UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 

Commission file number: 1-15295

Teledyne Technologies Incorporated
(Exact name of registrant as specified in its charter)

 

 

1049 Camino Dos Rios
Thousand Oaks, California 91360-2362
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (805) 373-4545

 

 

Securities registered pursuant to Section 12(g) of the Act:
None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  þ    No  o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o   No  þ

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ   No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  þ         Accelerated filer  o         Non-accelerated filer  o         Smaller reporting company  o

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  þ

 

The aggregate market value of the registrant’s Common Stock held by non-affiliates was $1,529.6 million, based on the closing price of a share of Common Stock on June 29, 2007 ($45.95), which is the last business day of the registrant’s most recently completed fiscal second quarter. Shares of Common Stock known by the registrant to be beneficially owned as of February 20, 2008 by the registrant’s directors and the registrant’s executive officers subject to Section 16 of the Securities Exchange Act of 1934 are not included in the computation. The registrant, however, has made no determination that such persons are “affiliates” within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934.

 

At February 26, 2008, there were 35,316,766 shares of the registrant’s Common Stock issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Selected portions of the registrant’s proxy statement for its 2008 Annual Meeting of Stockholders (the “2008 Proxy Statement”) are incorporated by reference in Part III of this Report. Information required by paragraphs (d)(1)-(3) and (e)(5) of Item 407 of Regulation S-K is not incorporated by reference in this Form 10-K or in any other filing of the registrant. Such information shall not be deemed “soliciting material” or to be filed with the Commission as permitted by Item 407 of Regulation S-K.

 

 

INDEX

 

 

 

 

earnings. At Teledyne, operational excellence includes the rapid integration of the businesses we acquire. Over time, our goal is to create a set of businesses that are truly superior in their niches. We intend to continue to evaluate our product lines to ensure that they are aligned with our strategy.

 

Our Recent Acquisitions

 

During 2007 and subsequently, we engaged in a number of acquisitions intended to expand and strengthen our product and service offerings in our core instrumentation and defense markets.

 

Fiscal 2007

 

 

Fiscal 2008

 

 

Teledyne spent $42.7 million, net of cash acquired, on these acquisitions in our fiscal 2007. For those acquisitions subsequently completed in our fiscal 2008, we spent $167.4 million, net of cash acquired. All of the acquisitions are part of the Electronics and Communications segment. The results of all of our acquisitions are included in our consolidated financial statements since the respective acquisition dates of the acquired businesses.

 

Available Information

 

Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K, and any amendments to these reports, are available on our website as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. In addition, our Corporate Governance Guidelines, our Corporate Objectives and Guidelines for Employee Conduct, our codes of ethics for financial executives, directors and service providers and the charters of the standing committees of our Board of Directors are available on our website. Our website address is www.teledyne.com.

 

You will be responsible for any costs normally associated with electronic access, such as usage and telephone charges. Alternatively, if you would like a paper copy of any such Securities and Exchange Commission (“SEC”) report (without exhibits) or document, please write to John T. Kuelbs, Executive Vice

President, General Counsel and Secretary, Teledyne Technologies Incorporated, 1049 Camino Dos Rios, Thousand Oaks, California 91360-2362, and a copy of such requested document will be provided to you, free-of-charge.

 

In April 2007, we submitted to the New York Stock Exchange the CEO certification required by Section 303A.12(a) of the New York Stock Exchange Listed Company Manual. The certification was not qualified in any respect. Additionally, we filed with the SEC as exhibits to this Form 10-K the CEO and CFO certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.

 

Our Business Segments

 

As previously reported in our press release reporting our fourth quarter 2007 financial results, we realigned our business segments. Our businesses are divided and managed as four segments; namely, Electronics and Communications, Engineered Systems, Aerospace Engines and Components and Energy and Power Systems. The financial information in this Annual Report on Form 10-K reflects this new reporting structure. Financial information about our business segments can be found in Note 13 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

 

Electronics and Communications

 

Our Electronics and Communications segment provides a wide range of specialized electronic systems, instrumentation, components and services that address niche market applications in defense, marine, environmental, industrial, commercial aerospace, communications and scientific markets.

 

Defense Electronics, Products and Services

 

Traveling Wave Tubes.   Our helix traveling wave tubes are used to provide broadband power amplification of microwave signals. Military applications include radar, electronic warfare and satellite communication. Commercial applications for traveling wave tubes include electromagnetic compatibility test equipment and satellite communication terminals for mobile newsgathering.

 

Microwave Components and Subsystems.   We design, develop, and manufacture RF and microwave components and subassemblies used in aerospace and defense applications, including electronic warfare and radar. With the 2005 acquisition of Cougar Components Corporation (“Cougar”), our products include cascadable amplifiers, voltage-controlled oscillators and microwave mixers. The 2006 acquisition of assets of KW Microwave added RF filters, multiplexers and diplexers. The 2007 acquisition of Tindall Technologies, Inc. added high performance Instantaneous Frequency Measurement (IFM)-based systems and subsystems, including integrated frequency locked sources and set-on receiver jammers used for the U.S. Navy and Air Force training.

 

High Voltage Connectors and Subassemblies.   Through Teledyne Reynolds, Inc., we supply specialized high voltage connectors and subassemblies for defense, aerospace and industrial applications. With the 2008 acquisition of Storm Products Co., we provide coax microwave cable and interconnects primarily to defense customers for radar, electronic warfare and communications applications. We also produce pilot helmet mounted display components and subsystems for the Joint Helmet Mounted Cueing System used in the F-15, F-16 and F-18 aircrafts. This system is designed to give military pilots the ability to designate a target just by looking at it.

 

Microelectronic Modules.   We develop and manufacture custom microelectronic modules that provide both high reliability and extremely dense packaging for military applications. We also develop custom tamper-resistant microcircuits designed to provide enhanced security in military communication.

 

Imaging Sensors.   Through Teledyne Imaging Sensors, we design and produce advanced focal plane arrays, sensors, and subsystems covering a broad spectrum of light from below 0.3 micron ultra-violet to 18 micron long-wave infrared. We provide large focal plane array sensors for both military and space-science markets. We have been developing manufacturing processes to support production of third generation dual band infrared imagers designed to allow members of the armed forces to identify threats on the battlefield

before the enemy can detect their presence. With the 2008 acquisition of assets of Judson Technologies, LLC, we provide a wider range of visible and infrared detectors, integrated subsystems and camera products, produce dewar and coolers assemblies and have additional detector packaging capabilities. Teledyne Imaging Sensors also designs and manufactures advanced military laser protection eyewear.

 

Sequencers.   Teledyne Electronic Safety Products continues to provide microprocessor-controlled aircraft ejection seat sequencers and related support elements to military aircraft programs, including the F/A-18E/F and F/A-22 . Since 2006, under a five-year contract, we have produced the Digital Recovery Sequencer to support the F-15, F-16, F-22, F-117, A-10, B-1 and B-2 aircrafts. We also have developed a new sequencer in support of the F-35 Joint Strike Fighter program for which low rate initial production began in 2007.

 

Relays and Switches.   Teledyne Relays supplies electromechanical relays, solid-state power relays and coaxial switching devices to military and aerospace markets.

 

Research and Development Services.   Through Teledyne Scientific Company, we provide research and engineering services primarily in the areas of electronics, optics, information sciences and materials technology. Our scientific team delivers research and development services and specialty products to military, aerospace and industrial customers. We strive to maintain close relationships and collaborations with researchers at universities and national laboratories to stay at the forefront of cutting-edge technologies. We also license various technologies to third parties.

 

Electronic Manufacturing Services.   We serve the market for high-mix, low-volume manufacturing of sophisticated military electronics equipment principally from our facility in Tennessee.

 

Teledyne Instruments

 

During 2001, we formed Teledyne Instruments, a group of business units drawn from our Electronics and Communications segment and our then called Systems Engineering Solutions segment, to focus on industrial monitoring and process control applications. Since then and through acquisitions, we have grown two additional instrumentation platforms, marine and environmental.

 

Marine Instrumentation.   Historically, through Teledyne Geophysical Instruments, we have manufactured geophysical streamer cables, hydrophones and specialty products used in offshore hydrocarbon exploration to locate oil and gas reserves beneath the ocean floor. We continue to adapt this technology for the military market, where these products can be used to detect submarines, surface ships and torpedoes.

 

Through various acquisitions over the last several years, we have greatly expanded our underwater acoustic and marine instrumentation capabilities. Teledyne RD Instruments, Inc.’s acoustic Doppler current profilers perform precise measurement of currents at varying depths in oceans and rivers, and its Doppler Velocity Logs are used for navigation of civilian and military surface ships and unmanned underwater vehicles and by U.S. Navy divers. Teledyne Benthos, Inc. manufactures oceanographic products used by the U.S. Navy, energy exploration, oceanographic research and port and harbor security services. Its products include acoustic modems for networked underwater communication, a three-dimensional sidescan sonar system and remotely operated underwater vehicles. Recently acquired Teledyne TSS Limited (formerly known as TSS (International) Limited) designs and manufactures inertial sensing, gyrocompass navigation and subsea pipe and cable detection systems for offshore energy, oceanographic and military marine markets. Teledyne TSS’ inertial sensing and navigation systems, which contain mechanical gyros and solid state sensors, provide detailed positioning parameters for marine applications. Such systems increase the accuracy of hydrographic surveys by correcting for a marine vessel’s motion. These products also provide critical data for dynamic positioning systems used by floating offshore drilling rigs that need to maintain a constant position in challenging marine environments. Teledyne TSS’ electromagnetic detection systems are fitted to remotely operated vehicles and used for detection and maintenance of subsea telecommunications cables, power cables and offshore pipelines.

 

As a result of acquisitions, we also provide a broader range of end-to-end undersea interconnect solutions to the offshore oil and gas, defense, oceanographic and telecom markets. Majority-owned Ocean Design, Inc. or ODI manufactures subsea, wet-mateable electrical and fiber-optic interconnect systems used in offshore oil and gas production, oceanographic research and military applications. Teledyne D.G. O’Brien manufactures

glass-to-metal sealed subsea cable and connectors systems, primarily for subsea military and offshore oil and gas exploration. Recently acquired Teledyne Impulse manufactures waterproof neoprene and glass reinforced epoxy connectors that complement Teledyne D.G. O’Brien’s interconnect systems, which are typically installed before being submerged in the ocean, and also complement ODI’s lines of wet-mateable interconnect systems. With the 2008 acquisition of Storm Products Co., we also provide custom, high-reliability bulk wire and cable assemblies to a number of marine, environmental and industrial markets. In addition, we manufacture custom surface mount connectors for applications in computer disk drives and consumer medical electronic devices.

 

Environmental Instrumentation.   As a result of our acquisitions, we offer a wide range of products for environmental monitoring. Teledyne Advanced Pollution Instrumentation, Inc. manufactures a broad line of instrumentation for monitoring low levels of gases such as sulfur dioxide, carbon monoxide, nitrogen oxides and ozone in order to measure the quality of the air we breathe. Teledyne Monitor Labs, Inc. supplies environmental monitoring systems for the detection, measurement and reporting of air pollutants from industrial stack emissions. Teledyne Tekmar Company manufactures laboratory instrumentation that automates the preparation and concentration for the analysis of trace levels of volatile organic compounds by a gas chromatograph. The company also provides laboratory instrumentation for the detection of total organic carbon and total nitrogen in water and wastewater samples. Through Teledyne Leeman Labs, we provide inductively coupled plasma laboratory spectrometers, atomic absorption spectrometers, mercury analyzers and calibration standards. The advanced elemental analysis products are used by environmental and quality control laboratories to detect trace levels of inorganic contaminants in water and other environmental samples.

 

Teledyne Isco, Inc. (“Teledyne Isco”) produces water quality monitoring products such as wastewater samplers and open channel flow meters. A variety of measurement technologies is offered to meet various flow applications found in pump stations, flumes, weirs and industrial and municipal sewer systems and storm drains. Teledyne Isco also manufactures chromatography instruments and accessories for purification of organic compounds. Its liquid chromatography customers include pharmaceutical laboratories involved in drug discovery and development. Additionally, Teledyne Isco manufactures high-precision, high-pressure syringe pumps for metering various applications from liquefied gasses to tar with flow rates from sub-micro liter to 400 ml per minute and pressures up to 20,000 psi.

 

Industrial Process Instrumentation.   A group of Teledyne businesses serve the process control and monitoring needs of industrial plants with instruments that include gas analyzers, vacuum and flow measurement devices, package integrity inspection systems and torque measurement sensors.

 

Teledyne Analytical Instruments was a pioneer in the development of precision oxygen analyzers. We now manufacture a wide range of process gas and liquid analysis products for measurement of oxygen, combustibles, oil in water, moisture, sulfides, pH and many other parameters. We also manufacture custom analyzers systems that provide turn-key solutions to complex process monitoring and/or control applications found in petrochemical and refinery facilities.

 

Teledyne Hastings Instruments manufactures a broad line of instruments for precise measurement and control of vacuum and gas flows. Our instruments are used in varied applications such as semiconductor manufacturing, refrigeration, metallurgy and food processing.

 

Under the Taptone ^® brand, we provide quality control systems to the food, beverage and pharmaceutical industries that inspect plastic, glass and metal containers for various types of defects and non-conformities.

 

We manufacture torque sensors and automatic data acquisition systems that are used to instrument critical devices under regulatory oversight, such as the requirement to test periodically the torque, thrust and force of motor-operated valves used in nuclear power plants.

 

Other Commercial Electronics

 

Aircraft Information Management.   Our aircraft information management solutions are designed to increase the reliability and efficiency of airline transportation. Through Teledyne Controls, we are a leading supplier of digital flight data acquisition and flight safety systems to the civil aviation market. These systems acquire data for use by the aircraft’s flight data recorder as well as record additional data for the airline’s

operation, such as aircraft and engine condition monitoring. We also provide the means to transfer this data, using Teledyne’s patented wireless technology, from the aircraft to the airline operation center. This product is currently in operational use by over 40 commercial airlines all over the world. Additionally, we provide flight data monitoring services to analyze the acquired data and to drive our flight data visualization and animation products. Our data acquisition systems are certified on the Airbus A320 and A330/340, Boeing 737-NG and 747-400, and Embraer EMB170/190 aircraft. We were also selected as a supplier of the data acquisition system for the new Boeing 747-8 and Sukhoi RRJ regional jet. In addition, our Aviation Information Solutions (“AIS”) business designs and manufactures aerospace Electronic Flight Bag equipment, networking products, and flight deck and cabin displays.

 

Microelectronic Modules.   In addition to military microelectronic modules, we develop and manufacture custom microelectronic modules that provide both high reliability and extremely dense packaging for implantable medical devices, such as pacemakers and defibrillators, and commercial communication products.

 

Relays and Switches.   In addition to military and aerospace markets, Teledyne Relays supplies electromechanical relays, solid-state power relays and coaxial switching devices to industrial and commercial markets. Applications include microwave and wireless communication infrastructure, RF and general broadband test equipment, test equipment used in semiconductor manufacturing, and industrial and commercial machinery and control equipment.

 

Wireless Transceivers and Amplifiers.   Our line of integrated transceiver modules provides high data rate point-to-point connectivity in cellular telephone infrastructure. We also supply microwave devices used in satellite uplink applications.

 

Electronics Equipment and Printed Circuit Card Assembly.   We serve the market for high-mix, low-volume manufacturing of electronic products.

 

Engineered Systems

 

Our Engineered Systems segment, principally through Teledyne Brown Engineering, Inc., applies the skills of its extensive staff of engineers and scientists to provide innovative systems engineering and integration, advanced technology application, software development, and manufacturing solutions to space, military, environmental, and air and missile defense requirements.

 

Defense

 

Teledyne Brown Engineering is a well-recognized full-service missile defense contractor with over 50 years of experience in air and missile defense and related systems integration. Our diverse customer base in this field includes the U.S. Army Aviation and Missile Command (“AMCOM”), the U.S. Army’s Space and Missile Defense Command (“SMDC”), the Missile Defense Agency (“MDA”) and Defense Department major prime contractors.

 

We play significant roles in diverse missile defense areas, which include targets and countermeasures, systems engineering, modeling and simulation, test and evaluation, and complex real time hardware-in-the-loop integration. Our engineering and technological capabilities include requirements definition, systems design, development, integration and testing, with specialization in real-time distributed systems.

 

During 2007, we continued our long-standing support of several air and missile defense programs, including the Ground-based Midcourse Defense (“GMD”) Program, Missile Defense Systems Exerciser, the Extended Air Defense Simulation (“EADSIM”) and, as part of the Lockheed Martin team, the Targets and Countermeasures Program. These programs involve the test and evaluation of ballistic missile defense system performance on a large number of major programs, including the Airborne Laser, the Kinetic Energy Interceptor, the Ground-based Midcourse Defense, Aegis Ballistic Missile Defense, the Patriot Advanced Capability 3, and the Terminal High Altitude Area Defense (“THAAD”). Additionally, we continue to work on an enhanced test program to develop an integrated test lab for the GMD system.

In addition to our missile defense activities, we are supporting several U.S. Army programs. Supported programs include the Army’s Future Combat System Multifunctional Utility/Logistics and Equipment (“MULE”) program and Patriot Missile validation and verification for the Lower Tier Project Office. Tasking spans complex hardware integration and software testing, from design through verification and validation.

 

Aerospace

 

We have been active in U.S. space programs for almost 50 years and continue to be a significant contributor to NASA programs.

 

We have played a key role in the International Space Station (“ISS”), and have had various roles in the Space Shuttle program. We supply 24-hour-per-day service for the payload operation cadre for the ISS Payload Operations and Integration Center, located at NASA’s Marshall Space Flight Center. As a subcontractor to Lockheed Martin, we also work on the ISS Cargo Mission Contract at the Johnson Space Center. This six-year contract, which began in January 2004, involves providing services related to planning, preparation and execution of cargo missions to the ISS.

 

We are the prime contractor on the Marshall Space Flight Center Systems Development and Operations Support Contract, which provides engineering services and hardware development support for a variety of space activities. We have been the prime contractor for the Propellants, Pressurants and Calibration Services Contract at Marshall Space Flight Center since 1971. Under that contract we furnish management, personnel, equipment and materials to operate and maintain the propellant and pressurant generating systems, storage and distribution systems, as well as management and operation of the calibration facilities at the Marshall Space Flight Center. We also have a prime Blanket Purchase Agreement with the Marshall Space Flight Center for specialized engineering and program support. We perform engineering and software services under this contract for NASA’s new Ares launch vehicle upper stage.

 

Chemical, Biological, Radiological and Nuclear (CBRN) Systems

 

We support the U.S. Government’s efforts to clean up dangerous materials and waste. Since 1996, we have supported the U.S. Army’s Non-Stockpile Chemical Materiel Program. We also have begun to apply sophisticated computer aided engineering, design, modeling and manufacturing skills to support the U.S. Army’s Edgewood Chemical and Biological Center.

 

In November 2007, we were awarded a contract from the Department of Defense to develop and test the Joint Material Decontamination System (JMDS) for U.S. military forces. The JMDS will be designed to remove toxic contamination as a result of nuclear, biological and chemical weapons from sensitive electronic equipment, command posts, aircraft and avionics, and other applications where water and harsh decontamination materials could damage or destroy items being decontaminated.

 

We operate a Department of Energy-certified radiological analysis services laboratory in Knoxville, Tennessee. This laboratory has received certification from the National Environmental Laboratory Accreditation Program in 12 states, including Utah where the largest commercial radiological waste disposal site resides. With its Nuclear Utilities Procurement Issues Committee certification, the laboratory also serves one-third of the nuclear power plants in United States.

 

Additionally, we produce canisters for the processing, stabilization and storage of nuclear-waste products. Expanding on our core nuclear quality-related manufacturing, in February 2008, Fluor Enterprises, Inc., acting as an agent for USEC Inc., awarded us a contract to manufacture and deliver an initial complement of gas centrifuge service modules to support fuel production for commercial nuclear power plants.

 

Teledyne Solutions, Inc.

 

Through Teledyne Solutions, Inc., we are a primary Missile Defense systems engineering contractor. Teledyne Solutions is a principal prime contractor for the Systems Engineering and Technical Assistance Contract in support of the U.S. Army Space and Missile Defense Command. We also provide engineering and services support to other major Department of Defense customers including the Missile Defense Agency, the

Program Executive Office for Missiles and Space, the Defense Threat Reduction Agency, and the U.S. Army Aviation and Missile Command.

 

Teledyne CollaborX, Inc.

 

With the 2006 acquisition of CollaborX, we extended our capabilities to include full system acquisition lifecycle support from concept development to sustainment. CollaborX provides engineering services to the U.S. Air Force, U.S. Army, Office of Secretary of Defense, Missile Defense Agency and select military combatant commands such as the U.S. Joint Forces Command, U.S. Strategic Command, and U.S. Northern Command. CollaborX provides the Air Force with operational and systems expertise in the development, test, integration, and fielding of new Command and Control and Intelligence, Surveillance and Reconnaissance capabilities for major Air Force weapons systems. CollaborX’s services complement TBE’s support to the Army and NASA.

 

Aerospace Engines and Components

 

Our Aerospace Engines and Components segment focuses on the design, development and manufacture of piston engines, aftermarket support and electronic engine controls.

 

Piston Engines

 

Principally through Teledyne Continental Motors, Inc., we design, develop and manufacture piston engines, ignition systems, and aftermarket engines and spare parts for general aviation airframe manufacturers and the aftermarket. We are one of two primary worldwide original equipment producers of piston aircraft engines for the general aviation marketplace.

 

Our current OEM product lines include engines for the Cirrus SR-20 and SR-22, the Diamond DA20, Cessna 350 and 400 series (formerly built by Columbia Aircraft Company), the Liberty XL2, the Beech Bonanza and Baron aircraft, Mooney Ovation and Acclaim lines, and the Piper Seneca V twin-engine aircraft.

 

During 2007, Cessna Aircraft Company selected our O-200D air-cooled engine for its highly anticipated Light Sport Aircraft, the Skycatcher.

 

Aftermarket Support

 

In addition to the sales of OEM engines, we actively support the replacement aircraft engine aftermarket. Piston aircraft engines have a FAA authorized time between overhauls. Our aftermarket support includes building and rebuilding of complete engines, as well as providing a full complement of spare parts such as cylinders, crankcases, fuel systems, crankshafts, camshafts and ignition products. Also, through Teledyne Mattituck Services, Inc., located in Long Island, New York, and our Fairhope, Alabama service center, we serve as an aftermarket supplier of overhauled piston engines and engine installations to the general aviation marketplace for both Teledyne Continental Motors and Textron Lycoming aircraft engines.

 

Electronic Engine Controls

 

Through Aerosance, Inc., we developed the first production full authority digital electronic controls (FADEC) for piston aircraft engines. These controls, known as PowerLink ^tm FADEC, are designed to automate many functions that currently require manual control, such as fuel flow and power management. This system also saves fuel as a result of improved engine management and facilitates electronic-centered maintenance of our engines. We have shipped our 100th production engine to Liberty Aircraft with FADEC and are certifying FADEC-equipped engines targeted at the most popular OEM and aftermarket models of four and six cylinder piston aircraft engines of the general aviation fleet. We continue to believe that these control systems will become standard equipment on new aircraft and will be retrofitted on higher-end piston engine general aviation aircraft.

 

Energy and Power Systems

 

Our Energy and Power Systems segment designs and manufactures hydrogen gas generators, thermoelectric and fuel cell-based power sources, batteries and small turbine engines.

Teledyne Energy Systems, Inc.

 

Teledyne Energy Systems, Inc., a majority owned subsidiary of Teledyne, was formed in 2001 by combining Teledyne Brown Engineering’s then existing Energy Systems business unit with assets and intellectual properties of then Florida-based Energy Partners, Inc.

 

Through Teledyne Energy Systems, Inc., we manufacture hydrogen/oxygen gas generators that utilize the principle of electrolysis to convert water into high purity hydrogen gas at useable pressures. Our Teledyne Titan ^tm gas generators are used worldwide in electrical power generation plants, semiconductor manufacturing, optical fiber production, chemical processing, specialty metals, float glass and other industrial processes. Our historic sales of hydrogen generators have been largely to developing countries.

 

For over 50 years, we have supplied high reliability energy conversion devices and gas generation products based on thermoelectric and electrochemical processes. We provided the thermoelectric power systems for the Pioneer 10 and 11 deep-space missions to Jupiter and Saturn and for the Viking 1 and Viking 2 Mars Landers. In 2006, in partnership with Boeing and under a ten-year $57 million contract signed in 2003 with the U.S. Department of Energy, we completed all of the testing of the Multi-Mission Radioisotope Thermoelectric Generator capable of supporting planetary landing and deep space probe missions. As a result of the successful test phase, in 2007, we began production of this generator for potential use to power the Mars Science Laboratory scheduled to launch in 2009. We recently began to explore the market potential for a liquid fuel thermoelectric generator.

 

In conjunction with its thermoelectric power systems for space, we also have ongoing development and prototyping work with NASA on PEM fuel cell stacks and systems. These systems are being developed in support of potential manned and robotic missions to the moon and Mars.

 

We have a line of fuel cell test stations designed to provide a completely integrated system for fuel cell testing for the PEM fuel cell development market. Our Medusa line of fuel cell test systems provides high quality, simple to use automated test stations for fuel cell and fuel cell stack testing up to 12 kilowatts.

 

Aviation Batteries

 

Our Gill ^® line of lead acid batteries is widely recognized as the premier power source for general aviation. We have developed sealed recombinant batteries for business and light jet applications. Teledyne Battery Products, in conjunction with Teledyne Controls, jointly developed an onboard charging and cockpit display kit that permits existing NiCad battery systems to be replaced with Gill ^® sealed lead acid batteries.

 

Turbine Engines

 

We design, develop and manufacture small turbine engines primarily used in tactical missiles for military markets.

 

Our J402 engine powers the Harpoon missile system. Derivatives of this engine power the Standoff Land Attack Missile and the Standoff Land Attack Missile-Expanded Response. Lockheed Martin Corporation selected a derivative of the J402 engine to power the Joint Air-to-Surface Standoff Missile (“JASSM”). We are the sole source provider of engines for the baseline JASSM system.

 

Our J700 engine provides the turbine power for the Improved Tactical Air Launched Decoy (“ITALD”) built for the U.S. Navy. The ITALD system enhances combat aircraft survivability by both serving as a decoy and identifying enemy radar sources.

 

In 2007, we continued to work under a contract related to the U.S. Army’s Future Combat System for the development of new and derivative turbine engines for unmanned air vehicles, commonly called UAVs, and other future aircraft. We continue to work advanced technology for small turbine engines and components under contract to the U.S. Air Force Research Laboratory sponsored Versatile Advanced Affordable Turbine Engine (VAATE) program. Advanced technology engine and component demonstrators are being developed for the next generation cruise missile and UAVs.

Customers

 

We have hundreds of customers in the electronics, communications, aerospace and defense industries. No commercial customer accounted for more than 10% of our total sales during 2007, 2006 or 2005.

 

Approximately 41%, 40%, and 42% of our total sales for 2007, 2006 and 2005, respectively, were derived from contracts with agencies of, and prime contractors to, the U.S. Government. Our principal U.S. Government customer is the U.S. Department of Defense. These sales represented 30%, 30% and 32% of our total sales for 2007, 2006 and 2005, respectively. In 2007, 2006 and 2005, our largest program with the U.S. Government was the Systems Engineering and Technical Assistance contract with the Space and Missile Defense Command, and it represented 4.3%, 4.9% and 5.5% of total sales, respectively. Set forth below are sales by our segments to agencies and prime contractors to the U.S. Government for the periods presented:

 

 

Our total backlog of confirmed orders was approximately $707.2 million at December 30, 2007, $582.4 million at December 31, 2006 and $521.9 million at January 1, 2006. We expect to fulfill 98% of such backlog of confirmed orders during 2008.

 

Sales to international customers accounted for approximately 22% of total sales in 2007, compared with 21% in 2006 and 18% in 2005. In 2007, we sold products to customers in over 100 foreign countries. Ninety percent of our sales to foreign customers were made to customers in 28 foreign countries.

 

Sales and Marketing

 

Our sales and marketing approach varies by segment and by products within our segments. A shared fundamental tenet is the commitment to work closely with our customers to understand their needs, with an aim to secure preferred supplier and longer-term relationships.

 

Our business segments use a combination of internal sales forces, distributors and commissioned sales representatives to market and sell our products and services. As part of on-going acquisition integration efforts, some of our Teledyne Instruments companies and other business units have been working to consolidate or share internal sales and servicing efforts.

 

Products are also advertised in appropriate trade journals and by means of various websites. To promote our products and other capabilities, our personnel regularly participate in relevant trade shows and professional associations.

 

Many of our government contracts are awarded after a competitive bidding process in which we seek to emphasize our ability to provide superior products and technical solutions in addition to competitive pricing.

 

Through Teledyne Technologies International Corp. and other subsidiaries, the Company has established offices in foreign countries to facilitate international sales for various businesses.

 

Competition

 

We believe that technological capabilities and innovation and the ability to invest in the development of new and enhanced products are critical to obtaining and maintaining leadership in our markets and the industries in which we compete. Although we have certain advantages that we believe help us compete effectively in our markets, each of our markets is highly competitive. Our businesses vigorously compete on the basis of quality, product performance and reliability, technical expertise, price and service. 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.

 

Research and Development

 

Our research and development efforts primarily involve engineering and design related to improving product lines and developing new products and technologies in the same or similar fields. We spent a total of $355.1 million, $307.0 million, and $291.5 million on research and development and bid and proposal costs for 2007, 2006, and 2005, respectively. Customer-funded research and development, most of which was attributable to work under contracts with the U.S. Government, represented approximately 83%, 83%, and 85% of total research and development costs for 2007, 2006, and 2005, respectively.

 

In 2007, approximately 81.3% of the $59.7 million in Company-funded research and development and bid and proposal costs were incurred in our electronics and communications businesses. We expect the level of Company-funded research and development and bid and proposal costs to be approximately $70.0 million in 2008.

 

Intellectual Property

 

While we own and control various intellectual property rights, including patents, trade secrets, confidential information, trademarks, trade names, and copyrights, which, in the aggregate, are of material importance to our business, our management believes that our business as a whole is not materially dependent upon any one intellectual property or related group of such properties. We own several hundred active patents and are licensed to use certain patents, technology and other intellectual property rights owned and controlled by others. Similarly, other companies are licensed to use certain patents, technology and other intellectual property rights owned and controlled by us. As part of our acquisition of Scientific Company in September 2006, we licensed certain intellectual property of the acquired company to Rockwell Automation and Rockwell Collins.

 

Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise. We do not expect the expiration or termination of these patents, patent applications and license agreements to have a material adverse effect on our business, results of operations or financial condition.