIN-OFF. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE NOT REQUESTED TO SEND US A PROXY. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ------------------------- The date of this Information Statement is , 1999. 6 TABLE OF CONTENTS PAGE ---- Summary..................................................... 3 Risk Factors................................................ 16 Cautionary Statement as to Forward-Looking Statements....... 22 The Spin-Off................................................ 22 Reasons for the Spin-Off.................................. 22 Manner of Effecting the Spin-Off.......................... 23 Results of the Spin-Off................................... 23 Certain Federal Income Tax Consequences of the Spin-Off... 24 Listing and Trading of Our Common Stock................... 25 Our Historical Selected Financial Data...................... 27 Our Unaudited Pro Forma Consolidated Financial Information............................................... 28 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 34 Our Business................................................ 43 Overview.................................................. 43 Our Business and Growth Strategy.......................... 43 Our Business Segments..................................... 46 Sales and Marketing....................................... 53 Competition............................................... 54 Research and Development.................................. 54 Intellectual Property..................................... 54 Our Facilities............................................ 55 Legal Proceedings......................................... 56 Employees................................................. 56 Arrangements with ATI Relating to the Spin-Off.............. 56 Separation and Distribution Agreement..................... 56 Employee Benefits Agreement............................... 57 Tax Sharing and Indemnification Agreement................. 58 Interim Services Agreement................................ 59 Trademark License Agreement............................... 59 Management.................................................. 60 Security Ownership.......................................... 69 Description of Our Capital Stock............................ 71 Liability and Indemnification of Our Officers and Directors................................................. 77 Available Information....................................... 77 Index to Our Financial Statements........................... F-1 7 SUMMARY This summary highlights selected information from this Information Statement, but does not contain all the details concerning the spin-off, including information that may be important to you. To better understand us and the spin-off, you should carefully review this entire document. References to "we," "us," "our," "Teledyne Technologies" or "the Company" mean Teledyne Technologies Incorporated and our subsidiaries and divisions. References to "ATI" mean Allegheny Teledyne Incorporated and its subsidiaries and divisions. WHO WE ARE Teledyne Technologies is a leading provider of sophisticated electronic and communication products, systems engineering solutions and information technology services, and aerospace engines and components. Our customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. Our products include avionics systems that collect and communicate information for airlines and business aircraft systems; broadband communications subsystems for wireless and satellite systems; engineering and information technology services for space, defense and industrial customers; and engines for general aviation aircraft and for cruise missiles. Total sales in 1998 were $780 million, compared to $757 million and $716 million in 1997 and 1996, respectively. Our operating profits were $89 million, $75 million and $75 million in 1998, 1997 and 1996, respectively. Approximately 60% of our total sales in 1998 were to commercial customers and the balance was to the U.S. Government. Approximately 69% of these U.S. Government sales were attributable to fixed price-type contracts and the balance to cost plus fee-type contracts. International sales accounted for approximately 22% of total sales in 1998. We have a total workforce of approximately 5,800, of whom approximately 1,400 individuals have engineering, physics, mathematics or computer science degrees. We believe that as several of the markets we serve experience consolidation, customers have tended to become increasingly dependent on technologically-sophisticated specialized suppliers, such as ourselves, to provide a more comprehensive range of products and services. With our history of product innovation, advanced research and development and highly sophisticated engineering and manufacturing capabilities, we believe that we are well- positioned to take advantage of opportunities to expand our business. OUR HISTORY The original Teledyne, Inc. was founded by Dr. Henry Singleton in 1960. Over the following two decades, Teledyne acquired over 100 high technology and specialty metals businesses. The original Teledyne ultimately focused on four major business segments: aviation and electronics, specialty metals, industrial and consumer. In 1996, Teledyne and Allegheny Ludlum Corporation combined to form ATI, one of the largest and most diversified specialty metals producers in the world. Subsequently, ATI integrated the Teledyne specialty 3 8 metals businesses with those of Allegheny Ludlum. ATI also established new management and a new management philosophy for our businesses, with an increased emphasis on manufacturing discipline and on strengthening cost management systems. After a strategic review initiated in 1998, ATI concluded that its core Aerospace and Electronics businesses, which will comprise our company, would be able to grow faster and be a stronger competitor as a separate company. As a separate company, Teledyne Technologies will be better able to focus on its own strategic priorities and will have more efficient access to the capital markets than it could as part of ATI. The operations included in Teledyne Technologies were carefully selected to create a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Certain businesses in ATI's Aerospace and Electronics segment were determined not to have these characteristics and were sold. Concurrently with the spin-off, ATI will change its name to "Allegheny Technologies Incorporated." OUR BUSINESS SEGMENTS Teledyne Technologies' three business segments, their respective operating companies and their contribution to our sales in 1998 are summarized in the following table. PERCENTAGE OF SEGMENT OPERATING COMPANIES 1998 SALES --------------------------- -------------------------------- ------------- Electronics and Teledyne Electronic Technologies 44% Communications Systems Engineering Teledyne Brown Engineering 29% Solutions Aerospace Engines and Teledyne Continental Motors 27% Electronics and Communications Our Electronics and Communications segment, through Teledyne Electronic Technologies, applies proprietary technology, advanced software and hardware design skills and manufacturing capabilities in three areas: Data Acquisition and Communications Products; Precision Electronic Devices; and Electronic Contract Manufacturing Services. - Data Acquisition and Communications Products. With over 200 commercial airline customers, we are one of the leading suppliers of systems that collect and communicate essential performance data for the commercial airline industry. We have provided these data acquisition systems for our airline customers for over one-half of Boeing aircraft currently in production. We were recently selected by Airbus Industrie's partner, DaimlerChrysler Aerospace-Airbus, to provide our systems for certain of its aircraft customers. Teledyne Technologies is also one of the largest suppliers of air-to-ground telephony and facsimile and data transmission products to the growing business and commuter aircraft market. We are a leading supplier of microwave power amplifiers used in satellite uplink transmitters for corporate networking and mobile news gathering, and are developing new products to support the growing market for high data rate broadband communications, including Internet applications. 4 9 - Precision Electronic Devices. We develop and manufacture specialized electronic components for demanding applications in the defense, commercial aerospace, medical, instrumentation and industrial markets, where high performance and reliability are of paramount importance. Our miniature electromechanical relays are used to switch high-speed digital and microwave signals in wireless systems, communication satellites, semiconductor test equipment and other applications where maintenance of signal fidelity is essential. We provide custom microelectronic modules for high reliability applications ranging from fiber optic systems on the International Space Station to life-sustaining medical devices such as cardiac pacemakers. We also manufacture instruments designed to provide the precise data that are essential for control of critical processes in the semiconductor and petrochemical industries. - Electronic Contract Manufacturing Services. We operate turnkey manufacturing facilities in Tennessee, Mexico and Scotland for low-to-moderate volume, technically-sophisticated products, ranging from individual printed circuit board assemblies to complete electronic systems. We manufacture subsystems used in such diverse products as weapons release systems and medical magnetic resonance imaging systems. We also support our customers with our patented REGAL(R) rigid-flex technology, which combines rigid and flexible printed circuits into one assembly that eliminates board-to-board connectors, resulting in improved reliability and packaging density. Systems Engineering Solutions Our Systems Engineering Solutions segment, through Teledyne Brown Engineering, offers a wide range of engineering solutions and information services to government defense, aerospace and commercial customers. Our solutions and services are focused on five areas: Aerospace Solutions, Defense Solutions, Information Services, Environmental Solutions, and Enterprise Control and Energy Products. - Aerospace Solutions. We provide a broad range of highly-sophisticated engineering solutions and services to U.S. space programs, including mission planning, payload integration, launch and flight operations and astronaut crew training for the Space Shuttle. We also provide various solutions and services for the International Space Station. - Defense Solutions. For over 45 years, we have played a key role in the development of the U.S. defense systems. For ballistic missile defense programs, we have provided solutions in systems engineering, integration, and testing; real-time distributed testing and training; radar and optical systems design; command center development; and intelligence studies and threat analysis. We provide battle simulation software as part of our role for the U.S. Ballistic Missile Defense Organization's National Missile Defense program. - Information Services. Our software products, most of which are certified to ISO 9001, are used for highly diverse applications, such as high-fidelity simulations, multi-media training, Internet website development, distributed real-time testing, and command and control centers. - Environmental Solutions. We utilize our systems engineering solutions to assist the U.S. Government in complying with terms of the Chemical Weapons Convention 5 10 Treaty. As the prime contractor for the U.S. Army's Non-Stockpile Chemical Materiel Demilitarization program, we are designing, fabricating, integrating and testing equipment to destroy chemical munitions. - Enterprise Control and Energy Products. Our systems engineering capabilities are applied to energy problems through a variety of services and products. Our OpenVector(TM) supervisory control and data acquisition systems are used for managing over half of the gas transportation pipelines in the United States. We also manufacture low-power, continuously-operating electrical generators. Aerospace Engines and Components Our Aerospace Engines and Components segment, through Teledyne Continental Motors and Teledyne Cast Parts, focuses on the design, development and manufacture of piston engines, turbine engines, electronic engine controls, batteries and metal castings. - Piston Engines. We design, develop and manufacture piston engines and ignition systems for major general aviation airframe manufacturers and provide spare parts and engine rebuilding services. Teledyne Continental Motors piston engines have been powering airplanes for over 70 years. We have built approximately one-half of the general aviation piston engines currently in use in the United States. Our Aerosance unit has developed the first full authority digital electronic controls for piston engines to automate many functions, such as fuel flow, ignition and power management, that currently require manual control. These controls are currently undergoing FAA certification testing. - Turbine Engines. We design, develop and manufacture small turbine engines for missiles, unmanned air vehicles and military trainer aircraft. Since the late 1950s, we have delivered over 20,000 of these engines to defense contractors. Our engines power the HARPOON cruise missile and other missile systems. We have recently been selected as the sole source provider of engines to power the two new U.S. cruise missile systems, the Joint Air to Surface Standoff Missile (JASSM) and the Tactical Tomahawk Cruise Missile. - Battery Products. Our Gill(R) line of lead acid batteries is recognized as the premier dry-charged, deep cycle power supply for general aviation. We are focused on providing highly engineered battery products in niche markets with favorable margins. - Cast Parts. Teledyne Cast Parts offers a wide range of complex aluminum and magnesium castings and nickel-based superalloy and stainless steel castings to the aerospace and defense industries. Many of our castings are used in specialized high pressure and high temperature applications where precision and product reliability are critical. 6 11 OUR COMPETITIVE STRENGTHS We have developed a number of competitive strengths as we have grown to become one of the leading developers of high technology product applications for the industries we serve. We believe that our competitive strengths include the following: - Product Innovation and Advanced Research and Development - Highly Sophisticated Engineering Capabilities - Widely-Recognized Brand Names - Advanced Manufacturing Capabilities - Established Customer and Regulatory Relationships - Technically-Sophisticated Workforce and Extensive Intellectual Property - Financial and Operating Discipline OUR BUSINESS AND GROWTH STRATEGY Our goal is to become the leading provider of specialized products, systems engineering solutions and information services for a broad range of high technology applications. Our core strategies for achieving our goal and growth objectives are to: - Focus on Operating Discipline and Manufacturing Excellence - Leverage Niche Market Leadership and Technical Expertise to Increase Market Penetration - Accelerate Introduction of Innovative High-Margin Products and Services - Capitalize on Synergies to Enter New Markets - Enhance and Strengthen Customer and Regulatory Relationships - Expand Value-Added Information Services - Pursue Selected Acquisitions and Strategic Alliances QUESTIONS AND ANSWERS ABOUT THE SPIN-OFF Why are we being spun-off by ATI? After a strategic review initiated in 1998, ATI concluded that its core aerospace and electronics businesses, which will comprise our company, would be able to grow faster and more effectively as a separate company. As a separate company, we will be better able to focus on our own strategic priorities and have more efficient access to the capital markets than we could as part of ATI. The operations included in Teledyne Technologies were carefully selected to create a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Certain businesses in ATI's Aerospace and Electronics segment were determined not to have these characteristics and were sold. 7 12 We believe that the spin-off will enable our businesses to expand and grow more quickly and efficiently in the following ways: - Our high technology businesses have different fundamentals, growth characteristics and strategic priorities than the specialty metals businesses currently conducted by ATI. The separation of our businesses from those of ATI will enable us to focus on our own strategic priorities, which should increase our ability to capitalize on growth opportunities for our businesses and enhance our ability to respond more quickly to changes in the technically-sophisticated markets that we serve. - The spin-off will enable us to have direct access to the capital markets. We intend to raise our own equity capital that we will use: to expand our businesses by accelerating new higher-margin product introductions through increased research and development investment; to expand upon our extensive data acquisition and systems engineering capabilities to provide value-added information services to broaden and deepen our market penetration; to further develop our manufacturing capabilities; and to pursue selected acquisitions. - The spin-off will enable us to recruit, retain and motivate key employees by providing them with stock-based compensation incentives directly tied to the success of our businesses. What will I receive in the spin-off? ATI will distribute one share of our common stock for every seven shares of ATI common stock you owned as of , 1999. For example, if you own 100 shares of ATI common stock, you will receive 14 whole shares of our common stock and cash instead of the fractional share. You will continue to own your ATI stock. ATI intends to effect a one-for-two reverse split of its common stock immediately after the spin-off. What do I have to do to participate in the spin-off? Nothing. No stockholder vote is required for the spin-off. How will ATI distribute Teledyne Technologies common stock to me? If you own ATI common stock on the record date, the distribution agent will automatically credit your shares of our common stock to a book-entry account established to hold your Teledyne Technologies common stock on , 1999 and will mail you a statement of your Teledyne Technologies common stock ownership. Following the spin-off 8 13 you may retain your shares of Teledyne Technologies common stock in your book-entry account, sell them, transfer them to a brokerage or other account, or request a physical certificate for whole shares. You will not receive new ATI stock certificates. What is the record date? The record date is , 1999. What if I hold my shares of ATI stock through my stockbroker, bank or other nominee? If you hold your shares of ATI stock through your stockbroker, bank or other nominee, you are probably not a stockholder of record and your receipt of Teledyne Technologies common stock depends on your arrangements with the nominee that holds your shares of ATI stock for you. We anticipate that stockbrokers, banks and other nominees generally will credit their customers' accounts with Teledyne Technologies common stock on or about , 1999, but you should check with your stockbroker, bank or other nominee. Following the spin-off you may instruct your stockbroker, bank or other nominee to transfer your shares of Teledyne Technologies common stock into your own name to be held in book-entry form through the direct registration system operated by the distribution agent. How will you treat fractional shares? If you are otherwise entitled to receive a fractional share of Teledyne Technologies common stock you will receive cash instead of the fractional share. Fractional shares will be aggregated and sold by the distribution agent, which will distribute to you your portion of the cash proceeds promptly after the spin-off. No interest will be paid on any cash distributed instead of fractional shares. What is Teledyne Technologies' dividend policy? We currently anticipate that no cash dividends will be paid on Teledyne Technologies common stock in the foreseeable future in order to conserve cash for use in our businesses, including possible future acquisitions. Our board of directors will periodically re-evaluate this dividend policy taking into account our operating results, capital needs and other factors. How does Teledyne Technologies common stock differ from ATI common stock? Teledyne Technologies common stock and ATI common stock will be different securities and will not trade or be valued alike. Teledyne Technologies and ATI will be separate companies with different management, fundamentals, growth characteristics and strategic priorities. However, as with ATI 9 14 common stock, Teledyne Technologies common stock will have the following characteristics: - be fully paid and nonassessable; - have one vote per share, with no right to cumulate votes; - carry no preemptive rights; and - be accompanied by Preferred Share Purchase Rights. How will Teledyne Technologies common stock trade? We have applied to list Teledyne Technologies common stock on the New York Stock Exchange under the symbol "TDY" and expect that regular trading will begin on , 1999. A temporary form of interim trading called "when-issued trading" may occur for our common stock on or before , 1999 and continue through , 1999. If when-issued trading occurs, the listing for Teledyne Technologies common stock will be accompanied by the letters "wi" on the New York Stock Exchange. If when-issued trading develops, you will be able to buy Teledyne Technologies common stock in advance of the , 1999 spin-off and you may sell Teledyne Technologies common stock in advance of such date on a when-issued basis. How will ATI common stock trade? ATI common stock will continue to trade on a "regular way" basis. Is the spin-off taxable for United States federal income tax purposes? No. ATI has received a tax ruling from the Internal Revenue Service stating that the spin-off will be tax-free to ATI and to ATI's stockholders. The continuing validity of the IRS tax ruling is subject to various factual representations and assumptions, including the completion of a public offering of our common stock within one year of the spin-off. See "Risk Factors" and "The Spin-Off -- Certain Federal Income Tax Consequences of the Spin-Off." Will we be related to ATI in any way after the spin-off? ATI will not own any of our common stock after the spin-off. Until the third annual meeting of our stockholders held after the spin-off, at least a majority of the members of our Board of Directors will also be members of the Board of Directors of ATI. We will enter into the following agreements with ATI prior to the spin-off: 10 15 - A Separation and Distribution Agreement, which provides for the various corporate transactions required to separate our businesses from other businesses of ATI and governs various relationships and circumstances that may arise between us after the spin-off; - An Employee Benefits Agreement, which contains various agreements between ATI and us concerning employees, pension and employee benefit plans and other compensation arrangements for current and former employees of our businesses; - A Tax Sharing and Indemnification Agreement allocating certain federal, state, local and foreign tax responsibilities and liabilities between ATI and us; - An Interim Services Agreement under which ATI will provide various services to us for limited periods of time following the spin-off; and - A Trademark License Agreement under which ATI will grant Teledyne Technologies an exclusive license to use the "Teledyne" name and related logos, symbols and marks in connection with Teledyne Technologies operations after the spin-off, which license will include Teledyne Technologies' option to purchase, on the fifth anniversary of the spin-off, all rights and interests in the Teledyne name and related logos, symbols and marks. See "Arrangements with ATI Relating to the Spin-Off." Are there any risks entailed in owning our stock? Yes. Stockholders should consider carefully the matters discussed in the section of this Information Statement called "Risk Factors." How can I obtain information about the separate spin-off of ATI's Consumer segment? The decision to spin-off Water Pik Technologies, Inc., the company that owns and operates the businesses formerly comprising ATI's Consumer segment, was part of the strategic planning process that lead to the decision to spin-off Teledyne Technologies. You will be provided with a separate Information Statement describing the spin-off of Water Pik Technologies. 11 16 WHAT WE HAVE ALREADY DONE IN PREPARATION FOR THE SPIN-OFF Board Appointments As of the date of the spin-off, the Board of Directors will consist of at least four members. Our initial directors will be Frank V. Cahouet, C. Fred Fetterolf and Charles J. Queenan, Jr., all of whom are also directors of ATI, as well as Robert Mehrabian, our President and Chief Executive Officer. Until the third annual meeting of our stockholders held after the spin-off, at least a majority of our directors will also be members of the Board of Directors of ATI. Senior Management Appointments Dr. Robert Mehrabian is our President and Chief Executive Officer. He has been the President and Chief Executive Officer of ATI's Aerospace and Electronics segment since July 1999. Dr. Mehrabian has served ATI in various senior executive capacities since July 1997, and prior to that, he served as President of Carnegie Mellon University. Stefan C. Riesenfeld is our Executive Vice President and Chief Financial Officer. He joined ATI in August 1999 as Executive Vice President and Chief Financial Officer of ATI's Aerospace and Electronics segment in anticipation of the spin-off. From 1996 to May 1999 he was Chief Financial Officer of ICL, PLC, a global information systems and services company based in London, England. Prior to that, from 1983 to 1996, he was with Unisys Corporation where he served as Vice President and Corporate Treasurer from 1989. New Credit Facility ATI will establish a five-year, $200 million revolving credit facility. Prior to the spin-off, ATI will use $100 million of borrowings under this credit facility to repay certain of its debt obligations and we will assume the repayment obligations for $100 million under this credit facility. Following that assumption, we will have $100 million of borrowing availability remaining under the credit facility, subject to the terms of the facility. 12 17 WHO CAN HELP ANSWER YOUR QUESTIONS Stockholders of ATI with questions relating to the spin-off should contact: Richard J. Harshman Vice President, Investor Relations and Corporate Communications Allegheny Teledyne Incorporated 1000 Six PPG Place Pittsburgh, Pennsylvania 15222-5479 (412) 394-2861 The distribution agent for our common stock in the spin-off and the transfer agent and registrar for our common stock after the spin-off is: ChaseMellon Shareholders Services, L.L.C. 85 Challenger Road Overpeck Centre Ridgefield Park, New Jersey 07660 1-xxx-xxx-xxxx 13 18 HISTORICAL SELECTED COMBINED FINANCIAL DATA The following table summarizes certain selected combined financial data for Teledyne Technologies. The income statement data for each of the three years ended December 31, 1998, 1997 and 1996 and the balance sheet data at December 31, 1998 and 1997 set forth below are derived from audited combined financial statements of Teledyne Technologies. The income statement data for the six months ended June 30, 1999 and 1998, and the years ended December 31, 1995 and 1994 and the balance sheet data at June 30, 1999 and 1998 and December 31, 1996, 1995 and 1994 set forth below are derived from unaudited combined financial statements of Teledyne Technologies. The historical selected combined financial data are not necessarily indicative of the results of operations or financial position that would have occurred if Teledyne Technologies had been a separate, independent company during the periods presented, nor are they indicative of our future performance. Such historical data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined financial statements and related notes included in this Information Statement. Per share data has not been presented because Teledyne Technologies was not a publicly held company during the periods presented. SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Sales................ $397,419 $399,228 $780,393 $756,601 $716,400 $680,475 $667,663 Net income........... $ 22,088 $ 25,218 $ 48,717 $ 41,624 $ 40,695 $ 30,850 $ 36,398 Working capital...... $ 88,815 $ 94,588 $ 78,568 $ 87,653 $104,184 $ 92,814 $ 68,896 Total assets......... $264,661 $261,407 $250,819 $255,366 $252,961 $234,301 $217,610 Stockholder's 14 19 PRO FORMA SELECTED CONSOLIDATED FINANCIAL DATA The pro forma selected consolidated financial data set forth below are derived from the unaudited pro forma consolidated financial information included in this Information Statement. The pro forma data do not represent what our financial position or results of operation would have been had we operated as a separate, independent public company, nor do they give effect to any events other than those discussed in the related notes. The pro forma data also do not project our financial position or results of operations as of any future date or for any future period. The capital structure that existed when our businesses operated as a part of ATI is not relevant because it does not reflect our expected future capital structure as a separate, independent public company. Accordingly, per share data for earnings have not been presented except for pro forma earnings per share for the six months ended June 30, 1999 and the year ended December 31, 1998. The basic weighted average shares outstanding were calculated by applying the conversion factor (one share of Teledyne Technologies common stock for every seven shares of ATI common stock) to ATI's basic weighted average shares outstanding during each period. SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 ----------------- ------------------ (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Sales....................................... $397,419 $780,393 Net income.................................. $ 17,964 $ 40,384 Basic earnings per share.................... $ 0.65 $ 1.44 Weighted average shares outstanding -- basic...................... 27,618 28,107 Diluted earnings per share.................. $ 0.65 $ 1.44 Weighted average shares outstanding -- diluted.................... 27,644 28,134 Working capital............................. $ 88,815 Total assets................................ $282,228 Long-term debt.............................. $100,000 15 20 RISK FACTORS You should carefully consider all the information we have included in this Information Statement. In particular, you should carefully consider the risk factors described below. In addition, please read "Cautionary Statement as to Forward Looking Statements" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" where we describe additional uncertainties associated with our business and certain forward-looking statements included in this Information Statement. WE MAY BE UNABLE TO SUCCESSFULLY INTRODUCE NEW AND ENHANCED PRODUCTS IN A TIMELY AND COST-EFFECTIVE MANNER. Our operating results will depend in part on our ability to introduce new and enhanced products on a timely basis. Successful product development and introduction depends on numerous factors, including our ability to anticipate customer and market requirements, changes in technology and industry standards, our ability to differentiate our offerings from offerings of our competitors, and market acceptance. We may not be able to develop and introduce new or enhanced products in a timely and cost-effective manner or to develop and introduce products that satisfy customer requirements. Our new products also may not achieve market acceptance or correctly anticipate new industry standards and technological changes. TECHNOLOGICAL CHANGE COULD CAUSE CERTAIN OF OUR PRODUCTS OR SERVICES TO BECOME OBSOLETE OR NON-COMPETITIVE. The markets for a number of our products and services are generally characterized by rapid technological development, evolving industry standards, changes in customer requirements and new product introductions and enhancements. A faster than anticipated change in one or more of the technologies related to our products or services or in market demand for products based on a particular technology could result in faster than anticipated obsolescence of certain of our products or services and could have a material adverse effect on our business, results of operation and financial condition. Currently accepted industry standards are also subject to change, which may contribute to the obsolescence of our products or services. OUR DEPENDENCE ON REVENUE FROM GOVERNMENT CONTRACTS SUBJECTS US TO THE RISK THAT WE MAY NOT BE SUCCESSFUL IN BIDDING FOR FUTURE CONTRACTS AND THAT GOVERNMENT FUNDING FOR THESE CONTRACTS MAY BE DELAYED OR CONTINUE TO DECREASE. We perform work on a number of contracts with the Department of Defense and other agencies and departments of the U.S. Government. Sales under contracts with the U.S. Government as a whole, including sales under contracts with the Department of Defense, as prime or subcontractor, represented approximately 40% of our total revenue for 1998. Performance under government contracts has certain inherent risks that could have a material effect on our business, results of operations and financial condition. Government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress typically appropriates funds for a given program on a fiscal-year basis even though contract performance may take more than one year. As a result, at the beginning of a major program, a contract is typically only partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. The overall U.S. military budget declined in real dollars from the mid-1980's through the early 1990's. Although U.S. military budgets have stabilized in recent years, future levels of defense spending cannot be predicted. Delays or further declines in U.S. military expenditures could adversely affect our business, results of operations and financial condition, depending upon the programs affected, the timing and size of the changes and our ability to offset the impact with new business or cost reductions. 16 21 Most of our U.S. Government contracts are subject to termination by the U.S. Government either at its convenience or upon the default of the contractor. Termination-for-convenience provisions provide only for the recovery of costs incurred or committed, settlement expenses, and profit on work completed prior to termination. Termination-for-default imposes liability on the contractor for excess costs incurred by the U.S. Government in procuring undelivered items from another source. We obtain many U.S. Government prime and subcontracts through the process of competitive bidding. We may not be successful in having our bids accepted. In addition, contracts may not be profitable. A number of our U.S. Government prime and subcontracts are fixed price-type contracts (69% in 1998). Under these types of contracts, we bear the inherent risk that actual performance cost may exceed the fixed contract price. This is particularly true where the contract was awarded and the price finalized in advance of final completion of design. We believe that the U.S. Government is increasingly requesting proposals for fixed price-type contracts. We, like other government contractors, are subject to various audits, reviews and investigations (including private party "whistleblower" lawsuits) relating to our compliance with federal and state laws. In addition, we have a compliance program designed to surface issues that may lead to voluntary disclosures to the U.S. Government. Generally, claims arising out of these U.S. Government inquiries and voluntary disclosures can be resolved without resorting to litigation. However, should the business unit or division involved be charged with wrongdoing, or should the U.S. Government determine that the unit or division is not a "presently responsible contractor," that unit or division, and conceivably our company as a whole, could be temporarily suspended or, in the event of a conviction, could be debarred for up to three years from receiving new government contracts or government-approved subcontracts. In addition, we could expend substantial amounts in defending against such charges and in damages, fines and penalties if such charges are proven or result in negotiated settlements. WE MAY NOT HAVE SUFFICIENT RESOURCES TO FUND PLANNED OR NECESSARY RESEARCH AND DEVELOPMENT, CAPITAL EXPENDITURES AND POSSIBLE ACQUISITIONS. In order to remain competitive, we must make substantial investments in research and development to develop new and enhanced products and continuously upgrade our process technology and manufacturing capabilities. Although we believe that anticipated cash flows from operations and available borrowings under the Credit Facility will be sufficient to satisfy our working capital and normal operating requirements, we cannot fund our planned research and development, capital investment programs and possible acquisitions without additional financing. Our ability to raise additional capital will depend on a variety of factors, some of which will not be within our control, including investor perceptions of us, our businesses and the industries in which we operate, and general economic and market conditions. We may be unable to successfully raise needed capital and the amount of net proceeds that will be available to us may not be sufficient to meet our needs. Failure to successfully raise needed capital on a timely or cost-effective basis could have a material adverse effect on our business, results of operations and financial condition. IF WE FAIL TO UNDERTAKE A PUBLIC OFFERING OF OUR COMMON STOCK WITHIN ONE YEAR FOLLOWING THE SPIN-OFF, WE WILL BE IN BREACH OF OUR AGREEMENTS WITH ATI. ATI has received a tax ruling from the IRS stating in principle that the spin-off will be tax-free to ATI and to ATI's stockholders. One of the assumptions underlying the tax ruling is that we will undertake a public offering of our common stock within one year following the spin-off and use the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of our manufacturing capabilities and for acquisitions 17 22 andor joint ventures. Pursuant to the Separation and Distribution Agreement and the Tax Sharing and Indemnification Agreement, we have also agreed with ATI to undertake such a public offering. Our failure to do so would be a breach of those agreements and subject us to substantial liabilities. WE SELL PRODUCTS AND SERVICES TO CUSTOMERS IN INDUSTRIES WHICH ARE CYCLICAL AND SENSITIVE TO CHANGES IN GENERAL ECONOMIC ACTIVITY. We derive significant revenues from the commercial aerospace industry. Domestic and international commercial aerospace markets are cyclical in nature. Historic demand for new commercial aircraft has been related to the stability and health of domestic and international economies. Delays or changes in aircraft and component orders could impact the future demand for our products and have a material adverse effect on our business, results of operations and financial condition. In addition, we sell products and services to customers in industries that are sensitive to the level of general economic activity and in mature industries that are sensitive to capacity. Adverse economic conditions affecting these industries may reduce demand for our products and services, which may reduce our profits, or our production levels, or both. PRODUCT LIABILITY CLAIMS OR RECALLS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR REPUTATION, BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION. As a manufacturer and distributor of various products, our results of operations are susceptible to adverse publicity regarding the quality or safety of our products. In part, product liability claims challenging the safety of our products may result in a decline in sales for a particular product which could adversely affect our results of operations. This could be true even if the claims themselves are proven to not be true or settled for immaterial amounts. While we will have general liability and other insurance policies concerning product liabilities, we will have self-insured retentions or deductibles under such policies with respect to a portion of these liabilities. For example, our annual self-insured retention for general aviation aircraft liabilities incurred in connection with products manufactured by Teledyne Continental Motors is $10 million. Product recalls could also have a material adverse effect on our business, results of operations and financial condition. For example, in the second quarter of 1999, Teledyne Continental Motors engaged in a product recall of piston engines produced in 1998, which had an adverse effect on our recent financial performance. Product recalls have the potential for tarnishing a company's reputation and could have a material adverse effect on the sales of our products. We cannot assure you that we will not have additional product liability claims or that we will not recall any additional products. WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH INTERNATIONAL SALES. During 1998, international sales accounted for approximately 22% of our total revenues. We anticipate that future international sales will continue to account for a significant percentage of our revenues. Risks associated with these sales include: - political and economic instability; - export controls; - changes in legal and regulatory requirements; - U.S. and foreign government policy changes affecting the markets for our products; - changes in tax laws and tariffs; - the impact of the transition to a common European currency; - convertibility and transferability of international currencies; and - exchange rate fluctuations (which may affect sales to international customers and the value 18 23 of and profits earned on international sales when converted into dollars). Any of these factors could have a material adverse effect on our business, results of operations and financial condition. Recent weak conditions in Asian economies have affected our results of operations adversely. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." OUR INABILITY TO ATTRACT AND RETAIN KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FUTURE SUCCESS. Our future success depends to a significant extent upon the continued service of our executive officers and other key management and technical personnel and on our ability to continue to attract, retain and motivate qualified personnel. The loss of the services of one or more of our key employees or our failure to attract, retain and motivate qualified personnel could have a material adverse effect on our business, financial condition and results of operations. In particular, the loss of the services of Dr. Robert Mehrabian, our President and Chief Executive Officer, could materially and adversely affect us. ACQUISITIONS INVOLVE INHERENT RISKS THAT MAY ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION. Our growth strategy includes possible acquisitions. Acquisitions involve various inherent risks, such as: - our ability to assess accurately the value, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates; - the potential loss of key personnel of an acquired business; - our ability to integrate acquired businesses and to achieve identified financial and operating synergies anticipated to result from an acquisition; and - unanticipated changes in business and economic conditions affecting an acquired business. PROVISIONS OF OUR GOVERNING DOCUMENTS, APPLICABLE LAW AND THE TAX SHARING AND INDEMNIFICATION AGREEMENT COULD MAKE AN ACQUISITION OF TELEDYNE TECHNOLOGIES MORE DIFFICULT. Our Certificate of Incorporation, Bylaws and Rights Agreement, and the General Corporation Law of the State of Delaware (the "DGCL") contain several provisions that could make the acquisition of control of Teledyne Technologies in a transaction not approved by our board of directors more difficult. See "Description of Our Capital Stock -- Rights Plan," "-- Certain Provisions of Our Governing Documents," and "-- Anti-takeover Legislation." Certain tax aspects of the spin-off could also discourage an acquisition of control of Teledyne Technologies for some period of time. For example, the acquisition of Teledyne Technologies by a third party during the two-year period following the spin-off could result in the spin-off not qualifying as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code and trigger indemnification obligations of Teledyne Technologies under the Tax Sharing and Indemnification Agreement. See "Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement." IF WE ARE UNABLE TO MANAGE OUR YEAR 2000 TRANSITION, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION WILL BE ADVERSELY AFFECTED. We are in the final stages of implementing plans to address issues related to the impact of the Year 2000 on our products, business systems, infrastructure, manufacturing systems and suppliers. The estimated costs associated with these efforts continue to be evaluated based on actual experience. While we believe, based on available information, that we will be able to manage our Year 2000 transition without any material adverse effect on our business, results of operations and 19 24 financial condition, there can be no assurance that this will be the case. In addition, we may be adversely affected by the failure of suppliers, customers and federal, state, local and international governments to address Year 2000 issues affecting their systems. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness Disclosure." COMPLIANCE WITH INCREASING ENVIRONMENTAL REGULATIONS AND THE EFFECTS OF POTENTIAL ENVIRONMENTAL LIABILITIES COULD HAVE A MATERIAL ADVERSE FINANCIAL EFFECT ON US. We, like other industry participants, are subject to various federal, state, local and international environmental laws and regulations. We may be subject to increasingly stringent environmental standards in the future. Future developments, administrative actions or liabilities relating to environmental matters could have a material adverse effect on our business, results of operations or financial condition. Some of our businesses work with highly dangerous substances which require heightened standards of care. For example, as the prime contractor for the U.S. Army's Non-Stockpile Chemical Materiel Demilitarization program, we are responsible for the destruction of small caches of chemical munitions and materiel located in over 30 states. The destruction of chemical weapons is an inherently dangerous activity. Although we have not experienced any accidents or other adverse consequences as a result of our participation in this program, we cannot assure you that we will not experience any problems in the future. INCREASING COMPETITION COULD REDUCE THE DEMAND FOR OUR PRODUCTS AND SERVICES. Although we have certain advantages that we believe help us compete in our markets, each of our markets is highly competitive. Many of our competitors have, and potential competitors could have, greater name recognition, a larger installed base of products, more extensive engineering, manufacturing, marketing and distribution capabilities and greater financial, technological and personnel resources than we do. New or existing competitors may also develop new technologies which could adversely affect the demand for our products and services. Industry consolidation trends, particularly among aerospace and defense contractors, could adversely affect demand for our products and services if prime contractors seek to control more aspects of vertically-integrated projects. HAVING NO OPERATING HISTORY AS AN INDEPENDENT COMPANY MAKES IT DIFFICULT TO PREDICT OUR PROFITABILITY AS A STAND-ALONE COMPANY. We do not have an operating history as an independent company. Our businesses have historically relied on ATI for various financial, managerial and administrative services and have been able to benefit from the earnings, financial resources, assets and cash flows of ATI's other businesses. After the spin-off, ATI will only be obligated to provide us with the assistance and services set forth in the Interim Services Agreement. See "Arrangements with ATI Relating to the Spin-Off." Following the spin-off, we will incur costs and expenses associated with the management of a public company that we expect will be greater than the amount reflected in our historical financial statements. We will also incur interest expense and be subject to the other requirements associated with our credit facility. While we have been profitable as part of ATI, there can be no assurance that, as a stand-alone company, our future profits will be comparable to historical operating results before the spin-off. We also will need to dedicate significant managerial and other resources at the corporate level to establish the infrastructure and systems necessary for us to operate as an independent public company. While we believe that we have sufficient management resources, we cannot assure you that this will be the case or that we will successfully implement our operating and growth initiatives. Failure to implement these initiatives successfully could have a material 20 25 adverse effect on our business, results of operations and financial condition. SINCE THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK IT IS IMPOSSIBLE TO PREDICT THE PRICES AT WHICH OUR COMMON STOCK WILL TRADE IN THE OPEN MARKET. There has been no prior trading market for our common stock, and we cannot predict the prices at which trading in our common stock will occur after the spin-off. The trading prices for our common stock could fluctuate significantly. SUBSTANTIAL SALES OF OUR COMMON STOCK FOLLOWING THE SPIN-OFF OR THE PROSPECT OF THE REQUIRED PUBLIC OFFERING COULD CAUSE A DECREASE IN THE MARKET PRICE OF OUR COMMON STOCK. Substantially all of the shares of our common stock distributed in the spin-off will be eligible for immediate resale in the public market. In transactions similar to the spin-off, it is not unusual for a significant redistribution of shares to occur during the first few weeks or even months following completion of the transaction because of the differing objectives and strategies of investors, including mutual funds, who acquire shares of our common stock in the transaction. In addition, the prospect of our being required to undertake a public offering of our common stock within one year following the spin-off may adversely affect the market price of our common stock. Sales of substantial amounts of our common stock in the public market following the spin-off, the perception that any redistribution has not been completed, or the prospect of our having to undertake a public offering of our common stock following the spin-off, could materially adversely affect the market price of our common stock. FAILURE OF REPRESENTATIONS AND ASSUMPTIONS UNDERLYING THE IRS TAX RULING COULD CAUSE THE SPIN-OFF NOT TO BE TAX-FREE TO ATI OR TO ATI'S STOCKHOLDERS AND MAY REQUIRE US TO INDEMNIFY ATI. While the tax ruling relating to the qualification of the spin-off as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code generally is binding on the IRS, the continuing validity of the tax ruling is subject to certain factual representations and assumptions, including the assumption that we will complete a required public offering of our common stock within one year following the spin-off, and use the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of our manufacturing capabilities and for acquisitions andor joint ventures. ATI and Teledyne Technologies are not aware of any facts or circumstances that would cause such representations and assumptions to become untrue. If the spin-off were not to qualify as a tax-free distribution within the meaning of Section 355 of the Code, ATI would recognize taxable gain equal to the amount by which the fair market value of the Teledyne Technologies common stock distributed to ATI's stockholders exceeded ATI's tax basis in our common stock. In addition, the distribution of our common stock to each ATI stockholder would generally be treated as taxable in an amount equal to the fair market value of the Teledyne Technologies common stock such stockholder receives. If the spin-off qualified as a distribution under Section 355 of the Code but failed to be tax-free to ATI because of certain post-spin-off circumstances (such as an acquisition of Teledyne Technologies) ATI would recognize taxable gain as described above, but the distribution of our common stock in the spin-off would generally be tax-free to each ATI stockholder. The Tax Sharing and Indemnification Agreement provides that we will be responsible for any taxes imposed on, or other amounts paid by, ATI, its agents and representatives and its stockholders as a result of the failure of the spin-off to qualify as a tax-free distribution within the meaning of Section 355 of the Code if the failure or disqualification is caused by certain post-spin-off actions by or with respect to us (including our subsidiaries) or our stockholders. For example, 21 26 the acquisition of Teledyne Technologies by a third party during the two-year period following the spin-off could cause such a failure or disqualification. If any of the taxes or other amounts described above were to become payable by us, the payment could have a material adverse effect on our financial condition, results of operations and cash flow and could exceed our net worth by a substantial amount. See "Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement." CAUTIONARY STATEMENT AS TO FORWARD LOOKING STATEMENTS We caution you that this document contains disclosures which are forward-looking statements. All statements regarding ATI's or Teledyne Technologies' expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, projected costs or cost savings, capital expenditures, competitive positions, growth opportunities for existing products or products under development, benefits from new technology, plans and objectives of management for future operations and markets for stock are forward-looking statements. In addition, forward-looking statements include statements in which we use words such as "expect," "believe," "anticipate," "intend," or similar expressions. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, we cannot assure you that these expectations will prove to have been correct, and actual results may differ materially from those reflected in the forward-looking statements. Factors that could cause our actual results to differ from the expectations reflected in the forward-looking statements in this document include those set forth in "Risk Factors." Neither Teledyne Technologies nor ATI has any intention of or obligation to update the forward-looking statements, even if new information, future events or other circumstances make them incorrect or misleading. THE SPIN-OFF REASONS FOR THE SPIN-OFF After a strategic review initiated in 1998, ATI concluded that its core aerospace and electronics businesses, which will comprise our company, would be able to grow faster and more effectively as a separate, independent company. As a separate, independent company, we will be better able to focus on our own strategic priorities and have more efficient access to the capital markets than we could as part of ATI. The operations included in Teledyne Technologies were carefully selected to create a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Certain businesses in ATI's Aerospace and Electronics segment were determined not to have these characteristics and were sold. This Information Statement relates only to distribution of the common stock of Teledyne Technologies, whose businesses are those formerly comprising ATI's Aerospace and Electronics segment. A separate Information Statement will be provided to you regarding the spin-off of Water Pik Technologies, Inc., the company that owns and operates the businesses formerly comprising ATI's Consumer segment. We believe that the spin-off will enable our businesses to expand and grow more quickly and efficiently in the following ways: - Our high technology businesses have different fundamentals, growth characteristics and strategic priorities than the specialty metals businesses currently conducted by ATI. The separation of our businesses from those of ATI will allow us to focus on our own strategic priorities, which should increase our ability to capitalize on growth opportunities for our businesses and enhance our ability to respond more quickly to changes in the technically- sophisticated markets that we serve. - The spin-off will enable us to have direct access to the capital markets to finance the expansion of our businesses and support our 22 27 future growth. More specifically, we intend to raise our own equity capital: - to accelerate new higher-margin product introductions through increased research and development investment - to expand upon our extensive data acquisition and systems engineering capabilities to provide value-added information services to broaden and deepen our market penetration - to further develop our manufacturing capabilities - to pursue selected acquisitions - The spin-off will enable us to recruit, retain and motivate key employees by providing them with stock-based compensation incentives directly tied to the success of our businesses. MANNER OF EFFECTING THE SPIN-OFF ATI will effect the spin-off by distributing all issued and outstanding shares of our common stock to holders of record of ATI common stock as of the close of business on , 1999. The spin-off will be made on the basis of one share of our common stock for every seven shares of ATI common stock held. Since we will use a direct registration system to implement the spin-off, the distribution agent will credit the shares of Teledyne Technologies common stock distributed on the date of the spin-off to book-entry accounts established for each ATI stockholder and will mail an account statement to each stockholder stating the number of whole shares of Teledyne Technologies common stock received by such stockholder in the spin-off. If a stockholder is otherwise entitled to receive a fractional share of Teledyne Technologies common stock, that stockholder will instead receive cash for that fractional share. The distribution agent will, promptly after the date of the spin-off, aggregate all fractional share interests in Teledyne Technologies common stock with those of other similarly situated stockholders and sell such interests in Teledyne Technologies common stock at then-prevailing prices. The distribution agent will distribute the cash proceeds to stockholders entitled to such proceeds pro rata based upon their fractional interests in Teledyne Technologies common stock. No interest will be paid on any cash distributed instead of fractional shares. No owner of ATI common stock will be required to pay any cash or other consideration for shares of Teledyne Technologies common stock received in the spin-off or to surrender or exchange any shares of ATI common stock to receive shares of Teledyne Technologies common stock. The actual total number of shares of Teledyne Technologies common stock to be distributed will depend on the number of shares of ATI common stock outstanding on , 1999. Participants in the ATI Investor Services Program will be credited with the number of shares (including fractional shares) of Teledyne Technologies common stock distributed in the spin-off in respect of the ATI common stock held in their accounts. NO CONSIDERATION WILL BE PAID BY STOCKHOLDERS OF ATI FOR THE SHARES OF OUR COMMON STOCK TO BE RECEIVED BY THEM IN THE SPIN-OFF. ATI STOCKHOLDERS WILL NOT BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF ATI COMMON STOCK OR TAKE ANY OTHER ACTION IN ORDER TO RECEIVE OUR COMMON STOCK. RESULTS OF THE SPIN-OFF After the spin-off, we will be an independent separate, independent public company. Our management, fundamentals, growth characteristics and strategic priorities will be different from those of ATI. Concurrently with the spin-off, ATI will change its name to "Allegheny Technologies Incorporated." The number and identity of our stockholders immediately after the spin-off will be the same as the number and identity of ATI's stockholders at the close of business on , 1999. Immediately after the spin-off, we expect to have 23 28 approximately holders of record of our common stock and approximately shares of our common stock outstanding, based on the number of record stockholders and issued and outstanding shares of ATI common stock as of the close of business on , 1999 and on the distribution ratio of one share of our common stock for every seven shares of ATI common stock owned by ATI stockholders at that time. As with ATI common stock, the shares of Teledyne Technologies common stock will: - be fully paid and nonassessable; - have one vote per share, with no right to cumulate votes; - carry no preemptive rights; and - be accompanied by Preferred Share Purchase Rights. The Teledyne Technologies common stock and the ATI common stock, however, will be different securities and will not trade or be valued alike. See "Description of Our Capital Stock." We have applied to have our common stock approved for listing on the New York Stock Exchange under the trading symbol "TDY." The spin-off will not, in and of itself, affect the number of outstanding shares of ATI common stock or the rights associated with these shares. ATI intends to effect a one-for-two reverse split of its common stock immediately following the spin-off. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF The following is a summary of the material United States Federal income tax consequences of the spin-off. It is not intended to address the tax consequences applicable to every stockholder. In particular, this summary does not cover state, local, or international income and other tax consequences. Accordingly, stockholders are strongly encouraged to consult their individual tax advisors for information on the tax consequences applicable to their individual situations. ATI has received a tax ruling from the IRS that states that the spin-off will qualify as a tax-free distribution under Section 355 of the Internal Revenue Code. In accordance with this tax ruling: - No gain or loss will be recognized by ATI upon the distribution of Teledyne Technologies common stock to ATI's stockholders. - No gain or loss will be recognized by ATI's stockholders as a result of your receipt of our common stock in the spin-off except to the extent that you receive cash instead of a fractional share. - If you receive cash instead of a fractional share of our common stock in the spin-off, you will be treated as having received the fractional share in the spin-off and then having sold the fractional share. Accordingly, you will recognize gain or loss equal to the difference between the cash you receive and the amount of tax basis allocable (as described below) to the fractional share. The gain or loss will be capital gain or loss if you would have had the fractional share as a capital asset. - Your tax basis in your ATI common stock will be apportioned among the ATI common stock and the common stock of Teledyne Technologies and common stock of Water Pik Technologies, Inc. you receive in the spin-offs on the basis of the relative fair market values of the shares at the time of the spin-offs. Promptly following the spin-off, ATI will send a letter to the holders of ATI common stock who receive our common stock in the spin-off that will explain the allocation of tax basis among ATI common stock and the Teledyne Technologies common stock and the Water Pik common stock you receive in the spin-offs. - The holding period of Teledyne Technologies common stock that you receive in the spin-off will be the same as the holding period of ATI common stock with respect to which you received our common stock so long as you 24 29 hold the ATI common stock as a capital asset on the date of the spin-off. The tax ruling relating to the qualification of the spin-off as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code generally is binding on the IRS. However, the continuing validity of the tax ruling is subject to certain factual representations and assumptions, including completion of a public offering of our common stock within one year of the spin-off, and use of the anticipated gross proceeds of approximately $125 million (less associated costs) for research and development and related capital projects, for the further development of our manufacturing capabilities and for acquisitions andor joint ventures. If the spin-off were not to qualify as a tax-free distribution within the meaning of Section 355 of the Code, ATI would recognize taxable gain equal to the amount by which the fair market value of Teledyne Technologies common stock distributed to ATI's stockholders exceeds ATI's tax basis in our common stock. In addition, each ATI stockholder who receives our common stock in the spin-off would generally be treated as having received a taxable distribution in an amount equal to the fair market value of our common stock. If the spin-off qualified under Section 355 of the Code but failed to be tax-free to ATI because of certain post-spin-off circumstances, ATI would recognize taxable gain as described above but the spin-off would generally be tax-free to each ATI stockholder as described in the preceding paragraph. See "Risk Factors." THE FOREGOING SUMMARIZES THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF UNDER CURRENT LAW AND IS INTENDED FOR GENERAL INFORMATION ONLY. YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE SPIN-OFF TO YOU, INCLUDING THE APPLICATION OF STATE, LOCAL AND INTERNATIONAL TAX LAWS, AND AS TO POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE. The Tax Sharing and Indemnification Agreement provides that we are not to take any action inconsistent with, nor fail to take any action required by, the request for the tax ruling or the tax ruling unless ATI has given its prior written consent or, in certain circumstances, a supplemental ruling that permits such action is obtained. The Tax Sharing and Indemnification Agreement also provides that we will be responsible for any taxes imposed on, or amounts paid by, ATI, its agents and representatives and its stockholders as a result of the failure of the spin-off to qualify as a tax-free distribution within the meaning of Section 355 of the Code if the failure or disqualification is attributable to certain post-spin-off actions or failures to act by or with respect to us (including our subsidiaries) or our stockholders, such as the acquisition of Teledyne Technologies by a third party at a time and in a manner that would cause such a failure or disqualification. See "Arrangements with ATI Relating to the Spin-Off -- Tax Sharing and Indemnification Agreement." LISTING AND TRADING OF OUR COMMON STOCK Currently, there is no public market for our common stock. We have applied to have our common stock approved for listing on the New York Stock Exchange under the trading symbol "TDY." We expect that a when-issued trading market for our common stock will develop on or before the close of business on , 1999. We expect that the New York Stock Exchange will determine that ATI common stock traded on or after , 1999, the second trading day prior to the record date for the spin-off, will be traded "regular way" (with due bills attached). As a result, after that trading day, ATI common stock will have due bills attached entitling the buyer to receive and requiring the seller to deliver the shares of Teledyne Technologies common stock to be distributed in the spin-off as well as the underlying shares of ATI common stock. Beginning on the first New York Stock Exchange trading day after the date of the spin-off, we expect that trading of ATI common stock "regular way" (with due bills attached) will no longer be permitted and ATI common stock will 25 30 trade "regular way" only, entitling the buyer to receive only ATI common stock. Until our common stock is fully distributed and an orderly market develops, the prices at which trading in our common stock occurs may fluctuate significantly and may be lower or higher than the price that would be expected for a fully-distributed issue. The prices at which our common stock will trade following the spin-off will be determined by the marketplace and may be influenced by many factors, including: - the depth and liquidity of the market for our common stock; - investor perceptions of us, our businesses and the industries in which we operate; - our dividend policy; - our financial results; and - general economic and market conditions. Substantially all of the shares of our common stock that are distributed in the spin-off will be eligible for immediate resale. In transactions similar to the spin-off, it is not unusual for a significant redistribution of shares to occur during the first few weeks or even months following completion of the transaction because of the differing objectives and strategies of investors who acquire shares of our common stock in the transaction. We are not able to predict whether substantial amounts of our common stock will be sold in the open market following the spin-off or what effect these sales may have on prices at which our common stock may trade. Sales of substantial amounts of our common stock in the public market during this period, the perception that any redistribution has not been completed or the prospect of our having to undertake a public offering of our common stock following the spin-off could materially adversely affect the market price of our common stock. Generally, the shares of our common stock that are distributed in the spin-off will be freely transferable, except for securities received by persons deemed to be our "affiliates" under the Securities Act of 1933, as amended ("Securities Act"). Persons who may be deemed to be our affiliates after the spin-off generally include individuals or entities that control, are controlled by, or are in common control with us, including our directors. Persons who are our affiliates will be permitted to sell shares of our common stock they receive in the spin-off only pursuant to an effective registration statement under the Securities Act or an exemption from the registration requirements of the Securities Act, such as in accordance with the requirements of Rule 144 under the Securities Act. 26 31 OUR HISTORICAL SELECTED FINANCIAL DATA The following table summarizes certain selected combined financial data for Teledyne Technologies. The income statement data for each of the three years ended December 31, 1998, 1997 and 1996 and the balance sheet data at December 31, 1998 and 1997 set forth below are derived from audited combined financial statements of Teledyne Technologies. The income statement data for the six months ended June 30, 1999 and 1998 and the years ended December 31, 1995 and 1994 and the balance sheet data at June 30, 1999 and 1998 and December 31, 1996, 1995 and 1994 set forth below are derived from unaudited combined financial statements of Teledyne Technologies. The historical selected combined financial data are not necessarily indicative of the results of operations or financial position that would have occurred if Teledyne Technologies had been a separate, independent company during the periods presented, nor are they indicative of our future performance. Such historical data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our combined financial statements and related notes included in this Information Statement. Per share data has not been presented because Teledyne Technologies was not a publicly held company during the periods presented. SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------- 1999 1998 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS) Sales......................... $397,419 $399,228 $780,393 $756,601 $716,400 $680,475 $667,663 Net income.................... $ 22,088 $ 25,218 $ 48,717 $ 41,624 $ 40,695 $ 30,850 $ 36,398 Working capital............... $ 88,815 $ 94,588 $ 78,568 $ 87,653 $104,184 $ 92,814 $ 68,896 Total assets.................. $264,661 $261,407 $250,819 $255,366 $252,961 $234,301 $217,610 27 32 OUR UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated income statements for the six months ended June 30, 1999 and for the year ended December 31, 1998 and the unaudited pro forma consolidated balance sheet at June 30, 1999 present the combined results of operations and financial position of Teledyne Technologies assuming that the transactions contemplated by the spin-off had been completed as of the beginning of 1998 with respect to the pro forma consolidated income statements for the six months ended June 30, 1999 and for the year ended December 31, 1998 and as of June 30, 1999 with respect to the pro forma consolidated balance sheet. In the opinion of management, they include all material adjustments necessary to reflect, on a pro forma basis, the impact of transactions contemplated by the spin-off on the historical financial information of Teledyne Technologies. 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 consolidated financial information of Teledyne Technologies should be read in conjunction with the historical financial statements of Teledyne Technologies and the related notes. The pro forma financial information has been presented for informational purposes only and does not reflect the results of operations or financial position of Teledyne Technologies that would have occurred had Teledyne Technologies operated as a separate, independent company for the periods presented. Actual results might have differed from pro forma results if Teledyne Technologies had operated independently. The pro forma financial information should not be relied upon as being indicative of results Teledyne Technologies would have had or of future results after the spin-off. 28 33 TELEDYNE TECHNOLOGIES INCORPORATED UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1999 HISTORICAL PRO FORMA TELEDYNE TELEDYNE TECHNOLOGIES PRO FORMA TECHNOLOGIES INCORPORATED ADJUSTMENTS INCORPORATED ------------ ----------- ------------ (IN THOUSANDS) ASSETS Cash.................................. $ -- $ -- $ -- Accounts receivable................... 114,324 -- 114,324 Inventories........................... 53,639 -- 53,639 Deferred income taxes................. 17,392 -- 17,392 Prepaid expenses and other current assets............................. 2,393 -- 2,393 -------- --------- -------- TOTAL CURRENT ASSETS............... 187,748 -- 187,748 Property, plant and equipment......... 44,283 -- 44,283 Deferred income taxes................. 17,599 9,060 26,659 Cost in excess of net assets acquired........................... 9,363 -- 9,363 Other assets.......................... 5,668 8,507 14,175 -------- --------- -------- TOTAL ASSETS....................... $264,661 $ 17,567 $282,228 ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable...................... $ 48,876 $ -- $ 48,876 Accrued liabilities................... 50,057 -- 50,057 -------- --------- -------- TOTAL CURRENT LIABILITIES 98,933 -- 98,933 Long-term debt........................ -- 100,000 100,000 Net unrecognized actuarial gains on pension obligation................. -- 18,184 18,184 Accrued postretirement benefits....... 33,205 -- 33,205 Other long-term liabilities........... 16,404 13,507 29,911 -------- --------- -------- TOTAL LIABILITIES.................. 148,542 131,691 280,233 -------- --------- -------- STOCKHOLDERS' EQUITY: Preferred stock, par value $0.01: authorized -- 15,000,000 shares; issued and outstanding -- none..... -- -- -- Common stock, par value $0.01: authorized -- 125,000,000 shares; issued and outstanding -- 27,243,725 shares... -- 272 272 Additional paid-in capital............ -- 137 137 Net advances from (to) Allegheny Teledyne Incorporated.............. 114,533 (114,533) -- Foreign currency translation gains.... 1,586 -- 1,586 -------- --------- -------- TOTAL STOCKHOLDERS' EQUITY......... 116,119 (114,124) 1,995 -------- --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $264,661 $ 17,567 $282,228 See accompanying Notes to Unaudited Pro Forma Consolidated Financial Information. 29 34 TELEDYNE TECHNOLOGIES INCORPORATED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1999 HISTORICAL TELEDYNE PRO FORMA TELEDYNE TECHNOLOGIES PRO FORMA TECHNOLOGIES INCORPORATED ADJUSTMENTS INCORPORATED ------------------- ----------- ------------------ (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) SALES.......................... $397,419 $ -- $397,419 Costs and expenses: Cost of sales................ 296,660 -- 296,660 Selling, general and administrative expenses... 63,641 3,526 67,167 Interest expense............. -- 3,500 3,500 -------- ------- -------- 360,301 7,026 367,327 -------- ------- -------- Earnings before other income... 37,118 (7,026) 30,092 Other income................... 511 -- 511 -------- ------- -------- INCOME BEFORE INCOME TAXES..... 37,629 (7,026) 30,603 Provision for income taxes..... 15,541 (2,902) 12,639 -------- ------- -------- NET INCOME..................... $ 22,088 $(4,124) $ 17,964 ======== ======= ======== BASIC NET INCOME PER COMMON SHARE........................ $ 0.65 ======== DILUTED NET INCOME PER COMMON SHARE........................ $ 0.65 See accompanying Notes to Unaudited Pro Forma Consolidated Financial Information. 30 35 TELEDYNE TECHNOLOGIES INCORPORATED UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998 HISTORICAL TELEDYNE PRO FORMA TELEDYNE TECHNOLOGIES PRO FORMA TECHNOLOGIES INCORPORATED ADJUSTMENTS INCORPORATED ------------------- ----------- ------------------ (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) SALES.......................... $780,393 $ -- $780,393 Costs and expenses: Cost of sales................ 572,087 -- 572,087 Selling, general and administrative expenses... 126,875 7,196 134,071 Interest expense............. -- 7,000 7,000 -------- -------- -------- 698,962 14,196 713,158 -------- -------- -------- Earnings before other income... 81,431 (14,196) 67,235 Other income................... 1,562 -- 1,562 -------- -------- -------- INCOME BEFORE INCOME TAXES..... 82,993 (14,196) 68,797 Provision for income taxes..... 34,276 (5,863) 28,413 -------- -------- -------- NET INCOME..................... $ 48,717 $ (8,333) $ 40,384 ======== ======== ======== BASIC NET INCOME PER COMMON SHARE........................ $ 1.44 ======== DILUTED NET INCOME PER COMMON SHARE........................ $ 1.44 See accompanying Notes to Unaudited Pro Forma Consolidated Financial Information. 31 36 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION NOTE 1. The historical financial statements of Teledyne Technologies reflect periods during which Teledyne Technologies did not operate as a separate, independent company. Certain estimates, assumptions and allocations were made in preparing such financial statements. Therefore, the historical financial statements do not necessarily reflect the results of operations or financial position that would have occurred had Teledyne Technologies been a separate, independent company during the periods presented, nor are they indicative of future performance. NOTE 2. The pro forma unaudited consolidated balance sheet was prepared assuming the distribution occurred on June 30, 1999 and includes "Pro Forma Adjustments" for transactions that occurred subsequent to June 30, 1999 as follows: (a) To record debt of $100,000,000 to be assumed by Teledyne Technologies at the date of the spin-off. (b) To record the transfer of net unrecognized actuarial gains on pension obligation of $18,184,000 as of June 30, 1999 and the related deferred tax effect of $7,106,000. The components of net unrecognized actuarial gains on pension obligation are as follows: Projected benefit obligation.... $355,993 Fair value of plan assets....... 414,857 -------- Funded status of plan -- plan assets in excess of projected benefit obligation............ 58,864 Unrecognized prior service cost.......................... 16,495 Unrecognized transition obligation.................... (14,351) Unrecognized actuarial gains.... (79,192) -------- Total net unrecognized actuarial gains on pension obligation... $(18,184) (c) To record the transfer of insurance reserves of $5,000,000 and the related deferred taxes of $1,954,000. (d) To record the transfer of deferred compensation long-term assets of $8,507,000 and long-term liabilities of $8,507,000. (e) To record the planned liquidation of the remaining investment by ATI and the issuance of 27,243,725 shares of Teledyne Technologies common stock. NOTE 3. Pro forma net income was adjusted to include interest expense on the ATI revolving debt we will assume in the amount of $3,500,000 before tax, or $2,054,000 after tax, for the six months ended June 30, 1999 and $7,000,000 before tax, or $4,109,000 after tax, for the year ended December 31, 1998. Interest expense was calculated assuming the $100,000,000 of assumed debt had been outstanding for the entire period with an average interest rate of 7.0%. In addition, pro forma net income was adjusted to include additional corporate expenses of $3,526,000 and $7,196,000 before tax for the six months ended June 30, 1999 and the year ended December 31, 1998, respectively. These expenses in combination with the corporate expenses allocated for historical purposes ($3,974,000 and $7,804,000 for the six months ended June 30, 1999 and the year ended December 31, 1998, respectively), represent what management believes to be the reasonable corporate expenses of Teledyne Technologies had it operated as a separate standalone company during the periods presented. NOTE 4. The average number of shares of Teledyne Technologies common stock used in the computation of basic net income per share was 27,617,857 and 28,107,241 for the six months ended June 30, 1999 and the year ended December 31, 1998, respectively, based on a 32 37 distribution ratio of one share of Teledyne Technologies common stock for every seven shares of ATI common stock. The average number of shares of Teledyne Technologies common stock used in the computation of diluted net income per share was 27,644,434 and 28,133,881 for the six months ended June 30, 1999 and the year ended December 31, 1998, respectively. A distribution ratio of one share of Teledyne Technologies common stock for every seven shares of ATI common stock was used to adjust the stock options. The actual stock option adjustment will be based upon the relation of the market price of ATI common stock prior to the spin-off to the market price of Teledyne Technologies after the spin-off and therefore cannot be determined at the present time. 33 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW After a strategic review initiated in 1998, ATI concluded that its core Aerospace and Electronics businesses, which comprise our Company, would be able to grow faster and be a stronger competitor as a separate company. The operations included in Teledyne Technologies were carefully selected to create a group of high technology businesses that have critical mass and shared core competencies, are strategically complementary and have the potential for profitable growth. Certain businesses in ATI's Aerospace and Electronics segment were determined not to have these characteristics and were sold. Teledyne Technologies is a leading provider of sophisticated electronic and communication products, systems engineering solutions and information technology services, and aerospace engines and components. Our customers include aerospace prime contractors, general aviation companies, government agencies and major communications and other commercial companies. We serve high-value niche market segments where performance, precision and reliability are critical and where we are in several cases the leading supplier. Our businesses are interrelated by their use of advanced engineering and specialized technology to provide cost-effective and value-added solutions. We operate in three business segments: Electronics and Communications; Systems Engineering Solutions; and Aerospace Engines and Components. Our products include avionics systems that collect and communicate information for airlines and business aircraft systems; broadband communications subsystems for wireless and satellite systems; engineering and information technology services for space, defense and industrial customers; and engines for general aviation aircraft and for cruise missiles. Our segments' respective contributions to total sales for the six months ended June 30, 1999 and for 1998, 1997 and 1996 are summarized in the following table: SIX MONTHS ENDED SEGMENT OPERATING COMPANIES JUNE 30, 1999 1998 1997 1996 -------------------------------- -------------------------------- ------------- ---- ---- ---- Electronics and Communications Teledyne Electronic Technologies 43% 44% 45% 44% Systems Engineering Solutions Teledyne Brown Engineering 28% 29% 28% 30% Aerospace Engines and Components Teledyne Continental Motors Teledyne Cast Parts 29% 27% 27% 26% --- --- --- --- Our historical financial information is not necessarily indicative of the results of operations, financial position or cash flows that would have occurred if we had been a separate, independent company during the periods presented, nor is it indicative of our future performance. The historical financial statements do not reflect any changes that may occur in our capitalization or results of operations as a result of, or after, the spin-off. On an historical basis, the capital for our businesses was provided by ATI's net investment in our businesses. In addition, no ATI debt was allocated to us. Accordingly, our historical financial statements reflect no interest income or interest expense. In connection with the spin-off, we will assume repayment obligations for $100.0 million under a five-year revolving credit facility initially established by ATI. Our historical financial statements also do not fully reflect the corporate costs and expenses we expect to incur in connection with our being an independent public company. These financial statements reflect a $4.0 million allocation of part of ATI corporate expenses for the six months ended June 30, 1999, and allocations of 34 39 $7.8 million, $7.6 million and $7.2 million for 1998, 1997 and 1996, respectively. We do not believe that these recorded amounts are indicative of what our actual corporate expenses will be in the future. We expect that our actual corporate expenses will be approximately $15.0 million annually, significantly greater than those reflected in our historical financial statements, as we add significant managerial and other resources to complete the infrastructure and systems necessary for us to operate as an independent public company. Assuming the spin-off had occurred on January 1, 1998 and that the applicable interest rate under our credit facility was 7.0% throughout all periods, we would have incurred interest expense of $3.5 million during the six months ended June 30, 1999 and $7.0 million during 1998, and if we assume annual corporate expenses of approximately $15 million incurred ratably over the year, our net income would have been $18.0 million and $40.4 million during the 1999 six-month period and 1998, respectively. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 Our sales were $397.4 million in the first six months of 1999, compared to $399.2 million in the same 1998 period. International sales represented approximately 19% and 23% of our sales in the 1999 and 1998 six-month periods, respectively. Sales under contracts with the U.S. Government, which included contracts with the Department of Defense, represented approximately 43% and 38% of our total sales in the six months ended June 30, 1999 and 1998, respectively. For the 1999 six-month period, operating profit decreased 11% to $41.1 million from the 1998 period. Product recall costs at Teledyne Continental Motors and a continuing slow economic recovery in some of our Asian markets negatively impacted our performance. Net income for the 1999 six-month period was $22.1 million, a decrease of 12.4% from the corresponding period of 1998. Assuming that the spin-off had been completed as of January 1, 1998 and that the applicable interest rate under our credit facility was 7.0% throughout all periods, our pro forma interest expense would have been approximately $3.5 million, our pro forma corporate expenses would have been approximately $7.5 million and our pro forma net income would have been approximately $18.0 million in the 1999 six-month period. See "Our Unaudited Pro Forma Consolidated Financial Information." Sales and operating profit for our three segments for the six months ended June 30, 1999 and 1998 are presented separately below and in Note 3 of the Notes to Interim Combined Financial Statements. SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1999 % CHANGE JUNE 30, 1998 ELECTRONICS AND COMMUNICATIONS ------------- -------- ------------- (DOLLARS IN THOUSANDS) (UNAUDITED) Sales.......................................... $170,490 (5)% $179,681 Operating profit............................... $ 19,175 (15)% $ 22,621 Operating profit as a percentage of sales...... 11.2% 12.6% International sales as a percentage of sales... 19.0% 21.9% Sales of our Electronics and Communications segment decreased 5% and operating profit decreased 15% in the six months ended June 30, 1999 compared to the 1998 six-month period. Increased demand for business and commuter aircraft systems and medical devices partially offset lower sales for microelectronics, relays, and lighting and display products for the 1999 six- 35 40 month period. These results were also impacted by costs related to a workforce reduction. SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 1999 % CHANGE JUNE 30, 1998 SYSTE