UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 30, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file
number: 1-15295
Teledyne Technologies
Incorporated
(Exact name of
registrant as specified in its charter)
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Delaware
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25-1843385
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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1049 Camino Dos Rios
Thousand Oaks, California
91360-2362
(Address of principal executive
offices) (Zip Code)
Registrants telephone number, including area code:
(805) 373-4545
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $.01 per share
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New York Stock Exchange
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Preferred Share Purchase Rights
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New York Stock Exchange
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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
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No
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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
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No
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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
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No
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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 registrants 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
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting
company
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(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
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No
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The aggregate market value of the registrants 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
registrants 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
registrants directors and the registrants 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
registrants Common Stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Selected portions of the registrants 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.
Explanatory
Notes
In this Annual Report on
Form 10-K,
Teledyne Technologies Incorporated is sometimes referred to as
the Company or Teledyne. References to
ATI mean Allegheny Technologies Incorporated,
formerly known as Allegheny Teledyne Incorporated, the company
from which we were spun-off on November 29, 1999.
For a discussion of risk factors and uncertainties associated
with Teledyne and any forward looking statements made by us, see
the discussion beginning at page 14 of this Annual Report
on Form
10-K.
PART I
Who We
Are
Teledyne Technologies Incorporated is a leading provider of
sophisticated electronic components and subsystems,
instrumentation and communications products, including defense
electronics, monitoring and control instrumentation for marine,
environmental and industrial applications, harsh environment
interconnect products, data acquisition and communications
equipment for air transport and business aircraft, and
components and subsystems for wireless and satellite
communications. We also provide engineered systems and
information technology services for defense, space and
environmental applications, manufacture general aviation engines
and components, and supply energy generation, energy storage and
small propulsion products.
We serve niche market segments where performance, precision and
reliability are critical. Our customers include government
agencies, aerospace prime contractors, energy exploration and
production companies, major industrial companies, and airlines
and general aviation companies.
Total sales in 2007 were $1,622.3 million, compared with
$1,433.2 million and $1,206.5 million in 2006 and
2005, respectively. Our aggregate segment operating profit and
other segment income were $194.9 million,
$155.3 million and $126.6 million in 2007, 2006 and
2005, respectively. Approximately 59% of our total sales in 2007
were to commercial customers and the balance was to the
U.S. Government, as a prime contractor or subcontractor.
Approximately 42% of these U.S. Government sales were
attributable to fixed price-type contracts and the balance to
cost plus fee-type contracts. Sales to international customers
accounted for approximately 22% of total sales in 2007.
We have realigned Teledyne Energy Systems, Inc., Teledyne
Turbine Engines and Teledyne Battery Products in a new segment
called Energy and Power Systems. This segment will provide
Teledynes customers with a focal point for the specialized
energy generation, energy storage and small propulsion products
that Teledyne manufactures, primarily for high-reliability
aerospace and defense applications. Product lines in this
segment include hydrogen generators, fuel cells, thermoelectric
generators, batteries and small turbine engines. In addition to
these changes, the Systems Engineering Solutions segment has
been renamed Engineered Systems to better describe its programs.
The full year 2007 information reflects this new reporting
structure. Historical financial data for 2006 and 2005 also
reflects the new segment presentation to enhance comparability
between periods. This segment realignment had no effect on our
financial position, results of operations or cash flow for the
periods presented and also did not affect the results of the
Electronics and Communications or Engineered Systems segments.
Our four business segments and their respective contributions to
our total sales in 2007, 2006 and 2005 are summarized in the
following table:
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Percentage of Sales
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Segment
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2007
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2006
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2005
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Electronics and Communications
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66
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%
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63
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%
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60
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Engineered Systems
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19
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%
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20
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%
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22
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%
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Aerospace Engines and Components
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11
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%
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12
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%
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12
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Energy and Power Systems
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4
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5
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%
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6
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100
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%
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100
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100
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We are a Delaware corporation that was spun off from ATI as an
independent company on November 29, 1999. Our principal
executive offices are located at 1049 Camino Dos Rios, Thousand
Oaks, California
91360-2362.
Our telephone number is
(805) 373-4545.
Strategy
Our strategy continues to emphasize growth in our core markets
of instrumentation, defense electronics and government
engineered systems. We intend to strengthen and expand our core
businesses with targeted acquisitions. We intend to aggressively
pursue operational excellence to continually improve our margins
and
1
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
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On March 30, 2007, Teledyne Instruments, Inc. acquired
assets of D.G. OBrien, Inc. (DGO). DGO,
headquartered in Seabrook, New Hampshire, manufactures highly
reliable electrical and fiber-optic interconnect systems,
primarily for subsea military and offshore oil and gas
applications.
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On June 20, 2007, Teledyne Cougar, Inc. acquired Tindall
Technologies, Inc. (Tindall), a designer and
supplier of microwave subsystems for defense applications, and
consolidated Tindalls Pleasanton, California operations
with its operations in Sunnyvale, California.
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Fiscal 2008
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On December 31, 2007, Teledyne Instruments, Inc. acquired
assets of Impulse Enterprise. Impulse, headquartered in
San Diego, California, manufactures underwater electrical
interconnection systems for harsh environments.
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On December 31, 2007, Teledyne Reynolds, Inc. acquired
Storm Products Co. Primarily from its Dallas, Texas facility,
Storm supplies custom, high-reliability bulk wire and cable
assemblies to a number of markets, including energy exploration,
environmental monitoring and industrial equipment. From its
Woodridge, Illinois facility, Storm provides coax microwave
cable and interconnect products primarily to defense customers
for radar, electronic warfare and communications applications.
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On January 31, 2008, Teledyne Limited acquired S G Brown
Limited and its wholly-owned subsidiary TSS (International)
Limited. TSS International, headquartered in Watford, United
Kingdom, designs and manufactures inertial sensing, gyrocompass
navigation and subsea pipe and cable detection of offshore
energy, oceanographic and military marine markets.
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On February 1, 2008, Teledyne Scientific &
Imaging, LLC, acquired assets of Judson Technologies, LLC.
Headquartered in Montgomeryville, Pennsylvania, Judson designs
and manufactures high performance infrared detectors and
accessory products for military, space, industrial and
scientific applications.
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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
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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
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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
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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 vessels
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. OBrien
manufactures
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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. OBriens interconnect
systems, which are typically installed before being submerged in
the ocean, and also complement ODIs 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
aircrafts flight data recorder as well as record
additional data for the airlines
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operation, such as aircraft and engine condition monitoring. We
also provide the means to transfer this data, using
Teledynes 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. Armys 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.
6
In addition to our missile defense activities, we are supporting
several U.S. Army programs. Supported programs include the
Armys 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 NASAs
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 NASAs new Ares launch vehicle upper stage.
Chemical, Biological, Radiological and Nuclear (CBRN)
Systems
We support the U.S. Governments efforts to clean up
dangerous materials and waste. Since 1996, we have supported the
U.S. Armys 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. Armys 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
7
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. CollaborXs services
complement TBEs 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.
8
Teledyne
Energy Systems, Inc.
Teledyne Energy Systems, Inc., a majority owned subsidiary of
Teledyne, was formed in 2001 by combining Teledyne Brown
Engineerings 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. Armys 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.
9
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:
U.S.
Government Sales
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In millions)
|
|
|
|
|
Electronics and Communications
|
|
$
|
334.4
|
|
|
$
|
249.1
|
|
|
$
|
198.5
|
|
|
Engineered Systems
|
|
|
298.0
|
|
|
|
278.9
|
|
|
|
260.0
|
|
|
Energy and Power Systems
|
|
|
32.1
|
|
|
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41.4
|
|
|
|
52.1
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Total U.S. Government sales
|
|
$
|
664.5
|
|
|
$
|
569.4
|
|
|
$
|
510.6
|
|
|
|
|
|
|
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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
10
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.
Employees
Our total current workforce consists of approximately
8,130 employees. The International Union of United
Automobile, Aerospace and Agricultural Implement Workers of
America represents approximately 270 active employees in Mobile,
Alabama under a collective bargaining agreement that expires by
its terms on February 20, 2010. This union also represents
approximately 20 of our active employees in Toledo, Ohio under a
collective bargaining agreement that expires by its terms on
November 10, 2009. We consider our relations with our
employees to be good.
Executive
Management
Teledynes executive management includes:
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Name and Title
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Age
|
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Principal Occupations Last 5 Years
|
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Executive Officers:
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Robert Mehrabian
*
Chairman, President and Chief Executive Officer; Director
|
|
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66
|
|
|
Dr. Mehrabian has served as Chairman, President and Chief
Executive Officer of Teledyne for more than five years. He is a
director of Teledyne, Bank of New York Mellon Corporation and
PPG Industries, Inc.
|
11
|
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Name and Title
|
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Age
|
|
Principal Occupations Last 5 Years
|
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John T. Kuelbs
*
Executive Vice President, General Counsel and Secretary
|
|
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65
|
|
|
Mr. Kuelbs has been Executive Vice President, General Counsel
and Secretary of Teledyne since September 1, 2005. Prior to
that, he was Senior Vice President, General Counsel and
Secretary of Teledyne.
|
|
Dale A. Schnittjer
*
Senior Vice President and Chief Financial Officer
|
|
|
63
|
|
|
Mr. Schnittjer has been Senior Vice President and Chief
Financial Officer of the Company since September 1, 2005. From
January 27, 2004 to September 1, 2005, he was Vice President and
Chief Financial Officer of Teledyne. He had served as interim
Chief Financial Officer since July 7, 2003. Mr. Schnittjer
first became a Vice President on December 19, 2001, and had been
the Controller of Teledyne from November 29, 1999 to January 27,
2004. Mr. Schnittjer also served as Acting Chief Financial
Officer and Treasurer of Teledyne from June 1, 2000 to October
3, 2000.
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Susan L. Main*
Vice President and Controller
|
|
|
49
|
|
|
Ms. Main has been Vice President and Controller of the Company
since March 2004. Prior to joining the Company, Ms. Main served
as Vice President Controller of Water Pik Technologies, Inc.
from November 29, 1999 to March 2004.
|
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Segment Management:
|
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|
|
|
|
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Aldo Pichelli*
President and Chief Operating Officer, Electronics and
Communications Segment
|
|
|
56
|
|
|
Mr. Pichelli has been President and Chief Operating Officer of
Teledynes Electronics and Communications segment since
September 1, 2007. From July 22, 2003 to that date, he was
Senior Vice President and Chief Operating Officer of that
segment. Prior to that, he served as Vice President and General
Manager of Teledyne Instruments since its formation in 2001.
Prior to that, Mr. Pichelli was the Vice President and General
Manager of Teledyne Analytical Instruments.
|
|
Rex D. Geveden*
President, Engineered Systems and Energy and Power Systems
Segments
|
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46
|
|
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Mr. Geveden has been the President of Teledyne Brown
Engineering, Inc. and the Engineered Systems segment (formerly
known as the Systems Engineering Solutions segment) since August
1, 2007. Since January 1, 2008, he has also been the President
of the Energy and Power Systems segment. Prior to that, Mr.
Geveden served as the Associate Administrator of the National
Aeronautics and Space Administration (NASA) where he functioned
as the agencys chief operating officer. Prior to that, he
served as NASAs Chief Engineer and Deputy Director of
NASAs Marshall Space Flight Center in Huntsville, Alabama.
|
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Rhett C. Ross
President, Aerospace Engines and Components Segment
|
|
|
43
|
|
|
Mr. Ross has been the President of Teledyne Continental Motors,
Inc. since November 5, 2007. Mr. Ross is also referred to as the
President of the Aerospace Engines and Components segment. Prior
to that he was the President of Teledyne Energy Systems, Inc.
since its formation in June 2001 for the purposes of the
transaction with Energy Partners, Inc.
|
|
Other Officers:
|
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|
|
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Ivars R. Blukis
Chief Business Risk Assurance Officer
|
|
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65
|
|
|
Mr. Blukis has been Chief Business Risk Assurance Officer since
January 22, 2002 and is responsible for the internal audit
function. Prior to that, Mr. Blukis was the Vice President,
Finance and Administration, for Teledyne Electronics
Technologies.
|
12
|
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Name and Title
|
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Age
|
|
Principal Occupations Last 5 Years
|
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|
Melanie S. Cibik
Vice President, Associate General Counsel and Assistant Secretary
|
|
|
48
|
|
|
Miss Cibik has been Vice President, Associate General Counsel
and Assistant Secretary of the Company for more than five years.
|
|
Robyn E. McGowan
Vice President, Administration and Human Resources and Assistant
Secretary
|
|
|
43
|
|
|
Ms. McGowan has been Vice President Administration
and Human Resources of the Company since April 2003 and Vice
President Administration since December 2000. Prior
to becoming a Vice President, she served as Director of
Administration. She has been an Assistant Secretary of Teledyne
since November 29, 1999.
|
|
Robert L. Schaefer
Associate General Counsel and Assistant Secretary, General
Counsel of the Electronics and Communications Segment
|
|
|
62
|
|
|
Mr. Schaefer has been an Associate General Counsel and an
Assistant Secretary of Teledyne and the General Counsel of
Teledynes Electronics and Communications segment for more
than five years.
|
|
Robert W. Steenberge
Vice President and Chief Technology Officer
|
|
|
60
|
|
|
Mr. Steenberge became a Vice President of the Company on
February 21, 2006, and has been Teledynes Chief Technology
Officer for more than five years.
|
|
Jason VanWees
Vice President, Corporate Development and Investor Relations
|
|
|
36
|
|
|
Mr. VanWees has been Vice President, Corporate Development and
Investor Relations since February 21, 2006. Prior to that, he
was Director of Corporate Development and Investor Relations of
Teledyne for more than five years.
|
|
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*
|
Such officers are subject to the reporting and other
requirements of Section 16 of the Securities Exchange Act of
1934, as amended.
|
Dr. Mehrabian and Teledyne have entered into a Third
Amended and Restated Employment Agreement dated as of
September 1, 2007. The agreement provides that we will
employ him as the Chairman, President and Chief Executive
Officer. The agreement currently terminates on December 31,
2008, but will automatically be extended annually unless either
party gives the other written notice prior to October 31 of the
year of such term that it will not be extended. Under the
agreement, Dr. Mehrabians annual base salary is
$800,000. The agreement provides that Dr. Mehrabian is
entitled to participate in Teledynes annual incentive
bonus plan and other executive compensation and benefit
programs. The agreement provides Dr. Mehrabian with a
non-qualified pension arrangement, under which Teledyne will pay
him annually starting six months following his retirement and
for a period of 10 years, as payments supplemental to any
accrued pension under our qualified pension plan, an amount
equal to 50% of his base compensation as in effect at
retirement. Under the third amendment, at his request,
Dr. Mehrabians eligibility to receive country club
and city club memberships and related tax
gross-ups
was discontinued. On January 23, 2007, without amending the
employment agreement, Teledynes Board of Directors asked
Dr. Mehrabian to continue to serve as its Chairman,
President and Chief Executive Officer through at least
December 31, 2009.
Fourteen current members of management have entered into Change
in Control Severance Agreements with Teledyne. The agreements
have a three-year, automatically renewing term. Under the
agreements, the executive is entitled to severance benefits if
(1) there is a change in control of Teledyne and
(2) within three months before or 24 months after the
change in control, either we terminate the executives
employment for reasons other than for cause or the executive
terminates employment for good reason. Severance
benefits consist of:
|
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A cash payment equal to three times (in the case of
Dr. Mehrabian, Messrs. Kuelbs and Schnittjer) or two
times (in the case of Messrs. Pichelli and Geveden and nine
other executives) the sum of (i) the executives
highest annual base salary within the year preceding the change
in control and (ii) the AIP bonus target for the year in
which the change in control occurs or the actual bonus payout
for the year immediately preceding the change in control,
whichever is higher.
|
13
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A cash payment for the current AIP bonus cycle based on the
fraction of the year worked times the AIP target objectives at
120% (with payment of the prior year bonus if not yet paid).
|
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Payment in cash for unpaid Performance Share Program awards,
assuming applicable goals are met at 120% of performance.
|
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Continued equivalent health and welfare (e.g., medical, dental,
vision, life insurance and disability) benefits at
Teledynes expense for a period of up to 36 months
(24 months in some agreements) after termination (with the
executive bearing any portion of the cost the executive bore
prior to the change in control); provided, however, such
benefits would be discontinued to the extent the executive
receives similar benefits from a subsequent employer.
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Immediate vesting of all stock options, with options being
exercisable for the full remaining term.
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Removal of restrictions on restricted stock issued by the
Company under our Restricted Stock Award Programs.
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Full vesting under the Companys pension plans (within
legal parameters) such that the executive shall be entitled to
receive the full accrued benefit under all such plans in effect
as of the date of the change in control, without any actuarial
reduction for early payment.
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Up to $25,000 ($15,000 in some agreements) reimbursement for
actual professional outplacement services.
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A
gross-up-payment
to hold the executive harmless against the impact, if any, of
federal excise taxes imposed on the executive as a result of the
payments constituting an excess parachute as defined
in Section 280G of the Internal Revenue Code.
|
Risk
Factors; Cautionary Statement as to Forward-Looking
Statements
The following text highlights various risks and uncertainties
associated with Teledyne. These factors could materially affect
forward-looking statements (within the meaning of
the Private Securities Litigation Reform Act of 1995) that
we may from time to time make, including forward-looking
statements contained in Item 1. Business and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations of this
Form 10-K
and in Teledynes 2007 Annual Report to Stockholders. It is
not possible for management to predict all of such factors, and
new factors may emerge. Additionally, management cannot assess
the impact of each such factor on Teledyne or the extent to
which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements.
Our
dependence on revenue from government contracts subjects us to
many risks:
Our
revenue from government contracts depends on the continued
availability of funding from the U.S. Government, and,
accordingly, we have the risk that funding for our existing
contracts may be diverted to other uses or delayed.
We perform work on a number of contracts with the Department of
Defense and other agencies and departments of the
U.S. Government including sub-contracts with government
prime contractors. Sales under contracts with the
U.S. Government as a whole, including sales under contracts
with the Department of Defense, as prime contractor or
subcontractor, represented approximately 41% of our total
revenue for 2007, as compared to 40% and 42% of our total
revenue for 2006 and 2005, respectively. 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
14
agency only as Congress makes appropriations available for
future fiscal years. The timing of program cycles can also
affect our results of operations for a particular quarter or
year. It is not uncommon for the Department of Defense to delay
the timing of awards for major programs for six to twelve
months, or more, beyond the original anticipated timeframe.
While U.S. defense spending increased as a result of the
September 11th terrorist attacks and the war in Iraq,
it is currently expected to continue to moderate over the next
few years. The continued war on terrorism and the Iraqi
situation could result in a diversion of funds from programs in
which Teledyne participates. In addition, continued defense
spending does not necessarily correlate to continued business
for us, because not all the programs in which we participate or
have current capabilities may be provided with continued
funding. Further, changes in the leadership of the
U.S. Government could result over time in reductions in
defense spending and further changes in programs in which we
participate.
Our Electronics and Communications segment provides a variety of
products for newer military platforms such as the
F/A-22
and
F-35 aircraft. Development and production of these aircraft are
very expensive, and there is no guarantee that the Department of
Defense, as it balances budget priorities, will continue to
provide funding to manufacture and support these platforms.
Reallocation of funding priorities within the Department of
Defense could also affect repair and spares sales for older
military platforms, including, by way of example, sales of our
traveling wave tubes for F-15, F-16, F-18, EA-6B, B-52, B-1,
C-130 and U-2 aircraft. The recent grounding of the Air
Forces F-15 fleet as a result of apparent structural
failures could result in decreased orders for products we supply
to the F-15 program.
Our
participation in government programs may decrease or be subject
to renegotiation as those programs evolve over time.
The relocation to Huntsville, Alabama of the Missile Defense
Agency or MDA has resulted in the transfer to the MDA of certain
missions and functions from the U.S. Army Space and Missile
Defense Command or SMDC. We understand that work currently
performed under one or more existing SMDC contracts may be
transferred to one or more existing or new MDA contracts. Such
transfers may require us to recompete for some work currently
performed by us, and there is no guarantee that we would
maintain historic levels of revenue or profitability if we
successfully recompeted, or even that MDA will effect this
transition without a break in contract coverage. Such changes
could affect our Engineered Systems segment, but it is too early
to tell the impact of such changes.
Over time, and for a variety of reasons, programs can evolve and
affect the extent of our participation. For example, Teledyne
Brown Engineerings Ground-based Midcourse Defense program
is moving toward the end of the program cycle resulting in
declining revenues. Revenues from this contract in 2005 and 2006
totaled approximately $51 million and $48 million,
respectively. In 2007, revenues related to this program declined
to $45 million, and are expected to decline further through
2009 as MDA shifts its focus toward integrating the Ground-based
Midcourse Defense program into the larger Ballistic Missile
Defense Program.
We have been a significant participant in NASA programs,
traditionally through our Engineered Systems segment and through
Teledyne Scientific Company. The foci of our current NASA
activities are the International Space Station and the James
Webb Space Telescope. While we anticipate participating in
NASAs lunar and interplanetary exploration activities,
funding for these activities has been reduced as NASA focuses on
the completion of the International Space Station and on keeping
the Space Shuttle fleet in continuous service, each of which is
also facing a tightened budget. These changes could adversely
impact us.
We may
not be successful in bidding for future contracts.
We obtain many U.S. Government prime contracts and
subcontracts through the process of competitive bidding. We may
not be successful in having our bids accepted. In addition, we
may spend substantial amounts of time, money and effort,
including design, development and marketing activities, required
to prepare bids and proposals for contracts that may not be
awarded to us.
15
Our
contracts with the U.S. Government are subject to termination
rights that could adversely affect us.
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 clauses impose liability on the
contractor for excess costs incurred by the U.S. Government
in reprocuring undelivered items from another source. During
2007, Teledyne had four U.S. Government contracts
terminated for convenience. We did not have any of our
U.S. Government contracts terminated for default during
2007.
We may
lose money or generate less than expected profits on our
fixed-price government contracts and we may lose money if we
fail to meet certain pre-specified targets in government
contracts.
There is no guarantee that U.S. Government contracts will
be profitable. A number of our U.S. Government prime
contracts and subcontracts are fixed-price type contracts (42%
in 2007, 47% in 2006 and 2005). 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. Under such contracts, we must absorb
cost overruns, notwithstanding the difficulty of estimating all
of the costs we will incur in performing these contracts. Our
failure to anticipate technical problems, estimate costs
accurately or control costs during performance of a fixed-price
contract may reduce the profitability of a fixed-price contract
or cause a loss. We cannot assure that our contract loss
provisions in our financial statements will be adequate to cover
all actual future losses. We may lose money on some contracts if
we fail to meet these targets.
Certain fees under some of our U.S. Government contracts
are linked to meeting specified technical, cost
and/or
schedule targets, including development or testing deadlines.
Fees may also be influenced or be dependent on the collective
efforts and success of other defense contractors over which we
had no or limited control.
Our
business is subject to government contracting regulations, and
our failure to comply with such laws and regulations could harm
our operating results and prospects.
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. 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.
Our
pension expenses and the value of our pension assets are
affected by factors outside of our control, including the
performance of plan assets, the stock market, interest rates and
actuarial data.
We have a defined benefit pension plan covering most of our
employees. At year-end 2007, the value of the combined pension
assets was less than our accumulated pension benefit obligation.
Given our pension plans underfunded status, in 2004 we
began making required cash contributions to our pension plan.
For 2007, 2006 and 2005, cash contributions totaled
$7.5 million, $20.9 million and $15.5 million,
respectively, and we currently expect such contributions to be
approximately $9.0 million for 2008. The lower contribution
level in 2007 is due primarily to the merger into our pension
plan of the overfunded Scientific Company pension plan in
September 2006, which was part of our September 2006 acquisition
of Scientific Company. The accounting rules applicable to our
pension plan require that amounts recognized in financial
statements be determined on an actuarial basis, rather than as
contributions are made to the plan. Two significant elements in
determining our pension income or pension expense are the
expected return on plan assets and the discount
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rate used in projecting pension benefit obligations. Declines in
the stock market and lower rates of return could increase
required contributions to our pension plan. Any decreases in
market interest rates will affect the discount rate assumption
used in projecting pension benefit obligations, and therefore if
and to the extent these decreases are not offset by
contributions and asset returns, our obligations could increase
under the plans. For additional discussion of pension matters,
see the discussion under Item 7. Managements
Discussion and Analysis of Results of Operations and Financial
Condition and Notes 2 and 12 to Notes to Consolidated
Financial Statements. At the end of 2007, we changed some
investment allocations to reduce exposure to deterioration in
the subprime mortgage market. However, our investment strategy
may not be successful if the problems in the subprime credit
market spread to other types of investments.
United
States and global responses to terrorism, the Iraq
situation and nuclear proliferation concerns increase
uncertainties with respect to many of our businesses and may
adversely affect our business and results of
operations.
United States and global responses to terrorism, the Iraq
situation and nuclear proliferation concerns increase
uncertainties with respect to U.S. and other business and
financial markets. Several factors associated, directly or
indirectly, with terrorism, the Iraq situation and perceived
nuclear threats and responses may adversely affect us. The
reaction to Irans continuing desire to explore nuclear
capabilities could affect adversely oil prices and some of our
businesses.
While some of our businesses that provide products or services
to the U.S. Government experienced greater demand for their
products and services as a result of increased
U.S. Government defense spending, various responses could
realign government programs and affect the composition, funding
or timing of our government programs. Changes in the leadership
of the U.S. Government could also further affect responses
and government programs. Government spending could shift to the
Department of Defense or Homeland Security programs in which we
may not participate or may not have current capabilities and
curtail less pressing non-defense programs in which we do
participate, including Department of Energy or NASA programs.
Government spending could also shift towards non-defense
programs in which we do not currently participate, such as
medical research programs of the National Institutes of Health.
Air travel declines have occurred after terrorist attacks and
heightened security alerts, as well as after the SARS and bird
flu scares. Additional declines in air travel resulting from
such factors and other factors could adversely affect the
financial condition of many of our commercial airline and
aircraft manufacturer customers and in turn could adversely
affect our Electronics and Communications segment.
Deterioration of financial performance of airlines could result
in a reduction of discretionary spending for upgrades of
avionics and in-flight communications equipment, which would
adversely affect our Electronics and Communications segment.
The government continues to evaluate potential security issues
associated with general aviation. Increased government
regulations, including but not limited to increased airspace
regulations (including user fees), could lead to an overall
decline in air travel and have an adverse affect on our
Aerospace Engines and Components segment. As happened after the
September 11th terrorist attacks, reinstatement of
flight restrictions would negatively impact the market for
general aviation aircraft piston engines and components and our
Aerospace Engines and Components segment. Potential reductions
in the need for general aviation aircraft maintenance as a
result of declines in air travel could also adversely affect our
Aerospace Engines and Components segment.
Higher oil prices could reduce general aviation air travel,
negatively affecting our Aerospace Engines and Components
segment. Higher oil prices could also adversely affect
commercial airline-related customers of our Electronics and
Communications segment. Conversely, lower oil prices could
decrease oil exploration activities and hinder our marine
instrumentation businesses, including Teledyne Geophysical
Instruments, Teledyne Benthos, Teledyne D.G. OBrien and
majority-owned ODI. In addition, instability in the Middle East
or other oil-producing regions could adversely affect expansion
plans of the oil and gas industry customers of our marine
instrumentation business.
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Acquisitions
involve inherent risks that may adversely affect our operating
results and financial condition.
Our growth strategy includes acquisitions. Acquisitions involve
various inherent risks, such as:
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our ability to assess accurately the value, strengths,
weaknesses, internal controls, contingent and other liabilities
and potential profitability of acquisition candidates;
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the potential loss of key personnel of an acquired business;
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our ability to integrate acquired businesses and to achieve
identified financial, operating and other synergies anticipated
to result from an acquisition;
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our ability to assess, integrate and implement internal controls
of acquired businesses in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002;
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the distraction of management resulting from the need to
integrate acquired businesses;
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increased competition for acquisition targets, which may
increase acquisition costs; and
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unanticipated changes in business and economic conditions
affecting an acquired business.
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While we conduct financial and other due diligence in connection
with our acquisitions and generally seek some form of
protection, including indemnification from a seller and
sometimes an escrow of a portion of the purchase price to cover
potential issues, such acquired companies may have weaknesses or
liabilities that are not accurately assessed or brought to our
attention at the time of the acquisition. Further, indemnities
or escrows may not fully cover such matters, particularly
matters identified after a closing.
We also have acquired several private companies, including the
recent acquisitions of Storm Products Co., TSS (International)
Limited, and the assets of Impulse Enterprise and Judson
Technologies, LLC. Private companies generally may not have as
formal or comprehensive internal controls and compliance systems
in place as public companies. While we have required various
sellers to take certain compliance actions prior to the closing
of an acquisition, including making voluntary disclosures under
various export control laws and regulations, and have sought
protections in the purchase agreement for such matters, there is
no assurance that we have identified all issues or will be fully
protected from historic liabilities. After acquiring a company,
notwithstanding pre-closing due diligence, we have discovered
issues that required further action, including making voluntary
disclosures under various defense and export control laws and
regulations.
While the products and customer base of the companies we
acquired in 2007 are complementary to some of Teledynes
existing businesses, there is no assurance that we will achieve
all identified financial, operating and marketing synergies. We
may also experience problems that arise in entering new markets
through acquisitions in which we may have little or no
experience.
In connection with acquisitions, we may consolidate one or more
acquired facilities with other Teledyne facilities to obtain
synergies and cost-savings. For example, in 2006, we relocated,
with minimal disruption, the operations of the microwave
technical solutions assets acquired from Avnet Inc. to a
Teledyne Cougar facility in Sunnyvale, California. In 2007, we
also moved
2007-acquired
Tindall Technologies, Inc.s operations into the same
Teledyne Cougar facility. On a larger scale, in 2006, we
successfully consolidated into a newly leased facility in Poway,
California the operations of
2005-acquired
Teledyne RD Instruments, Inc.,
2005-acquired
MGD Technologies, Inc. (now part of Teledyne Isco) and Teledyne
Interconnect Devices. In 2007, we added
2006-acquired
Teledyne KW Microwave to such facility. Nonetheless, despite
planning, relocation and consolidation of manufacturing
operations has inherent risks, as it tends to involve, among
other things, change of personnel, application of a new business
system software and learning or adaptation of manufacturing
processes and techniques. As a result, production delays at a
new operating location may occur.
As permitted by SEC rules, our current managements report
as to our assessment of the effectiveness of internal controls
over financial reporting excludes in its scope and coverage our
2007 acquisition of the assets of D.G. OBrien, Inc.. We
plan to evaluate more fully the internal controls of Teledyne
D.G. OBrien and subsequently acquired companies and
implement a formal and rigorous system of internal controls at
those
18
acquired companies. We can provide no assurance that we will be
able to provide a report that contains no significant
deficiencies or material weaknesses with respect to these
acquired companies or other acquisitions.
Our
future financial results could be adversely impacted by asset
impairment charges.
Under Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, we are required to test both acquired
goodwill and other indefinite-lived intangible assets for
impairment on an annual basis based upon a fair value approach,
rather than amortizing them over time. We have chosen to perform
our annual impairment reviews of goodwill and other
indefinite-lived intangible assets during the fourth quarter of
each fiscal year. We also are required to test goodwill for
impairment between annual tests if events occur or circumstances
change that would more likely than not reduce our enterprise
fair value below its book value. These events or circumstances
could include a significant change in the business climate,
including a significant sustained decline in an entitys
market value, legal factors, operating performance indicators,
competition, sale or disposition of a significant portion of the
business, or other factors. If the fair market value is less
than the book value of goodwill, we could be required to record
an impairment charge. The valuation of reporting units requires
judgment in estimating future cash flows, discount rates and
estimated product life cycles. In making these judgments, we
evaluate the financial health of the business, including such
factors as industry performance, changes in technology and
operating cash flows. As we have grown through acquisitions, we
have accumulated $351.6 million of goodwill, and have
$61.7 million of acquired intangible assets, which includes
$11.3 of indefinite-lived intangible assets, out of total assets
of $1,159.4 million at December 30, 2007. As a result,
the amount of any annual or interim impairment could be
significant and could have a material adverse effect on our
reported financial results for the period in which the charge is
taken. We also may be required to record an earnings charge or
incur unanticipated expenses if, as a result of a change in
strategy or other reason, we determined the value of other
assets has been impaired.
We account for the impairment of long-lived assets to be held
and used in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets (SFAS No. 144).
SFAS No. 144 requires that a long-lived asset to be
disposed of be reported at the lower of its carrying amount or
fair value less cost to sell. An asset (other than goodwill and
indefinite-lived intangible assets) is considered impaired when
estimated future cash flows are less than the carrying amount of
the asset. In the event the carrying amount of such asset is not
deemed recoverable, the asset is adjusted to its estimated fair
value. Fair value is generally determined based upon estimated
discounted future cash flows.
We may
not have sufficient resources to fund all future research and
development and capital expenditures or possible
acquisitions.
In order to remain competitive, we must make substantial
investments in research and development of new or enhanced
products and continuously upgrade our process technology and
manufacturing capabilities. Although we believe that anticipated
cash flows from operations and available borrowings under our
recently amended $590.0 million credit facility will be
sufficient to satisfy our anticipated working capital, research
and development and capital investment needs, we may be unable
to fund all of these needs or possible acquisitions. Our ability
to raise additional capital will depend on a variety of factors,
some of which will not be within our control, including the
existence of a public offering market, investor perceptions of
us, our businesses and the industries in which we operate, and
general economic conditions. We may be unable to successfully
raise additional capital, if needed. 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.
Our
indebtedness could materially and adversely affect our
business.
As of December 30, 2007, we had $143.2 million in
total outstanding indebtedness, including $138.0 million
under our then $400.0 million credit facility. The
borrowing capacity under our credit facility was subsequently
increased to $590.0 million in February 2008. Our
indebtedness could harm our business by, among other things,
reducing the funds available to make new strategic acquisitions.
Our indebtedness could
19
also have a material adverse effect on our business by
increasing our vulnerability to general adverse economic and
industry conditions or a downturn in our business. General
adverse economic and industry conditions or a downturn in our
business could result in our inability to repay this
indebtedness in a timely manner.
We may be
unsuccessful in our efforts to increase our participation in
certain new markets.
We intend to both adapt our existing technologies and develop
new products to expand into new market segments. For example, we
continue to work towards developing new fuel cell related
technologies. The market for fuel cell technologies is not well
established and there are a number of companies that have
announced intentions to develop and market fuel cell products.
Some of these companies have greater financial
and/or
technological resources than we do.
We have also been developing new electronic products, including
high-power millimeter traveling wave tubes and imaging sonar
systems, which are intended to access markets in which Teledyne
does not currently participate or has limited participation. We
may be unsuccessful in accessing these and other new markets if
our products do not meet our customers requirements, as a
result of changes in either technology and industry standards or
because of actions taken by our competitors.
We may be
unable to successfully introduce new and enhanced products in a
timely and cost-effective manner.
Our operating results depend in part on our ability to introduce
new and enhanced products on a timely basis. Successful product
development and introduction depend 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. As an example, we have been
working to develop high power solid state power amplifiers,
which could replace our traveling wave tubes in some
applications, and, in this area, there is a larger base of
potential competitors than for tube amplifiers. As a result, it
may be more difficult for our solid state power amplifier
products to gain market acceptance. We may also lose any
technological advantage to competitors if we fail to develop new
products in a timely manner. For example, if Teledyne
Continental Motors fails to fully launch Aerosances
PowerLink FADEC, its electronic engine control product,
competitors may be able to introduce similar products that are
able to gain market acceptance to the disadvantage of
Teledynes product.
Additionally, new products may trigger increased warranty costs
as such products are tested further by actual usage. Accelerated
entry of new products to meet heightened market demand and
competitive pressures may cause additional warranty costs as
development and testing time periods might be condensed. In
2008, for example, Teledyne Energy Systems, Inc. currently
believes it will continue to incur additional warranty costs as
it continues to roll out two new hydrogen generation product
lines.
Technological
change and evolving industry and regulatory standards 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 or
services 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 operations and financial condition. For
example, Teledyne Reynolds high voltage connector business
could be negatively impacted by marketplace shifts to lower
voltage requirements where the number of competitors is larger.
Most lighting displays in legacy aircraft use tubes that require
high voltage connectors. LED backlights, which are increasingly
being used for aircraft lighting displays, have substantially
lower voltage requirements.
20
Currently accepted industry and regulatory standards are also
subject to change, which may contribute to the obsolescence of
our products or services. For example, a European directive that
certain electronic products must not contain impermissible
levels of lead, mercury, cadmium, hexavalent chromium,
polybrominated biphenyls or polybrominated diphenyl ethers,
recently took effect on July 1, 2006. As a result, we must
make sure that certain of our electronic products sold into
European member states comply with this new directive. Although
many of our products are exempt from the European directive, we
expect that, over time, component manufacturers may discontinue
selling components that have the restricted substances. This
will, in turn, require us to accommodate changes in parameters,
such as the way parts are soldered, and may, in some cases,
require redesign of certain products. This could lead to
increased costs, which we may not be able to recover from our
customers, delays in product shipments and loss of market share
to competitors. Our sales of environmental monitoring equipment
could be negatively impacted if regulatory requirements change
to deemphasize environmental monitoring. Similarly, revenues of
our Teledyne Test Services business, which provides testing and
certification for products used in nuclear power plants, could
be negatively impacted in the event of any changes in
certification standards by the Nuclear Regulatory Commission.
The
airline industry is heavily regulated, and if we fail to comply
with applicable requirements, our results of operations could
suffer.
Governmental agencies throughout the world, including the
U.S. Federal Aviation Administration, or the FAA, prescribe
standards and qualification requirements for aircraft
components, including virtually all commercial airline and
general aviation products, as well as regulations regarding the
repair and overhaul of aircraft engines. Specific regulations
vary from country to country, although compliance with FAA
requirements generally satisfies regulatory requirements in
other countries. We include, with the products and replacement
parts that we sell to our aircraft manufacturing industry
customers, documentation certifying that each part complies with
applicable regulatory requirements and meets applicable
standards of airworthiness established by the FAA or the
equivalent regulatory agencies in other countries. In order to
sell our products, we and the products we manufacture must also
be certified by our individual original equipment manufacturer,
or OEM, customers. If any material authorization or approval
qualifying us to supply our products is revoked or suspended,
then the sale of the subject product would be prohibited by law,
which would have an adverse effect on our business, financial
condition and results of operations.
From time to time, the FAA or equivalent regulatory agencies in
other countries propose new regulations or changes to existing
regulations, which are usually more stringent than existing
regulations. If these proposed regulations are adopted and
enacted, we may incur significant additional costs to achieve
compliance, which could have a material adverse effect on our
business, financial condition and results of operations.
Product
liability claims, product recalls and field service actions
could have a material adverse effect on our reputation,
business, results of operations and financial
condition.
As a manufacturer and distributor of a wide variety of products,
including aircraft engines and medical devices, 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 the case even if
the claims themselves are proven untrue or settled for
immaterial amounts.
While we have general liability and other insurance policies
concerning product liabilities, we have self-insured retentions
or deductibles under such policies with respect to a portion of
these liabilities. For example, our current annual self-insured
retention for general aviation aircraft liabilities incurred in
connection with products manufactured by Teledyne Continental
Motors, Inc., is approximately $21.0 million, a decrease
from $22.9 million for the prior annual period. Our
existing aircraft product liability insurance policy expires on
May 31, 2008. Additionally, based on facts and
circumstances of claims, we have not always accrued amounts up
to the applicable annual self-insured retentions. Awarded
damages could be more than our accruals.
Product recalls can be expensive and tarnish our reputation and
have a material adverse effect on the sales of our products. For
example, Teledyne Continental Motors had been engaged in a
product recall of
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piston engine crankshafts as a result of which we recorded a
$12.0 million pretax charge in the second quarter of 2000.
In 2002, we reached a monetary settlement related to the 2000
recall with two of three companies that manufactured and
processed allegedly defective steel subsequently made into
aircraft engine crankshafts. We failed to win a jury verdict
against a third company involved in making the steel. In 2008,
we reached another monetary settlement with a materials supplier
as a result of the 2000 product recall program.
Through Aerosance, Inc., we have developed electronic controls,
known as PowerLink FADEC, for piston aircraft engines that
automate many functions requiring manual control, such as fuel
flow and power management. While such control systems should
improve engine management and facilitate maintenance of engines,
we could face additional claims as they become standard
equipment on selected new piston engine aircraft or are
retrofitted on some piston engine aircraft. New products can
trigger additional product liability claims as such products are
further tested by actual usage. Additionally, general aviation
aircraft crash lawsuits tend to name as defendants manufacturers
of a multitude of aircraft-related products as discovery and
recoveries are pursued.
We have been joined, among a number of defendants (often over
100), in lawsuits alleging injury or death as a result of
exposure to asbestos. We have not incurred material liabilities
in connection with these lawsuits. The filings typically do not
identify any of our products as a source of asbestos exposure,
and we have been dismissed from cases for lack of product
identification, but only after some defense costs have been
incurred. Also, because of the prominent Teledyne
name, we may be mistakenly joined in lawsuits involving a
company or business that was not assumed by us as part of our
1999 spin-off. Our historic insurance coverage, including that
of its predecessors, may not fully cover such claims and defense
of such matters, as coverage depends on the year of purported
exposure and other factors. Nonetheless, we intend to defend
these claims vigorously. Congress from time to time has
considered tort reform to deal with asbestos-related claims, but
to date nothing has materialized.
Certain gas generators manufactured by Teledyne Energy Systems,
Inc. contain a sealed, wetted asbestos component. While the
company has been transitioning to a replacement material, has
placed warning labels on its products and takes care in handling
of this material by employees, there is no assurance that the
Company will not face product liability claims involving this
component.
Our Teledyne Brown Engineerings laboratory in Knoxville,
Tennessee performs radiological analyses. While the laboratory
is certified by the Department of Energy and has other
nuclear-related certifications and internal quality controls in
place, errors and omissions in analyses may occur. We currently
have errors and omissions insurance coverage and nuclear
liability insurance coverage that might apply depending on the
circumstances. We also have sought indemnities from some of our
customers. Our insurance coverage or indemnities, however, may
not be adequate to cover potential problems associated with
faulty radiological analyses.
We cannot assure that we will not have additional product
liability claims or that we will not recall any additional
products.
We may
have difficulty obtaining product liability and other insurance
coverages, or be subject to increased costs for such
coverage.
As a manufacturer of a variety of products including aircraft
engines used in general aviation aircraft, we have general
liability and other insurance policies that provide coverage
beyond self-insured retentions or deductibles. We cannot assure
that, for 2008 and in future years, insurance carriers will be
willing to renew coverage or provide new coverage for product
liability, especially as it relates to general aviation. Over
the last several years, the number of insurance companies
providing general aviation product liability insurance coverage
has decreased. If such insurance is available, we may be
required to pay substantially higher prices for coverage
and/or
increase our levels of self-insured retentions or reserves. Our
current aircraft product liability insurance policy expires in
May 2008 and has an annual self-insured retention of
approximately $21.0 million.
22
To offset aircraft product liability insurance costs, we
continue to try to reduce manufacturing and other costs and also
to pass on such insurance costs through price increases on its
aircraft engines and spare parts. We cannot provide assurances
that further cost reduction efforts will prove successful or
that customers will accept additional price increases. Aircraft
engines and spare part cost increases, coupled with increased
costs of insurance for general aviation aircraft owners, tend to
result in decreasing aftermarket sales of our piston engines.
This, in turn, leaves our Aerospace Engines and Components
segment more dependent on sales to OEMs, which is more dependent
on general economic conditions.
For certain electronic components for medical applications that
we manufacture, such as those that go into cardiac
defibrillators, we have asked for indemnities from our customers
and/or
to be
included under their insurance policies. We cannot, however,
provide any assurance that such indemnities or insurance will
offset potential liabilities that we may incur as a result of
our manufacture of such components.
Aside from the uncertainties created by external events that can
affect insurance coverages, such as the devastating 2005
hurricane season, our ability to obtain product liability
insurance and the cost for such insurance are affected by our
historical claims experience. While we have taken steps to
improve our claims management process over the last few years,
we cannot assure that, for 2008 and in future years, our ability
to obtain insurance, or the cost for such insurance, or the
amount of self-insured retentions or reserves will not be
negatively impacted by our experience in prior years.
Increasing
competition could reduce the demand for our products and
services.
Although we believe that we have certain advantages that 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 that 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. For example, the pending combination of the
network activities of Nokia and Siemens could negatively impact
our wireless transceivers business. Our general aviation piston
engines business could face increasing competition from
German-based Thielert Aircraft Engines GmbH as it continues to
enter the U.S. market with retrofits and attracts OEMs.
Low-cost competition from China and other developing countries
could also result in decreased demand for our products.
We sell
products and services to customers in industries that are
cyclical and sensitive to changes in general economic
activity.
We develop and manufacture products for customers in the energy
exploration market, which has been cyclical and suffered from
over capacity in prior years. Strong demand and increased prices
for oil and natural gas contributed to substantial revenue
growth at Teledyne Geophysical Instruments and ODI since 2003. A
cyclical downturn in this market may affect future operating
results, particularly given our broader range of marine
instrumentation businesses since 2003.
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. While the market
for commercial aircraft has improved since the downturn
triggered by the events of September 11th and the war
in Iraq, another such event could increase the level of
uncertainty regarding future orders for aircraft.
Many of the OEM customers of the businesses in our Aerospace
Engines and Components segment are privately-held and may not be
well-capitalized. In 2007, one of the airplane manufacturer
customers of Teledyne Continental Motors filed a petition for
bankruptcy, resulting in a $1.7 million write down of our
accounts receivable. In February 2008, Adam Aircraft filed for
bankruptcy protection. We have no unpaid
23
receivables from Adam Aircraft outstanding. Any future credit
problems with our customers could result in similar or larger
write downs.
Several of our businesses are also suppliers to the
semiconductor industry, which is highly cyclical by nature. The
semiconductor industry has experienced significant, and
sometimes prolonged, downturns. Any downturn in the
semiconductor industry or any other industry that uses a
significant number of semiconductor devices, such as consumer
electronic products, telecommunication devices, or computing
devices could have a material adverse effect on our business and
operating results.
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.
We sell
products to customers in industries that may undergo rapid and
unpredictable changes.
We develop and manufacture products for customers in industries
that have undergone rapid changes in the past. For example, we
manufacture products and provide manufacturing services to
companies that serve telecommunications markets. During 2001,
many segments of the telecommunications market experienced a
dramatic and rapid downturn that resulted in cancellations or
deferrals of orders for our products and services. This market,
or others that we serve, may exhibit rapid changes in the future
and may adversely affect our operating results, or our
production levels, or both. We also manufacture products using
fuel cell technology, which is a market that is not well
established and subject to significant change and evolution.
We are
subject to the risks associated with international
sales.
During 2007, sales to international customers accounted for
approximately 22% of our total revenues, as compared to 21% in
2006 and 18% in 2005. We anticipate that future sales to
international customers will continue to account for a
significant percentage of our revenues. Risks associated with
these sales include:
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political and economic instability;
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international terrorism;
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export controls, including U.S. export controls related to
China;
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changes in legal and regulatory requirements;
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U.S. and foreign government policy changes affecting the
markets for our products;
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changes in tax laws and tariffs;
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changes in
U.S.-China
relations; and
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exchange rate fluctuations.
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Any of these factors could have a material adverse effect on our
business, results of operations and financial condition.
Exchange rate fluctuations may negatively affect the cost of our
products to international customers and therefore reduce our
competitive position. If the U.S. Dollar strengthens
against the British Pound Sterling or Euro, our European
customers may no longer find our product prices more attractive
than European competitors.
Sales of our products and services internationally are subject
to U.S. and local government regulations and procurement
policies and practices including regulations relating to
import-export control. Violations of export control rules could
result in suspension of our ability to export items from one or
more business units or the entire corporation. Depending on the
scope of the suspension, this could have a material effect on
our ability to perform certain international contracts. Concerns
over theft of technology for military uses, nuclear
proliferation concerns, terrorism and other factors have
resulted in increased export scrutiny of international sales,
including some of our products to international customers. There
has also been increasing export oversight and regulation of
sales to China. Travel restrictions to Middle Eastern and other
countries may
24
negatively affect continuing international sales or service
revenues from such regions. There are also U.S. and
international regulations relating to investments, exchange
controls and repatriation of earnings, as well as varying
currency, political and economic risks.
Among other things, we are subject to the Foreign Corrupt
Practices Act, or FCPA, which generally prohibits
U.S. companies and their intermediaries from bribing
foreign officials for the purpose of obtaining or keeping
business or otherwise obtaining favorable treatment. In
particular, we may be held liable for actions taken by our
strategic or local partners even though our partners are not
subject to the FCPA. Any determination that we have violated the
FCPA could result in sanctions that could have a material
adverse effect on our business, financial condition and results
of operations.
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.
While we have, as part of our overall risk management program,
an environmental management and compliance program applicable to
our operating facilities, including a review and
audit program to monitor compliance where each facility is
reviewed and audited by an internal environmental team every
three years, such program does not eliminate potential
environmental liabilities. In addition, while we conduct
environmental-related due diligence in acquisitions and
generally seek some form of protection, including
indemnification from a seller, companies we acquire may have
environmental liabilities that are not accurately assessed or
brought to our attention at the time of the acquisition.
For additional discussion of environmental matters, see the
discussion under the caption Other Matters
Environmental of Item 7. Managements
Discussion and Analysis of Results of Operations and Financial
Condition and Note 15 to Notes to Consolidated
Financial Statements.
Increased environmental regulatory monitoring requirements of
the air we breathe and the water we drink could have a favorable
effect on the results of operations or financial condition of
our instrumentation businesses, including the sulfur dioxide,
carbon monoxide and ozone gas monitoring business of Teledyne
Advanced Pollution Instrumentation, Inc. and the water quality
monitoring business of Teledyne Isco, Inc.
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.
Recruiting and retaining skilled technical and engineering
personnel has become even more competitive as the domestic
economy has improved in recent years. Also, our Engineered
Systems segment has already begun to face increasing competition
for qualified engineering personnel as a result of the
Department of Defense 2005 Base Realignment and Closure (also
known as BRAC) decisions, particularly as positions continue to
move to Huntsville, Alabama over the next several years. While
we have engaged in succession planning, 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.
We may
not be able to sell, or exit on acceptable terms, product lines
that we determine no longer meet with our growth
strategy.
Consistent with our growth strategy to focus on markets to
expand our profitable niche businesses, we continually evaluate
our product lines to ensure that they are aligned with our
strategy. For example, after the June 2004 acquisition of Isco,
Inc., we determined that the on-line process control
instrumentation business of
25
its German subsidiary was not aligned with our strategy, and in
March 2005, we sold this non-strategic business. In 2007,
principally because of the decision of a customer to manufacture
certain medical products at its facilities in India, we closed
our contract manufacturing operations in El Rubi, Mexico and
transferred the remaining operations to our La Mesa, Mexico
facility and our Lewisburg, Tennessee facility.
Our ability to dispose of or exit product lines that may no
longer be aligned with our growth strategy will depend on many
factors, including the terms and conditions of any asset
purchase and sale agreement, as well as industry, business and
economic conditions. We cannot provide any assurance that we
will be able to sell non-strategic product lines on terms that
are acceptable to us, or at all. Also, if the sale of any
non-strategic product line cannot be consummated or is not
practical, alternative courses of action, including closure, may
not be available to us or may be more costly than anticipated.
Provisions
of our governing documents, applicable law, and our Change in
Control Severance Agreements could make an acquisition of
Teledyne Technologies more difficult.
Our Restated Certificate of Incorporation, Amended and Restated
Bylaws and Rights Agreement and the General Corporation Law of
the State of Delaware 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. We have also entered into Change in Control Severance
Agreements with 14 members of our management, which could have
an anti-takeover effect.
The
market price of our Common Stock has fluctuated significantly
since our spin-off from ATI, and could continue to do
so.
Since the spin-off from ATI on November 29, 1999, the
market price of our Common Stock has ranged from a low of
$7.6875 to a high of $57.21 per share. At February 26,
2008, our closing stock price was $46.84. Fluctuations in our
stock price could continue. Among the factors that could affect
our stock price are:
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quarterly variations in our operating results;
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strategic actions by us or our competitors;
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acquisitions;
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adverse business developments;
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war in the Middle East or elsewhere;
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additional terrorist activities;
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increased military or homeland defense activities; changes to
the Federal budget;
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changes in the semiconductor, telecommunications, commercial
aviation, energy exploration and electronic manufacturing
services markets;
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general market conditions;
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changes in tax laws; and
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general economic factors unrelated to our performance.
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The stock markets in general, and the markets for high
technology companies in particular, have experienced a high
degree of volatility not necessarily related to the operating
performance of these companies. We cannot provide assurances as
to our stock price.
Our
financial statements are based on estimates required by GAAP,
and actual results may differ materially from those estimated
under different assumptions or conditions.
Our financial statements are prepared in conformity with
generally accepted accounting principles in the United States.
These principles require our management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of
26
revenue and expenses during the reporting period. For example,
estimates are used when accounting for items such as asset
valuations, allowances for doubtful accounts, depreciation and
amortization, impairment assessments, employee benefits, taxes,
aircraft product and general liability and contingencies. While
we base our estimates on historical experience and on various
assumptions that we believe to be reasonable under the
circumstances at the time made, actual results may differ
materially from those estimated.
While we
believe our control systems are effective, there are inherent
limitations in all control systems, and misstatements due to
error or fraud may occur and not be detected.
We continue to take action to assure compliance with the
internal controls, disclosure controls and other requirements of
the Sarbanes-Oxley Act of 2002. Our management, including our
Chief Executive Officer and Chief Financial Officer, cannot
guarantee that our internal controls and disclosure controls
will prevent all possible errors or all fraud. A control system,
no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. In addition, the design of a control
system must reflect the fact that there are resource constraints
and the benefit of controls must be relative to their costs.
Because of the inherent limitations in all control systems, no
system of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Further, controls can be circumvented by individual
acts of some persons, by collusion of two or more persons, or by
management override of the controls. The design of any system of
controls also is based, in part, upon certain assumptions about
the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, a control may be
inadequate because of changes in conditions or the degree of
compliance with the policies or procedures may deteriorate.
Because of inherent limitations in a cost-effective control
system, misstatements resulting from error or fraud may occur
and may not be detected.
Natural
disasters, such as a serious earthquake or wildfire in
California or a major hurricane in Alabama or Florida, could
adversely affect our business, results of operations and
financial condition.
Several of our facilities, as a result of their locations could
be subject to a catastrophic loss caused by an earthquake, a
hurricane or a tornado. Many of our production facilities and
our headquarters are located in California and thus are in areas
with above average seismic activity and may also be at risk of
damage in wildfires. In addition, we have manufacturing
facilities in the Southeastern United States and Texas that have
been threatened and struck by major hurricanes. Our facilities
in Alabama, Florida, Kansas, Nebraska and Tennessee have also
been threatened by tornados. In 2007, prior to our acquisition
of Storm Products Co., a tornado caused minor damage to one of
its Dallas, Texas facilities. While Teledyne Continental
Motors piston-engines manufacturing facility, located in
Mobile, Alabama, Teledyne Geophysical Instruments facility
in Houston, Texas, and ODIs facility in Daytona Beach,
Florida were relatively fortunate with respect to the building
damage and business interruption they suffered during the severe
2005 hurricane season, there can be no assurance that any one of
them will be as fortunate in the future. If any of our
California facilities, including our California headquarters,
were to experience a catastrophic earthquake or wildfire loss or
if any of our Alabama, Florida, Nebraska, Kansas, Tennessee or
Texas facilities were to experience a catastrophic hurricane,
storm or tornado, such event could disrupt our operations, delay
production, shipments and revenue and result in large expenses
to repair or replace the facility or facilities. While Teledyne
has property insurance to partially reimburse it for losses
caused by windstorm and earth movement, such insurance would not
cover all possible losses. In addition, our existing disaster
recovery plans (including those relating to our information
technology systems) may not be fully responsive to, or minimize
losses associated with, catastrophic events.
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Item 1B.
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Unresolved
Staff Comments.
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None.
27
Our principal facilities as of February 20, 2008 are listed
below. Although the facilities vary in terms of age and
condition, our management believes that these facilities have
generally been well maintained and are adequate for current
operations.
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Facility Location
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Principal Use
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Owned/Leased
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Electronics and Communications Segment
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Defense Electronics, Products and Services
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Camarillo, California
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Production of focal plane arrays and imaging sensors and
subsystems
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Leased
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Los Angeles, California
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Development and production of electronic components and
subsystems
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Owned and
Leased
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Los Angeles, California
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Development and production of high voltage connectors and
subassemblies and pilot helmet mounted display components and
subsystems
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Leased
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Mountain View, California
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Production of microwave integrated circuits and systems
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Owned
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Northridge, California
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Development of electronic seat ejection sequencers
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Leased
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Poway, California
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Development and production of defense microwave components and
subsystems
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Leased
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Rancho Cordova, California
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Development and production of traveling wave tubes
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Owned
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Santa Maria, California
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Development and production of high voltage capacitor products
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Leased
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Sunnyvale, California
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Development and production of RD and microwave amplifiers and
components
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Owned and
Leased
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Thousand Oaks, California
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Provision of research and development services
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Owned
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Tracy, California
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Development and production of precision secondary explosive
components including initiators and detonators
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Leased
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Woodridge, Illinois
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Development and production of microwave cable and interconnect
products
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Leased
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Hudson, New Hampshire
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Production of printed circuit boards
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Owned
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Montgomeryville, Pennsylvania
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Development and production of infrared devices and accessory
products
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Owned and
Leased
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Lewisburg, Tennessee
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Development and manufacturing of electronic components and
subsystems
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Owned
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Instrumentation Products
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City of Industry, California
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Development and production of precision oxygen analyzers
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Owned
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San Diego, California
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Development and production of environmental monitoring
instrumentation
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Leased
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San Diego, California
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Development and production of electrical interconnection systems
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Leased
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Poway, California
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Development and production of connectors
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Leased
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Poway, California
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Development and production of underwater acoustic instrumentation
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Leased
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Englewood, Colorado
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Development and production of environmental monitoring systems
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Leased
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Daytona Beach, Florida
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Development of subsea, wet-mateable electrical and fiber-optic
interconnect systems
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Leased
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North Falmouth, Massachusetts
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Development and production of underwater acoustic
instrumentation and package inspection systems
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Owned
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Lincoln, Nebraska
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Development and production of water quality monitoring products,
chemical separation instruments and flash chromatography
instruments and consumables
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Owned
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Hudson, New Hampshire
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Development and production of elemental analysis instruments
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Leased
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Facility Location
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Principal Use
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Owned/Leased
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Seabrook, New Hampshire
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Development and production of electrical and fiber optic
interconnect systems
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Leased
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Mason, Ohio
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Development and production of chemical analysis instruments
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Leased
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Dallas, Texas
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Development and production of specialty wire and cable assemblies
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Leased
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Houston, Texas
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Development and production of geophysical streamer cables and
hydrophones for seismic monitoring
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Owned
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Hampton, Virginia
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Development and production of vacuum and flow measurement
instruments
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Owned
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Other Commercial Electronics
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El Segundo, California
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Development and production of digital data acquisition
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Leased
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systems for monitoring commercial aircraft and engines
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Hawthorne, California
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Production of electromechanical relays
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Owned
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Engineered Systems Segment
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Huntsville, Alabama
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Provision of engineering services and products, including
systems engineering, optical engineering, software and hardware
engineering, and instrumentation technology
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Owned and
Leased
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Colorado Springs, Colorado
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Provision of engineering services
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Leased
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Knoxville, Tennessee
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Laboratories and offices in support of environmental services
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Leased
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Arlington, Virginia
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Defense program offices supporting governmental customers
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Leased
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Aerospace Engines and Components Segment
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Mobile, Alabama
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Design, development and production of new and rebuilt piston
engines, ignition systems and spare parts for the general
aviation market
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Leased
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Mattituck, New York
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Supply of aftermarket parts, services and engine overhauls for
the general aviation market
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Leased
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Energy and Power Systems Segment
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Redlands, California
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Manufacturing of batteries for the general aviation market
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Owned
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Hunt Valley, Maryland
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Manufacturing, assembling and maintenance of hydrogen gas
generators, power generating systems and fuel cell test stations
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Leased
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Toledo, Ohio
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Design, development and production of small turbine engines for
aerospace and military markets
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Leased
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We also own or lease facilities and offices elsewhere in the
United States and outside the United States, including
facilities in: Tijuana, Mexico; Gloucester, Newbury, West
Drayton and Watford, England; Cumbernauld and Aberdeen,
Scotland; Singapore; Cwmbran, Wales; Kreuztal, Germany;
La Gaude, France; Shanghai, China; and Ottawa, Canada. Our
corporate executive offices are located at 1049 Camino Dos Rios,
Thousand Oaks, California
91360-2362.
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Item 3.
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Legal
Proceedings.
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From time to time, we become involved in various lawsuits,
claims and proceedings related to the conduct of our business,
including those pertaining to product liability, patent
infringement, commercial, employment and employee benefits.
While we cannot predict the outcome of any lawsuit, claim or
proceeding, our management does not believe that the disposition
of any pending matters is likely to have a material adverse
effect on our financial condition or liquidity. The resolution
in any reporting period of one or more of these matters,
however, could have a material adverse effect on the results of
operations for that period.
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Item 4.
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Submission
of Matters to a Vote of Security Holders.
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No matters were submitted to a vote of Teledynes
stockholders during the fourth quarter of 2007.
29
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity
Securities.
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Price
Range of Common Stock and Dividend Policy
Our Common Stock is listed on the New York Stock Exchange and
traded under the symbol TDY. The following table
sets forth, for the periods indicated, the high and low sale
prices for the Common Stock as reported by the New York Stock
Exchange.
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|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
35.92
|
|
|
$
|
28.88
|
|
|
2nd Quarter
|
|
$
|
38.99
|
|
|
$
|
31.02
|
|
|
3rd Quarter
|
|
$
|
42.28
|
|
|
$
|
29.10
|
|
|
4th Quarter
|
|
$
|
44.59
|
|
|
$
|
38.39
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
40.73
|
|
|
$
|
35.75
|
|
|
2nd Quarter
|
|
$
|
48.95
|
|
|
$
|
36.91
|
|
|
3rd Quarter
|
|
$
|
55.00
|
|
|
$
|
42.86
|
|
|
4th Quarter
|
|
$
|
57.21
|
|
|
$
|
47.68
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
1st Quarter (through February 26, 2008)
|
|
$
|
54.65
|
|
|
$
|
46.00
|
|
On February 26, 2008, the closing sale price of our Common
Stock as reported by the New York Stock Exchange was $46.84 per
share. As of February 26, 2008, there were 5,820 holders of
record of the Common Stock.
We currently intend to retain any future earnings to fund the
development and growth of our businesses, including through
acquisitions. Therefore, we do not anticipate paying any cash
dividends in the foreseeable future.
30
|
|
|
|
Item 6.
|
Selected
Financial Data.
|
The following table presents our summary consolidated financial
data. We derived the following historical selected financial
data from our audited consolidated financial statements. We have
reclassified some amounts reported in previous years to conform
to our 2007 presentation. These reclassifications did not affect
our reported results of operations or stockholders equity.
Our fiscal year is determined based on a 52 or 53-week
convention ending on the Sunday nearest to December 31. The
five-year summary of selected financial data should be read in
conjunction with the discussion under Item 7 -
Managements Discussion and Analysis of Financial Condition
and Results of Operation.
Five-Year
Summary of Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
(In millions, except per-share amounts)
|
|
|
|
|
Sales
|
|
$
|
1,622.3
|
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
$
|
1,016.6
|
|
|
$
|
840.7
|
|
|
Net income
|
|
$
|
98.5
|
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
|
$
|
29.7
|
|
|
Working capital
|
|
$
|
213.7
|
|
|
$
|
216.4
|
|
|
$
|
154.0
|
|
|
$
|
124.4
|
|
|
$
|
129.5
|
|
|
Total assets
|
|
$
|
1,159.4
|
|
|
$
|
1,061.4
|
|
|
$
|
728.2
|
|
|
$
|
624.8
|
|
|
$
|
433.6
|
|
|
Long-term debt and capital lease obligations
|
|
$
|
142.4
|
|
|
$
|
230.7
|
|
|
$
|
47.0
|
|
|
$
|
74.4
|
|
|
$
|
|
|
|
Stockholders equity
|
|
$
|
530.2
|
|
|
$
|
431.8
|
|
|
$
|
326.0
|
|
|
$
|
262.1
|
|
|
$
|
221.0
|
|
|
Basic earnings per common share
|
|
$
|
2.82
|
|
|
$
|
2.34
|
|
|
$
|
1.93
|
|
|
$
|
1.29
|
|
|
$
|
0.92
|
|
|
Diluted earnings per common share
|
|
$
|
2.72
|
|
|
$
|
2.26
|
|
|
$
|
1.85
|
|
|
$
|
1.24
|
|
|
$
|
0.91
|
|
31
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation.
|
Teledyne Technologies Incorporated is a leading provider of
sophisticated electronic components and subsystems,
instrumentation and communications products, including defense
electronics, monitoring and control instrumentation for marine,
environmental and industrial applications, harsh environment
interconnect products, data acquisition and communications
equipment for air transport and business aircraft, and
components and subsystems for wireless and satellite
communications. We also provide engineered systems and
information technology services for defense, space and
environmental applications, manufacture general aviation engines
and components, and supply energy generation, energy storage and
small propulsion products.
We serve niche market segments where performance, precision and
reliability are critical. Our customers include government
agencies, aerospace prime contractors, energy exploration and
production companies, major industrial companies, and airlines
and general aviation companies.
Strategy
Our strategy continues to emphasize growth in our core markets
of instrumentation, defense electronics and government
engineered systems. We intend to strengthen and expand our core
businesses with targeted acquisitions. We intend to aggressively
pursue operational excellence to continually improve our margins
and 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.
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
|
|
|
|
|
|
|
On March 30, 2007, Teledyne Instruments, Inc. acquired
assets of D.G. OBrien, Inc. (DGO). DGO,
headquartered in Seabrook, New Hampshire, manufactures highly
reliable electrical and fiber-optic interconnect systems,
primarily for subsea military and offshore oil and gas
applications.
|
|
|
|
|
|
On June 20, 2007, Teledyne Cougar, Inc. acquired Tindall
Technologies, Inc. (Tindall), a designer and
supplier of microwave subsystems for defense applications and
consolidated Tindalls Pleasanton, California, operations
with its operations in Sunnyvale, California.
|
Fiscal 2008
|
|
|
|
|
|
|
On December 31, 2007, Teledyne Instruments, Inc. acquired
assets of Impulse Enterprise. Impulse, headquartered in
San Diego, California, manufactures underwater electrical
interconnection systems for harsh environments.
|
|
|
|
|
|
On December 31, 2007, Teledyne Reynolds, Inc. acquired
Storm Products Co. Primarily from its Dallas, Texas facility,
Storm supplies custom, high-reliability bulk wire and cable
assemblies to a number of markets, including energy exploration,
environmental monitoring and industrial equipment. From its
Woodridge, Illinois facility, Storm provides coax microwave
cable and interconnect products primarily to defense customers
for radar, electronic warfare and communications applications.
|
|
|
|
|
|
On January 31, 2008, Teledyne Limited acquired S G Brown
Limited and its wholly-owned subsidiary TSS (International)
Limited. TSS International, headquartered in Watford, United
Kingdom, designs and manufactures inertial sensing, gyrocompass
navigation and subsea pipe and cable detection of offshore
energy, oceangraphic and military marine markets.
|
|
|
|
|
|
On February 1, 2008, Teledyne Scientific &
Imaging, LLC, acquired assets of Judson Technologies, LLC.
Headquartered in Montgomeryville, Pennsylvania, Judson designs
and manufactures high performance infrared detectors and
accessory products for military, space, industrial and
scientific applications.
|
32
Teledyne spent $42.7 million, net of cash acquired, on
these acquisitions in 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.
Financial
Highlights
Our fiscal year is determined based on a 52 or 53-week
convention ending on the Sunday nearest to December 31. The
following is our financial information for 2007, 2006 and 2005
(in millions, except per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007(a)
|
|
|
2006(a)
|
|
|
2005
|
|
|
|
|
Sales
|
|
$
|
1,622.3
|
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,136.4
|
|
|
|
1,020.2
|
|
|
|
869.6
|
|
|
Selling, general and administrative expenses
|
|
|
323.6
|
|
|
|
287.9
|
|
|
|
236.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,460.0
|
|
|
|
1,308.1
|
|
|
|
1,105.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other income and expense and income taxes
|
|
|
162.3
|
|
|
|
125.1
|
|
|
|
100.7
|
|
|
Interest and debt expense, net
|
|
|
(12.5
|
)
|
|
|
(7.4
|
)
|
|
|
(3.5
|
)
|
|
Minority Interest
|
|
|
(3.4
|
)
|
|
|
(1.0
|
)
|
|
|
(0.2
|
)
|
|
Other income (expense), net(b)
|
|
|
2.9
|
|
|
|
5.0
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
149.3
|
|
|
|
121.7
|
|
|
|
103.0
|
|
|
Provision for income taxes(c)
|
|
|
50.8
|
|
|
|
41.4
|
|
|
|
38.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
98.5
|
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
2.82
|
|
|
$
|
2.34
|
|
|
$
|
1.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
2.72
|
|
|
$
|
2.26
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Effective January 2, 2006, the Company adopted the
provisions of SFAS No. 123(R) and began recording
stock option compensation expense and recorded $6.8 million
and $5.9 million of stock option compensation expense for
fiscal years 2007 and 2006, respectively. No compensation
expense related to stock options was recorded in 2005.
|
|
|
|
(b)
|
|
Fiscal years 2006 and 2005 include the receipt of
$2.5 million and $5.0 million respectively, pursuant
to an agreement with Honda Motor Co., Ltd. related to the piston
engine business. No further payments will be received under this
agreement.
|
|
|
|
(c)
|
|
Fiscal year 2007 includes income tax credits of
$4.4 million. Fiscal year 2007 also reflects the reversal
of $1.1 million in income tax contingency reserves which
were determined to be no longer needed due to the completion of
state tax audits and the expiration of applicable statutes of
limitations. Fiscal year 2006 includes the reversal of income
tax contingency reserves of $3.3 million. These reserves
were determined to be no longer needed due to the expiration of
applicable statutes of limitations.
|
We operate in four business segments: Electronics and
Communications; Engineered Systems; Aerospace Engines and
Components; and Energy and Power Systems. In the fourth quarter
of 2007, the company realigned Teledyne Energy Systems, Inc.,
Teledyne Turbine Engines and Teledyne Battery Products in a new
segment called Energy and Power Systems. This segment will
provide Teledynes customers with a focal point for the
specialized energy generation, energy storage and small
propulsion products that Teledyne manufactures, primarily for
high-reliability aerospace and defense applications. Product
lines in this segment include hydrogen generators, fuel cells,
thermoelectric generators, batteries and small turbine engines.
In addition to these changes, the Systems Engineering Solutions
segment has been renamed Engineered Systems to better describe
its programs. As required by Statement of Financial Accounting
Standard (SFAS) No. 131, Disclosures
about Segments of an Enterprise and Related Information
(SFAS No. 131), the Company has restated
its 2006 and 2005 historical segment information to be
consistent with the current reportable segment
33
structure. This segment restatement had no effect on the
Companys financial position, results of operations or cash
flows for the periods presented and also did not affect the
results of the Electronics and Communications or Engineered
Systems segments. The segments respective contributions as
a percentage of total sales for 2007, 2006 and 2005 are
summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Sales
|
|
|
Segment
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Electronics and Communications
|
|
|
66
|
%
|
|
|
63
|
%
|
|
|
60
|
%
|
|
Engineered Systems
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
22
|
%
|
|
Aerospace Engines and Components
|
|
|
11
|
%
|
|
|
12
|
%
|
|
|
12
|
%
|
|
Energy and Power Systems
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations
2007
Compared with 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
Sales
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
|
|
(In millions)
|
|
|
|
|
Electronics and Communications
|
|
$
|
1,071.6
|
|
|
$
|
899.4
|
|
|
|
19.1
|
%
|
|
Engineered Systems
|
|
|
301.7
|
|
|
|
283.0
|
|
|
|
6.6
|
%
|
|
Aerospace Engines and Components
|
|
|
180.7
|
|
|
|
181.6
|
|
|
|
(0.5
|
)%
|
|
Energy and Power Systems
|
|
|
68.3
|
|
|
|
69.2
|
|
|
|
(1.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
1,622.3
|
|
|
$
|
1,433.2
|
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
Net Income
|
|
2007
|
|
|
2006(a)
|
|
|
Change
|
|
|
|
|
(In millions)
|
|
|
|
|
Electronics and Communications
|
|
$
|
143.2
|
|
|
$
|
109.3
|
|
|
|
31.0
|
%
|
|
Engineered Systems
|
|
|
26.2
|
|
|
|
24.5
|
|
|
|
6.9
|
%
|
|
Aerospace Engines and Components(a)
|
|
|
19.2
|
|
|
|
15.5
|
|
|
|
23.9
|
%
|
|
Energy and Power Systems
|
|
|
6.3
|
|
|
|
6.0
|
|
|
|
5.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other segment income
|
|
|
194.9
|
|
|
|
155.3
|
|
|
|
25.5
|
%
|
|
Corporate expense
|
|
|
(32.6
|
)
|
|
|
(27.7
|
)
|
|
|
17.7
|
%
|
|
Interest and debt expense, net
|
|
|
(12.5
|
)
|
|
|
(7.4
|
)
|
|
|
68.9
|
%
|
|
Minority interest
|
|
|
(3.4
|
)
|
|
|
(1.0
|
)
|
|
|
*
|
|
|
Other income, net
|
|
|
2.9
|
|
|
|
2.5
|
|
|
|
16.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
149.3
|
|
|
|
121.7
|
|
|
|
22.7
|
%
|
|
Provision for income taxes(b)
|
|
|
50.8
|
|
|
|
41.4
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
98.5
|
|
|
$
|
80.3
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Fiscal year 2006 includes the receipt of $2.5 million
pursuant to an agreement with Honda Motor Co., Ltd. related to
the piston engine business.
|
|
|
|
(b)
|
|
Fiscal year 2007 includes income tax credits of
$4.4 million. Fiscal year 2007 also reflects the reversal
of $1.1 million in income tax contingency reserves which
were determined to be no longer needed due to the completion of
state tax audits and the expiration of applicable statutes of
limitations. Fiscal year 2006 includes the reversal of income
tax contingency reserves of $3.3 million. These reserves
were determined to be no longer needed due to the expiration of
applicable statutes of limitations.
|
* not meaningful
34
We reported 2007 sales of $1,622.3 million, compared with
sales of $1,433.2 million for 2006, an increase of 13.2%.
Net income was $98.5 million ($2.72 per diluted share) for
2007, compared with $80.3 million ($2.26 per diluted share)
for 2006, an increase of 22.7%.
The increase in sales in 2007, compared with 2006, reflected
improvement in the Electronic and Communications and Engineered
Systems segments. The largest increase in sales was in the
Electronic and Communications segment which grew both
organically and through strategic acquisitions made in 2007 and
in 2006 including: assets of DGO acquired in March 2007, Tindall
acquired in June 2007, Benthos acquired in January 2006, assets
of KW Microwave in April 2006, the initial majority interest
(51%) acquired in ODI in August 2006, and Teledyne
Scientific & Imaging in September 2006. The increase
in sales for the Engineered Systems segment included the
acquisition of CollaborX in August 2006. The incremental
increase in revenue in 2007 from businesses acquired since 2005
was $161.5 million.
The increase in segment operating profit and other segment
income for 2007, compared with 2006, reflected the impact of
higher sales. Operating profit and other segment income was
higher in each operating segment. Fiscal year 2006 also included
the receipt of $2.5 million pursuant to an agreement with
Honda Motor Co., Ltd. The $33.9 million increase in
operating profit in the Electronics and Communications segment,
included incremental operating profit from acquisitions and
related synergies of $15.5 million.
Effective January 2, 2006, we adopted the provisions of
Financial Accounting Standards Board (FASB)
SFAS No. 123(R), Share Based Payment
(SFAS No. 123(R)) using the modified
prospective method and began recording stock option compensation
expense in the consolidated statements of income, but did not
restate prior year financial statements. Stock option
compensation expense is recorded on a straight line basis over
the appropriate vesting period, generally three years. For
fiscal year 2007, we recorded a total of $6.8 million in
stock option expense related to stock options awarded after the
adoption of SFAS No. 123(R) and for stock options
which were not vested by the date of adoption of
SFAS No. 123(R). Of this amount $2.3 million was
recorded as corporate expense and $4.5 million was recorded
in the operating segment results. For fiscal year 2006, we
recorded a total of $5.9 million in stock option expense,
of which $2.2 million was recorded as corporate expense and
$3.7 million was recorded in the operating segment results.
Cost of sales in total dollars was higher in 2007, compared with
2006, primarily due to higher sales which resulted from organic
growth and acquisitions. Fiscal year 2007 included
$1.3 million in LIFO expense, compared with
$0.7 million in LIFO expense in 2006. Cost of sales as a
percentage of sales for 2007 was 70.0%, compared with 71.2% for
2006. The lower cost of sales percentage in 2007 primarily
reflected sales mix differences and a continued emphasis on
margin improvement and cost control.
Selling, general and administrative expenses, including research
and development and bid and proposal expense, in total dollars
were higher in 2007 compared with 2006. This $35.7 million
increase was primarily due to higher sales which resulted from
organic growth and acquisitions and also included
$6.8 million in stock option compensation expense in 2007
compared with $5.9 million in stock option compensation
expense in 2006. The increase also reflected higher corporate
expense of $4.9 million compared with 2006 due to higher
employee compensation and relocation expense and professional
fee expenses. Selling, general and administrative expenses for
2007, as a percentage of sales, were 19.9%, compared with 20.1%
for 2006, and reflected sales mix differences.
Included in operating profit in 2007 was pension expense of
$11.9 million, in accordance with the pension accounting
requirements of SFAS No. 87, Employers
Accounting for Pensions, of which $10.2 million was
recoverable in accordance with U.S. Government Cost
Accounting Standards (CAS) from certain government
contracts. Included in operating profit in 2006 was pension
expense of $15.4 million, of which $10.5 million was
recoverable in accordance with U.S. Government CAS. The
decrease in pension expense in 2007, compared with 2006,
reflects, in part, pension contributions made in 2006, the
impact of favorable market returns on plan assets in 2006 and
changes to the Companys pension assets and liabilities
resulting from the merger of the Teledyne Scientific &
Imaging pension plan with Teledyne Technologies pension plan.
Pension expense determined under CAS can generally be recovered
through the pricing of products and services sold to the
U.S. Government.
35
The Companys effective tax rate for 2007 was 34.1%,
compared with 34.0% for 2006. The Company completed an analysis
of research and development spending for 2000 through 2006, as
well as the base period years, and anticipates the receipt of
income tax refunds for those years. The effective tax rate for
2007 reflects the impact of expected research and development
income tax refunds of $4.4 million and also reflects the
reversal of $1.1 million in income tax contingency reserves
which were determined to be no longer needed due to the
completion of state tax audits and the expiration of applicable
statutes of limitations. Excluding these items the effective tax
rate for 2007 would have been 37.7%. The effective tax rate for
the 2006 reflects the impact of the reversal of income tax
contingency reserves of $3.3 million which were determined
to be no longer needed due to the expiration of applicable
statutes of limitations. Excluding the impact of the reversal,
the effective tax rate for 2006 would have been 36.7%.
Sales under contracts with the U.S. Government were
approximately 41% of sales in 2007 and 40% of sales in 2006.
Sales to international customers represented approximately 22%
of sales in 2007, compared with 21% of sales in 2006.
Total interest expense, including credit facility fees and other
bank charges, was $13.1 million in 2007 and
$7.7 million in 2006. Interest income was $0.6 million
in 2007 and $0.3 million in 2006. The higher interest
expense in 2007 primarily reflected higher outstanding debt
levels due to acquisitions.
Minority interest reflects the minority ownership interests in
Ocean Design, Inc. and Teledyne Energy Systems, Inc. The
minority interest ownership percentage in ODI has decreased from
49% to 38% since the initial 51% purchase of ODI in August 2006.
Other income for 2006 included the receipt of $2.5 million
pursuant to an agreement with Honda Motor Co., Ltd. which is
included as part of the Aerospace Engines and Components segment
operating profit and other segment income for segment reporting
purposes. The $2.5 million received in January 2006 was the
final receipt pursuant to the agreement. Fiscal years 2007 and
2006 also include sublease rental income and royalty income in
other income. Other income in 2007 included $0.8 million
received for the early return of leased property.
2006
Compared with 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
Sales
|
|
2006(a)
|
|
|
2005
|
|
|
Change
|
|
|
|
|
(In millions)
|
|
|
|
|
Electronics and Communications
|
|
$
|
899.4
|
|
|
$
|
717.8
|
|
|
|
25.3
|
%
|
|
Engineered Systems
|
|
|
283.0
|
|
|
|
263.7
|
|
|
|
7.3
|
%
|
|
Aerospace Engines and Components
|
|
|
181.6
|
|
|
|
151.4
|
|
|
|
19.9
|
%
|
|
Energy and Power Systems
|
|
|
69.2
|
|
|
|
73.6
|
|
|
|
(6.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
Net Income
|
|
2006(a)
|
|
|
2005
|
|
|
Change
|
|
|
|
|
(In millions)
|
|
|
|
|
Electronics and Communications
|
|
$
|
109.3
|
|
|
$
|
84.0
|
|
|
|
30.1
|
%
|
|
Engineered Systems
|
|
|
24.5
|
|
|
|
27.5
|
|
|
|
(10.9
|
)%
|
|
Aerospace Engines and Components(b)
|
|
|
15.5
|
|
|
|
9.3
|
|
|
|
66.7
|
%
|
|
Energy and Power Systems
|
|
|
6.0
|
|
|
|
5.8
|
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other segment income
|
|
|
155.3
|
|
|
|
126.6
|
|
|
|
22.7
|
%
|
|
Corporate expense
|
|
|
(27.7
|
)
|
|
|
(20.9
|
)
|
|
|
32.5
|
%
|
|
Interest and debt expense, net
|
|
|
(7.4
|
)
|
|
|
(3.5
|
)
|
|
|
111.4
|
%
|
|
Minority interest
|
|
|
(1.0
|
)
|
|
|
(0.2
|
)
|
|
|
|
*
|
|
Other income, net
|
|
|
2.5
|
|
|
|
1.0
|
|
|
|
150.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes(c)
|
|
|
121.7
|
|
|
|
103.0
|
|
|
|
18.2
|
%
|
|
Provision for income taxes
|
|
|
41.4
|
|
|
|
38.8
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
(a)
|
|
Effective January 2, 2006, the Company adopted the
provisions of SFAS No. 123(R) and began recording
stock option compensation expense and recorded $5.9 million
of stock option compensation expense for fiscal year 2006. No
compensation expense related to stock options was recorded in
2005.
|
|
|
|
(b)
|
|
Fiscal years 2006 and 2005 include the receipt of
$2.5 million and $5.0 million, respectively, pursuant
to an agreement with Honda Motor Co., Ltd. related to the piston
engine business.
|
|
|
|
(c)
|
|
Fiscal year 2006 includes the reversal of income tax contingency
reserves of $3.3 million. These reserves were determined to
be no longer needed due to the expiration of applicable statutes
of limitations.
|
We reported 2006 sales of $1,433.2 million, compared with
sales of $1,206.5 million for 2005, an increase of 18.8%.
Net income was $80.3 million ($2.26 per diluted share) for
2006, compared with $64.2 million ($1.85 per diluted share)
for 2005, an increase of 25.1%.
The increase in sales in 2006, compared with 2005, reflected
improvement in our three largest reporting segments. The largest
increase in sales was in the Electronic and Communications
segment which grew both organically and through strategic
acquisitions made in 2006 and in 2005 including: Cougar
Components Corporation (Cougar), acquired in June
2005; RD Instruments, Inc. (RDI), acquired in August
2005; the assets of the microwave technical solutions business
of Avnet, Inc., acquired in October 2005; Benthos, acquired in
January 2006; certain assets of KW Microwave acquired in April
2006; the initial majority interest (51%) in ODI, acquired in
August 2006; and Teledyne Scientific & Imaging,
acquired in September 2006. The increase in sales for the
Engineered Systems segment included the acquisition of
CollaborX, in August 2006. The incremental increase in revenue
in 2006 from businesses acquired since 2004 was
$124.8 million.
The increase in segment operating profit and other segment
income for 2006, compared with 2005, reflected the impact of
higher sales. Operating profit and other segment income was
higher in the Electronics and Communications, Aerospace Engines
and Components and Energy and Power Systems segments and lower
in the Engineered Systems segment. Operating profit in 2006 was
negatively impacted by $1.5 million in higher net pension
expense compared with 2005. In fiscal year 2006 we also began
recording stock option compensation expense compared with no
stock option compensation expense recorded in 2005. Fiscal year
2006 also included the receipt of $2.5 million pursuant to
an agreement with Honda Motor Co., Ltd. compared with
$5.0 million received in 2005 pursuant to the agreement.
The $25.3 million increase in operating profit in the
Electronics and Communications segment, included incremental
operating profit from acquisitions and related synergies of
$12.4 million.
As noted earlier, effective January 2, 2006, we adopted the
provisions of SFAS No. 123(R) using the modified
prospective method. Accordingly, for fiscal year 2006, we
recorded a total of $5.9 million in stock option expense.
Of this amount $2.2 million was recorded as corporate
expense and $3.7 million was recorded in the operating
segment results. No stock option compensation expense was
recorded in 2005.
Cost of sales in total dollars was higher in 2006, compared with
2005, primarily due to higher sales which resulted from organic
growth and acquisitions. Fiscal year 2006 included
$0.7 million in LIFO expense compared with
$2.1 million in LIFO expense in 2005. Cost of sales as a
percentage of sales for 2006 was 71.2% compared with 72.1% for
2005. The lower cost of sales percentage in 2006 primarily
reflected a lower cost of sales percentage for recent
acquisitions which due to the nature of their business, carry a
lower cost of sales percentage than most of Teledynes
other businesses.
Selling, general and administrative expenses, including research
and development and bid and proposal expense, in total dollars
were higher in 2006 compared with 2005. This $51.7 million
increase was primarily due to higher sales, which resulted from
organic growth and acquisitions and also included
$5.9 million in stock option compensation expense in 2006
compared with no stock option compensation expense in 2005. The
increase in 2006 also reflected higher corporate expense of
$6.8 million compared with 2005 due to the impact of stock
option compensation expense and higher professional fees
expense. Selling, general and administrative expenses for 2006,
as a percentage of sales, were 20.1% compared with 19.6% for
2005, and reflected a higher general and administrative expense
percentage due to the impact of stock option
37
compensation expense and a higher selling expense percentage,
partially offset by a slightly lower research and development
and bid and proposal expense percentage. The higher selling
expense percentage was due to recent acquisitions which, due to
the nature of their business, carry a higher selling expense
percentage than most of Teledynes existing businesses.
Included in operating profit in 2006 was pension expense of
$15.4 million, of which $10.5 million was recoverable
in accordance with U.S. Government Cost Accounting
Standards (CAS) from certain government contracts.
Included in operating profit in 2005 was pension expense of
$12.7 million, of which $9.3 million was recoverable
in accordance with U.S. Government CAS. The increase in
pension expense in 2006 compared with 2005 reflects, in part, a
reduction in the discount rate assumption for the Companys
defined benefit plan to 6.00% in 2006 from 6.25% in 2005.
Pension expense determined under CAS can generally be recovered
through the pricing of products and services sold to the
U.S. Government.
The Companys effective tax rate for 2006 was 34.0%,
compared with 37.6% for 2005. The lower effective tax rate for
2006, compared with 2005, reflects the impact of the reversal of
income tax contingency reserves of $3.3 million during the
third quarter. These reserves were determined to be no longer
needed due to the expiration of applicable statutes of
limitations. Excluding the impact of the reversal, the effective
tax rate for 2006 would have been 36.7%.
Sales under contracts with the U.S. Government were
approximately 40% of sales in 2006 and 42% of sales in 2005.
Sales to international customers represented approximately 21%
of sales in 2006 compared with 18% of sales in 2005.
Total interest expense including credit facility fees and other
bank charges was $7.7 million in 2006 and $3.8 million
in 2005. Interest income was $0.3 million in both 2006 and
2005. The higher interest expense in 2006 primarily reflected
higher outstanding debt levels due to acquisitions and higher
average interest rates in 2006 compared with 2005.
Minority interest reflects the minority ownership interests in
Ocean Design, Inc. and Teledyne Energy Systems, Inc.
Other income for 2006 and 2005 included the receipt of
$2.5 million and $5.0 million, respectively, pursuant
to an agreement with Honda Motor Co., Ltd. which is included as
part of the Aerospace Engines and Components segment operating
profit and other segment income for segment reporting purposes.
The $2.5 million received in January 2006 was the final
receipt pursuant to the agreement. Fiscal years 2006 and 2005
also include sublease rental income and royalty income in other
income.
38
Segments
The following discussion of our four segments should be read in
conjunction with Note 13 to the Notes to Consolidated
Financial Statements.
Electronics
and Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
Sales
|
|
$
|
1,071.6
|
|
|
$
|
899.4
|
|
|
$
|
717.8
|
|
|
Operating profit
|
|
$
|
143.2
|
|
|
$
|
109.3
|
|
|
$
|
84.0
|
|
|
Operating profit % of sales
|
|
|
13.4
|
%
|
|
|
12.2
|
%
|
|
|
11.7
|
%
|
|
International sales % of sales
|
|
|
29.0
|
%
|
|
|
29.1
|
%
|
|
|
24.8
|
%
|
|
Governmental sales % of sales
|
|
|
31.2
|
%
|
|
|
27.7
|
%
|
|
|
27.7
|
%
|
|
Capital expenditures
|
|
$
|
33.7
|
|
|
$
|
17.9
|
|
|
$
|
12.5
|
|
Our Electronics and Communications segment provides
sophisticated electronic components and subsystems,
instrumentation and communications products, including defense
electronics, monitoring and control instrumentation for marine,
environmental and industrial applications, harsh environment
interconnect products, data acquisition and communications
equipment for air transport and business aircraft, and
components and subsystems for wireless and satellite
communications.
2007
compared with 2006
Our Electronics and Communications segment sales were
$1,071.6 million in 2007, compared with sales of
$899.4 million in 2006, an increase of 19.1%. Operating
profit was $143.2 million in 2007, compared with
$109.3 million in 2006, an increase of 31.0%.
The 2007 sales growth of $172.2 million resulted primarily
from revenue growth in defense electronics and electronic
instruments, partially offset by lower sales of other commercial
electronics. The revenue growth of $98.0 million in defense
electronics was primarily driven by the acquisition of Teledyne
Scientific & Imaging in September 2006. The increase
in revenue from acquisitions in defense electronics products for
2007, compared with 2006, was $89.7 million. Organic growth
of defense electronics for 2007 was due to higher sales of
microwave components and subsystems. The revenue growth of
$88.6 million in electronic instruments was driven by
acquisitions and organic growth. Revenue growth in electronic
instruments included the acquisition of the majority interest in
ODI in August 2006, the acquisition of Benthos, Inc. in January
2006 and the acquisition of assets of DGO in March 2007. The
increase in revenue from acquisitions in electronic instruments
for 2007, compared with 2006, was $63.1 million. Sales of
electronic instruments for 2007 increased due to organic sales
growth of instruments for the industrial and environmental
monitoring instrumentation markets. Revenue in avionics and
other commercial electronics decreased by $14.4 million and
primarily reflected decreased sales of medical electronic
manufacturing services. In 2007, an increase of
$152.8 million in revenue and $15.5 million in
operating profit, including synergies, was due to acquisitions
that we acquired since 2005 as compared to the revenue and
operating profit from those acquisitions in 2006. Segment
operating profit was favorably impacted by the increase in
revenue and margin improvement from cost control initiatives.
Segment operating profit was negatively impacted by
$3.1 million of stock option compensation expense in 2007
compared with $2.4 million of stock option compensation
expense in 2006. Fiscal year 2007 also reflected higher LIFO
expense of $0.2 million compared with fiscal year 2006.
Pension expense, in accordance with the pension accounting
requirements of SFAS No. 87, was $4.0 million in
2007 compared with $3.8 million in 2006. Pension expense
allocated to contracts pursuant to CAS was $1.7 million in
2007, compared with $1.6 million for 2006. Fiscal year 2006
also included $0.7 million in charges in our commercial
electronics business for warranty reserves and inventory
obsolescence related to the termination of a product line.
39
2006
compared with 2005
Our Electronics and Communications segment sales were
$899.4 million in 2006, compared with sales of
$717.8 million in 2005, an increase of 25.3%. Operating
profit was $109.3 million in 2006, compared with
$84.0 million in 2005, an increase of 30.1%.
The 2006 sales growth of $181.6 million resulted primarily
from revenue growth in defense electronics and electronic
instruments. The revenue growth of $80.0 million in defense
electronics was driven by increased sales of traveling wave
tubes, connectors and the acquisitions of Teledyne
Scientific & Imaging in September 2006, the assets of
KW Microwave in April 2006, the assets of the microwave
technical solutions business of Avnet, Inc. in October 2005 and
Cougar in June 2005. The increase in revenue from acquisitions
in defense electronics products for 2006, compared with 2005,
was $51.6 million. The revenue growth of
$108.3 million in electronic instruments was primarily
driven by recent acquisitions as well as organic growth. Revenue
growth included the acquisitions of the majority interest in ODI
in August 2006, Benthos in January 2006 and RDI in August 2005
and also reflected increased sales of geophysical sensors for
the energy exploration market. The increase in revenue from
acquisitions in electronic instruments for 2006, compared with
2005, was $67.3 million. Revenue in avionics and other
commercial electronics decreased by $6.7 million and
reflected revenue growth in electronic relay products which was
more than offset by lower commercial contract manufacturing
services. In 2006, an increase of $118.9 million in revenue
and $12.4 million in operating profit, including synergies,
was due to acquisitions that we acquired since 2004 as compared
to the revenue and operating profit from those acquisitions in
2005. Segment operating profit was favorably impacted by revenue
from acquisitions, as well as organic sales growth. Segment
operating profit was negatively impacted by $2.4 million of
stock option compensation expense in 2006. No stock option
compensation expense was recorded in 2005. Fiscal year 2006 also
reflected lower LIFO expense of $0.8 million compared with
fiscal year 2005. In 2006, we also recorded $0.7 million in
charges in our commercial electronics business for warranty
reserves and inventory obsolescence related to the termination
of a product line. Pension expense, in accordance with the
pension accounting requirements of SFAS No. 87, was
$3.8 million in 2006 compared with $3.3 million in
2005. Pension expense allocated to contracts pursuant to CAS was
$1.6 million in 2006 compared with $1.0 million for
2005.
Engineered
Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
Sales
|
|
$
|
301.7
|
|
|
$
|
283.0
|
|
|
$
|
263.7
|
|
|
Operating profit
|
|
$
|
26.2
|
|
|
$
|
24.5
|
|
|
$
|
27.5
|
|
|
Operating profit % of sales
|
|
|
8.7
|
%
|
|
|
8.7
|
%
|
|
|
10.4
|
%
|
|
International sales % of sales
|
|
|
0.5
|
%
|
|
|
0.6
|
%
|
|
|
0.7
|
%
|
|
Governmental sales % of sales
|
|
|
98.8
|
%
|
|
|
98.6
|
%
|
|
|
98.6
|
%
|
|
Capital expenditures
|
|
$
|
1.5
|
|
|
$
|
1.4
|
|
|
$
|
1.3
|
|
Our Engineered Systems segment (formerly named Systems
Engineering Solutions), principally through Teledyne Brown
Engineering, Inc., applies the skills of its extensive staff of
engineers and scientists to provide innovative engineered and
information technology services for defense, space and
environmental applications.
2007
compared with 2006
Our Engineered Systems segment sales were $301.7 million in
2007, compared with sales of $283.0 million in 2006, an
increase of 6.6%. Operating profit was $26.2 million in
2007, compared with $24.5 million in 2006, an increase of
6.9%.
Sales for 2007, compared with 2006, reflected revenue growth in
aerospace and defense programs, partially offset by lower
environmental sales. The revenue growth of $32.3 million in
aerospace and defense programs included $8.7 million in
incremental revenue from the acquisition of CollaborX in August
2006. The revenue growth in aerospace programs was primarily due
to increased support for NASA. The revenue
40
decrease of $13.0 million in environmental programs was
primarily due to decreased support of the U.S. Army at Pine
Bluff Arsenal. Operating profit for 2007, compared with 2006,
was favorably impacted by higher segment revenue in 2007, and
incremental operating profit of $0.5 million from
CollaborX, partially offset by lower margins in certain defense
programs. Segment operating profit also included pension expense
under SFAS No. 87 of $6.4 million in 2007
compared with $9.5 million of pension expense in 2006.
Pension expense allocated to contracts pursuant to CAS was
$8.1 million in 2007 compared with $8.6 million in
2006. Fiscal year 2006 included a favorable overhead claim
settlement of $1.3 million.
2006
compared with 2005
Our Engineered Systems segment sales were $283.0 million in
2006, compared with sales of $263.7 million in 2005, an
increase of 7.3%. Operating profit was $24.5 million in
2006, compared with $27.5 million in 2005, a decrease of
10.9%.
Sales for 2006, compared with 2005, reflected revenue growth in
aerospace and environmental programs and included
$5.9 million in revenue from the acquisition of CollaborX
in August 2006. The revenue growth of $8.7 million in
aerospace was primarily due to increased support for NASA. The
revenue growth of $4.7 million in environmental programs
was primarily due to increased support of the U.S. Army at
Pine Bluff Arsenal. Operating profit for 2006, compared with
2005, reflected higher segment revenue and a favorable overhead
claim settlement of $1.3 million in 2006, compared with a
favorable overhead claim settlement of $0.8 million in
2005, which was more than offset by lower margins in aerospace
programs due to higher sales on certain contracts which carry
lower profit margins, increased subcontract work which carries
lower margins, lower margins on an environmental contract and
amortization expenses associated with the acquisition of
CollaborX. Segment operating profit was negatively impacted by
$0.7 million of stock option compensation expense in 2006
compared with no stock option compensation expense in 2005.
Segment operating profit also included pension expense under
SFAS No. 87 of $9.5 million in 2006 compared with
$7.7 million of pension expense in 2005. Pension expense
allocated to contracts pursuant to CAS was $8.6 million in
2006 compared with $8.0 million in 2005.
Aerospace
Engines and Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
Sales
|
|
$
|
180.7
|
|
|
$
|
181.6
|
|
|
$
|
151.4
|
|
|
Operating profit
|
|
$
|
19.2
|
|
|
$
|
15.5
|
|
|
$
|
9.3
|
|
|
Operating profit % of sales
|
|
|
10.6
|
%
|
|
|
8.5
|
%
|
|
|
6.1
|
%
|
|
International sales % of sales
|
|
|
16.0
|
%
|
|
|
15.2
|
%
|
|
|
17.2
|
%
|
|
Capital expenditures
|
|
$
|
3.5
|
|
|
$
|
5.1
|
|
|
$
|
4.1
|
|
Our Aerospace Engines and Components segment, principally
through Teledyne Continental Motors, Inc., focuses on the
design, development and manufacture of piston engines,
aftermarket support and electronic engine controls. As noted
earlier, in the fourth quarter of 2007, the Company transferred
the turbine engine and the battery products businesses from the
Aerospace Engines and Components segment to the Energy and Power
Systems segment. As required by SFAS No. 131, the
Company has restated its 2006 and 2005 historical segment
information to be consistent with the current reportable segment
structure.
2007
compared with 2006
Our Aerospace Engines and Components segment sales were
$180.7 million in 2007, compared with sales of
$181.6 million in 2006, a decrease of 0.5%. Operating
profit was $19.2 million in 2007, compared with
$15.5 million in 2006, an increase of 23.9%.
Sales for 2007, compared with 2006, decreased and reflected
slightly lower OEM engine sales. The improvement in operating
profit in 2007, compared with 2006 reflected the impact of
improved operating performance including lower aircraft product
liability expense, the receipt of a litigation settlement of
$1.4 million, net of expenses, partially offset by a
$1.7 million writedown of accounts receivable related to
the
41
bankruptcy of our customer Columbia. However, Cessna recently
acquired the assets of Columbia Aircraft Manufacturing Company
(Columbia) and we expect that they will continue to
produce Columbia models that use our engines. Segment operating
profit for 2006, included the receipt of $2.5 million,
pursuant to an agreement with Honda Motor Co., Ltd. related to
the piston engine business. The $2.5 million receipt in the
first quarter of 2006 was the final payment under the agreement.
Segment operating profit also included pension expense, under
SFAS No. 87 of $0.7 million in 2007 compared with
$1.2 million for 2006. Segment operating profit for 2007
also reflected lower LIFO expense of $0.5 million.
2006
compared with 2005
Our Aerospace Engines and Components segment sales were
$181.6 million in 2006, compared with sales of
$151.4 million in 2005, an increase of 19.9%. Operating
profit was $15.5 million in 2006, compared with
$9.3 million in 2005, an increase of 66.7%.
The higher sales for 2006, compared with 2005, primarily
resulted from higher OEM piston engine and spare part sales.
Segment operating profit for 2006, compared with 2005, reflected
the impact of higher sales, improved operating performance, and
$1.8 million in lower warranty costs. Segment operating
profit for 2006 and 2005 included the receipt of
$2.5 million and $5.0 million, respectively, pursuant
to an agreement with Honda Motor Co., Ltd. related to the piston
engine business. Segment operating profit was negatively
impacted by $0.4 million of stock option compensation
expense in 2006 compared with no stock option compensation
expense in 2005. Segment operating profit also included pension
expense, under SFAS No. 87 of $1.2 million in
2006, compared with $0.9 million for 2005.
Energy
and Power Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
Sales
|
|
$
|
68.3
|
|
|
$
|
69.2
|
|
|
$
|
73.6
|
|
|
Operating profit
|
|
$
|
6.3
|
|
|
$
|
6.0
|
|
|
$
|
5.8
|
|
|
Operating profit % of sales
|
|
|
9.3
|
%
|
|
|
8.7
|
%
|
|
|
7.9
|
%
|
|
International sales % of sales
|
|
|
31.2
|
%
|
|
|
14.9
|
%
|
|
|
22.0
|
%
|
|
Governmental sales % of sales
|
|
|
47.0
|
%
|
|
|
59.8
|
%
|
|
|
70.8
|
%
|
|
Capital expenditures
|
|
$
|
1.0
|
|
|
$
|
1.9
|
|
|
$
|
1.7
|
|
Our Energy and Power Systems segment provides hydrogen gas
generators, thermoelectric and fuel cell-based power sources,
turbine engines and aviation batteries. As noted earlier, in the
fourth quarter of 2007, the company realigned Teledyne Energy
Systems, Inc., Teledyne Turbine Engines and Teledyne Battery
Products in a new segment called Energy and Power Systems. This
segment will provide Teledynes customers with a focal
point for the specialized energy generation, energy storage and
small propulsion products that Teledyne manufactures, primarily
for high-reliability aerospace and defense applications. Product
lines in this segment include hydrogen generators, fuel cells,
thermoelectric generators, batteries and small turbine engines.
As required by SFAS No. 131, the Company has restated
its 2006 and 2005 historical segment information to be
consistent with the current reportable segment structure.
2007
compared with 2006
Our Energy and Power Systems segment sales were
$68.3 million in 2007, compared with sales of
$69.2 million in 2006, a decrease of 1.3%. Operating income
was $6.3 million in 2007, compared with $6.0 million
in 2006, an increase of 5.0%.
The decrease in sales for 2007, compared with 2006, primarily
resulted from higher commercial hydrogen generator sales and
higher aviation battery sales, which were more than offset by
lower turbine engine sales. Operating profit reflected higher
margins and sales in the hydrogen generator business, which were
partially offset by the impact of lower sales and lower margins
in the turbine engine business. Segment operating profit for
2007 also reflected higher LIFO expense of $0.9 million.
Turbine engine sales and operating profit for
42
2007 were unfavorable, compared with 2006, due to lower JASSM
engine sales, partially offset by higher research and
development sales. Turbine engine sales, which have declined
since 2005, are expected to begin to recover in 2008.
2006
compared with 2005
Our Energy and Power Systems segment sales were
$69.2 million in 2006, compared with sales of
$73.6 million in 2005, a decrease of 6.0%. Operating income
was $6.0 million in 2006, compared with $5.8 million
in 2005, an increase of 3.4%.
The decrease in sales for 2006, compared with 2005, reflected
lower turbine engine sales and reduced work on the Multi-Mission
Radioisotope Thermoelectric Generator (MMRTG)
contract due to moving from the engineering development phase to
the product qualification phase, partially offset by higher
aviation battery sales. The improvement in segment operating
profit reflected lower LIFO expense of $0.7 million,
partially offset by the impact of the lower sales and
differences in contract fees. Turbine engine sales and operating
profit for 2006 were unfavorable, compared with 2005, due to
lower Harpoon and ITALD engine sales and lower J69 spare sales,
partially offset by higher research and development sales.
Segment operating profit also included pension expense, under
SFAS No. 87 of $0.5 million for 2006 compared
with $0.4 million for 2005. Pension expense allocated to
contracts pursuant to CAS was $0.3 for both 2006 and 2005.
Financial
Condition, Liquidity and Capital Resources
Principal
Capital Requirements
Our principal capital requirements are to fund working capital
needs, capital expenditures and debt service requirements, as
well as to fund acquisitions. It is anticipated that operating
cash flow, together with available borrowings under the credit
facility described below, will be sufficient to meet these
requirements and could be used to fund some acquisitions in the
year 2008. To support acquisitions, we may need to raise
additional capital. Our liquidity is not dependent upon the use
of off-balance sheet financial arrangements. We have no
off-balance sheet financing arrangements that incorporate the
use of special purpose entities or unconsolidated entities.
Revolving
Credit Agreement
On February 8, 2008, Teledyne Technologies entered into a
First Amendment to its now Amended and Restated Credit Agreement
dated as of July 14, 2006. The amended and restated credit
facility has lender commitments totaling $590.0 million and
expires on July 14, 2011. Excluding interest and fees, no
payments are due under the amended and restated credit facility
until it matures. The credit agreement requires the Company to
comply with various financial and operating covenants, including
maintaining certain consolidated leverage and interest coverage
ratios, as well as minimum net worth levels and limits on
acquired debt. At December 30, 2007, the Company was in
compliance with these covenants. Available borrowing capacity
under the prior $400.0 million credit facility, which is
reduced by borrowings, outstanding letters of credit and certain
guarantees was $253.1 million at December 30, 2007.
For a description of some terms of our credit facility, see
Financing Activities on page 50.
Contractual
Obligations
The following table summarizes our expected cash outflows
resulting from financial contracts and commitments at
December 30, 2007. We have not included information on our
normal recurring purchases of
43
materials for use in our operations. These amounts are generally
consistent from year to year, closely reflect our levels of
production, and are not long-term in nature (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 and
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
beyond
|
|
|
Total
|
|
|
|
|
Operating lease obligations
|
|
$
|
16.7
|
|
|
$
|
15.6
|
|
|
$
|
13.9
|
|
|
$
|
9.9
|
|
|
$
|
9.4
|
|
|
$
|
34.1
|
|
|
$
|
99.6
|
|
|
Long-term debt obligations(a)
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
|
|
|
|
138.0
|
|
|
|
|
|
|
|
|
|
|
|
139.3
|
|
|
Capital lease obligations(b)
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
4.7
|
|
|
|
6.6
|
|
|
Purchase obligations(c)
|
|
|
31.3
|
|
|
|
2.5
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49.1
|
|
|
$
|
19.1
|
|
|
$
|
15.1
|
|
|
$
|
148.3
|
|
|
$
|
9.7
|
|
|
$
|
38.8
|
|
|
$
|
280.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes short-term portion.
|
|
|
|
(b)
|
|
Includes imputed interest and short-term portion.
|
|
|
|
(c)
|
|
Purchase obligations generally include long-term contractual
obligations for the purchase of goods and services.
|
The amounts above exclude our minimum pension plan funding
requirements, including those set forth by ERISA, which are
$7.9 million in 2008 and $7.5 million in 2009. Our
minimum funding requirements after 2007 are dependent on several
factors as discussed under Accounting for Pension
Plans in the Critical Accounting Policies section of this
Managements Discussion and Analysis of Financial Condition
and Results of Operation. Estimates beyond 2009 have not been
provided due to the significant uncertainty of these amounts,
which are subject to change until the Companys
SFAS No. 87 assumptions can be updated at the
appropriate times. In addition, certain pension contributions
are eligible for future recovery through the pricing of products
and services to the U.S. government under certain
government contracts, therefore, the amounts noted are not
necessarily indicative of the impact these contributions may
have on the Companys liquidity. We also have payments due
under our other postretirement benefits plans. These plans are
not required to be funded in advance, but are pay as you go. See
further discussion in Note 12 of the Notes to Consolidated
Financial Statements.
Pursuant to agreements in connection with our acquisition of a
majority interest in ODI, the ODI minority stockholders have the
contractual option to sell their shares to Teledyne Instruments
following the end of each quarter through the quarter ended
March 31, 2009, at a formula-determined price based
principally on ODIs earnings before interest, taxes,
depreciation and amortization (EBITDA) for the twelve months
preceding each applicable quarter end. All shares not sold to
Teledyne Instruments following the quarter ended March 31,
2009, are required to be purchased by Teledyne Instruments
following the quarter ended June 30, 2009, at a same
formula-determined price, at which time Teledyne Instruments
will own all of the ODI shares held by the participating
stockholders. At December 30, 2007, total cash paid,
including the initial investment and subsequent share purchases,
for Teledynes interest in ODI, net of cash acquired, was
$35.3 million. Based on the formula-determined purchase
price as of the quarter ended December 30, 2007, the
aggregate amount of funds required to repurchase all the shares
held by the remaining minority ODI stockholders would be
approximately $57.3 million. However, the actual aggregate
amount of funds that we will spend to repurchase the shares held
by minority stockholders through June 30, 2009, could be
significantly higher or lower than this amount, as that amount
will depend on when individual stockholders elect to exercise
their put options and on the financial performance of ODI.
Teledyne Technologies has guaranteed the payment obligation of
its subsidiary, Teledyne Instruments.
Operating
Activities
In 2007, net cash provided from operations was
$166.7 million, compared with $78.4 million in 2006
and $92.3 million in 2005.
The higher net cash provided for 2007, compared with 2006, was
primarily due to incremental cash flow from companies acquired
since 2005, higher net income, higher customer advance payments
and deposits, improved accounts receivable collections due to
timing and $12.4 million in lower pension contributions.
44
The lower net cash provided for 2006, compared with 2005,
reflected $14.6 million in higher income tax payments and
$3.9 million in higher pension contributions, partially
offset by higher net income, cash flow from companies acquired
since 2005 and $3.1 million in insurance receipts.
Additionally, in accordance with SFAS No. 123(R),
$8.6 million of excess tax benefits in 2006 for stock
option compensation have been classified as a financing cash
flow instead of an operating cash flow as in prior years. In
2005 cash flow from operations included $5.2 million in
excess tax benefits related to stock-based compensation.
Free cash flow (cash from operating activities less capital
expenditures) was $126.4 million compared with
$52.0 million in 2006 and $72.5 million in 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In millions,
|
|
|
Free Cash Flow(a)
|
|
brackets indicate use of funds)
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
166.7
|
|
|
$
|
78.4
|
|
|
$
|
92.3
|
|
|
Capital expenditures for property, plant and equipment
|
|
|
(40.3
|
)
|
|
|
(26.4
|
)
|
|
|
(19.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow
|
|
$
|
126.4
|
|
|
$
|
52.0
|
|
|
$
|
72.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The Company defines free cash flow as cash provided by operating
activities (a measure prescribed by generally accepted
accounting principles) less capital expenditures for property,
plant and equipment. The company believes that this supplemental
non-GAAP information is useful to assist management and the
investment community in analyzing the companys ability to
generate cash flow.
|
Working
Capital
Working capital decreased to $213.7 million at year-end
2007, compared with $216.4 million at year-end 2006.
Balance
Sheet Changes
The changes in the following selected components of
Teledynes balance sheet are discussed below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Accounts receivables, net
|
|
$
|
241.1
|
|
|
$
|
226.1
|
|
|
Inventories, net
|
|
$
|
174.6
|
|
|
$
|
155.8
|
|
|
Long-term deferred income taxes,net
|
|
$
|
56.9
|
|
|
$
|
38.6
|
|
|
Goodwill, net
|
|
$
|
351.6
|
|
|
$
|
313.6
|
|
|
Acquired intangible assets, net
|
|
$
|
61.7
|
|
|
$
|
69.4
|
|
|
Accounts payable
|
|
$
|
105.1
|
|
|
$
|
94.1
|
|
|
Accrued liabilities short term
|
|
$
|
157.1
|
|
|
$
|
135.1
|
|
|
Long-term debt and capital lease obligations, net of current
portion
|
|
$
|
142.4
|
|
|
$
|
230.7
|
|
|
Accrued pension obligation
|
|
$
|
74.3
|
|
|
$
|
38.4
|
|
|
Other long-term liabilities
|
|
$
|
126.6
|
|
|
$
|
105.7
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(61.2
|
)
|
|
$
|
(42.3
|
)
|
The higher balances in accounts receivables, inventory, accounts
payable and short-term accrued liabilities reflected the impact
of organic sales growth, as well as businesses acquired in 2007.
Long-term deferred income taxes reflected a $12.4 million
increase related to the minimum pension liability adjustment in
2007. The increase in goodwill reflected the DGO and Tindall
acquisitions in 2007 and also reflected a $10.7 million
increase to reflect changes in the estimated amount of acquired
intangible assets based on the completed appraisal report for
the valuation of acquired intangible assets for the Teledyne
Scientific & Imaging acquisition. The decrease in
acquired intangible assets reflected the $10.7 million
decrease for the Teledyne Scientific & Imaging
acquisition, current year amortization, partially offset by
acquired intangible assets for
45
the DGO and Tindall acquisitions. The decrease in long-term debt
and capital lease obligations reflected the use of cash flow to
repay outstanding debt. The accrued pension obligation increased
primarily as a result of an increase in the unfunded pension
liability in 2007 due, in part, to lower returns on pension
assets, partially offset by pension contributions. The increase
in other long-term liabilities reflected an increase in the
aircraft product liability reserve and higher compensation
reserves including deferred compensation. The change in the
accumulated other comprehensive loss reflected the
$19.3 million non-cash adjustment related to the increase
in the unfunded pension liability in 2007.
Investing
Activities
Net cash used in investing activities included capital
expenditures as presented below:
Capital
Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(In millions)
|
|
|
|
<