FORM 10-K

(Mark One)

	þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2002

OR

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                  .

Commission file number: 1-15295

Teledyne Technologies Incorporated

Delaware		25-1843385
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

12333 West Olympic Boulevard

Registrant’s telephone number, including area code: (310) 893-1600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, par value $.01 per share		New York Stock Exchange
Preferred Share Purchase Rights		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

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

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

     At February 28, 2003, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $396.1 million, based on the closing price of $12.75 per share as reported on the New York Stock Exchange on that date. Shares of Common Stock known by the registrant to be beneficially owned by the registrant’s directors and the registrant’s executive officers subject to Section 16 of the Securities Exchange Act of 1934 are not included in the computation. The registrant, however, has made no determination that such persons are “affiliates” within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934.

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  þ   No  o

     The aggregate market value of the registrant’s Common Stock held by non-affiliates (as defined above) was $644.6 million, based on the closing price of a share of Common Stock on June 28, 2002, which is the last business day of the registrants most recently completed fiscal second quarter.

     At February 28, 2003, there were 32,175,575 shares of the registrant’s Common Stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Selected portions of the registrant’s proxy statement for its 2003 Annual Meeting of Stockholders (the “2003 Proxy Statement”) are incorporated by reference in Part III of this Report. Information required by paragraphs (a) and (b) of Item 306 of Regulations S-K and by paragraphs (k) and (l) of Item 402 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 paragraph (c) of Item 306 and Instruction (9) to Item 402 of Regulation S-K.

 

INDEX

				Page
				Number
PART I
Item 1.		Business			1
Item 2.		Properties			23
Item 3.		Legal Proceedings			25
Item 4.		Submission of Matters to a Vote of Security Holders			25
PART II
Item 5.		Market for Registrant’s Common Stock and Related Stockholder Matters			26
Item 6.		Selected Financial Data			27
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			28
Item 7A.		Quantitative and Qualitative Disclosure About Market Risk			46
Item 8.		Financial Statements and Supplementary Data			46
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			47
PART III
Item 10.		Directors and Executive Officers of the Registrant			47
Item 11.		Executive Compensation			47
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			47
Item 13.		Certain Relationships and Related Transactions			47
PART IV
Item 14.		Controls and Procedures			47
Item 15.		Exhibits, Financial Statement Schedules and Reports on Form 8-K			48
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION					49
SIGNATURES
CERTIFICATIONS
EXHIBIT INDEX

PART I

Item 1. Business.

Who We Are

      Teledyne Technologies Incorporated is a leading provider of sophisticated electronic components, instruments and communications products, including data acquisition and communications equipment for airlines and business aircraft, monitoring and control instruments for industrial and environmental applications and components, and subsystems for wireless and satellite communications. We also provide systems engineering solutions and information technology services for space, defense and industrial applications, and manufacture general aviation and missile engines and components, as well as on-site gas and power generation systems.

      We serve niche market segments where performance, precision and reliability are critical. Our customers include major industrial and communications companies, government agencies, aerospace prime contractors and general aviation companies. We have developed strong core competencies in engineering, software development and manufacturing that we can leverage both to sustain and grow our current niche businesses, and to become an innovator in related higher-growth markets.

      We seek to grow in niche market segments where we have a strong competitive position, both by development of new products and services and by acquiring businesses that are highly complementary to our current product lines.

      Total sales in 2002 were $772.7 million, compared with $744.3 million and $795.1 million in 2001 and 2000, respectively. Our aggregate segment operating profits were $57.3 million, $24.2 million and $72.4 million in 2002, 2001 and 2000, respectively. Approximately 54% of our total sales in 2002 was to commercial customers and the balance was to the U.S. Government, as a prime contractor or subcontractor. Approximately 41% of these U.S. Government sales was attributable to fixed price-type contracts and the balance to cost plus fee-type contracts. International sales accounted for approximately 16% of total sales in 2002.

      In 2001, we realigned and changed the reporting structure of some of our business units. Our Test Services and Geophysical Instruments business units that were previously part of our Systems Engineering Solutions segment are now part of an instruments group under our Electronics and Communications segment. This realignment also resulted in a new segment, the Energy Systems segment, the results of which had previously been reported under our Systems Engineering Solutions segment.

      In November 2001, we acquired Advanced Pollution Instrumentation, Inc., a designer and manufacturer of advanced air quality monitoring instruments based in San Diego, California, for $25 million. In September 2002, we acquired Monitor Labs Incorporated for $24 million. Monitor Labs is a supplier of environmental monitoring instrumentation for the detection, measurement and reporting of air pollutants with locations in Englewood, Colorado and Gibsonia, Pennsylvania. Both acquired companies are part of the instruments group under the Electronics and Communications segment. Their results are included in our consolidated financial statements since their respective dates of acquisition.

      Our four business segments and their respective contributions to our total sales in 2002, 2001 and 2000 are summarized in the following table:

		Percentage of Sales
Segment		2002				2001				2000
Electronics and Communications			50	%			50	%			47	%
Systems Engineering Solutions			27	%			27	%			27	%
Aerospace Engines and Components			21	%			21	%			25	%
Energy Systems			2	%			2	%			1	%
			100	%			100	%			100	%

 

      Teledyne Technologies was organized as a Delaware corporation on August 23, 1999. Teledyne Technologies is comprised of certain businesses of the former Aerospace and Electronics segment of Allegheny Technologies Incorporated. On November 29, 1999, we spun off from ATI after a strategic review concluded that our businesses would be able to grow faster and that we would be a stronger competitor as a separate company. Our origin can be traced to Teledyne, Inc., founded in 1960 by Dr. Henry Singleton.

      Our principal executive offices are located at 12333 West Olympic Boulevard, Los Angeles, California 90064-1021. Our telephone number is (310) 893-1600.

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 Internet website as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. 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. You will also be responsible for any costs associated with the printing of such materials off the Internet. Alternatively, if you would like a paper copy of any such report (without exhibits), please write to John T. Kuelbs, Senior Vice President, General Counsel and Secretary, Teledyne Technologies Incorporated, 12333 West Olympic Blvd., Los Angeles, California 90064, and a copy of such requested report will be provided to you, free of charge.

Strategy

      Our strategy is to primarily focus on our electronics, instruments and government systems engineering businesses. We continually evaluate our product lines to ensure that they are aligned with our strategy. We also continue to explore strategic alternatives for our Aerospace and Engines Components segment, including possible divestiture of one or more product lines. These actions help us to direct capital and management focus to opportunities that best utilize our engineering resources and technical expertise.

      Specific elements of our strategy include:

      Leverage Niche Market Leadership. We have developed strong, proprietary technical capabilities that have enabled us to achieve leading market positions in many of our niche markets, including those for trace gas analyzers, data acquisition avionics, high frequency electromechanical relays, traveling wave tubes, medical microelectronics, unique government systems engineering and testing services, piston engines for general aviation and small military turbine engines. We intend to continue to leverage our leadership position by accelerating the introduction of new products in our core niche markets, expanding into related markets and increasing our value-added service offerings. For example, our military microelectronic modules are used for optical communications on the F-22 Raptor aircraft and we have been selected to provide similar products for the new Joint Strike Fighter aircraft. In addition, we have expanded our commercial avionics business into new military markets. We were recently awarded a contract for our Communications Management Unit software for use on the U.S. Air Force’s C-130 Avionics Modernization Program, as well as for potential new Boeing 767 Tanker Transport aircraft. Within our Systems Engineering Solutions segment, we enhanced our position in a number of our long-term government programs in 2002, while also expanding into new markets. For example, in 2002, we entered our 41st year of uninterrupted service to the nation’s space and missile defense agencies, while increasing our customer base with new contract awards from the U.S. Air Force, the Federal Aviation Administration and the U.S. Coast Guard.

      Enhance Manufacturing Efficiency. We intend to continue to enhance our manufacturing capability to both reduce the cost of our products and enable us to react quickly to changes in market demand. We have further expanded our manufacturing operations in Mexico to reduce the cost of our products and to expand our capabilities in contract manufacturing of sophisticated electronic modules that are typically produced in low to moderate volumes. We improved our lean work cells in several Electronics and Communications product lines, such as military and medical microelectronics and electromechanical relays, and significantly streamlined our manufacturing and assembly of sophisticated military electronics equipment in our Lewisburg, Tennessee facility. In 2002, all business units within our Electronics and Communications segment began collaborating on additional operational excellence initiatives to decrease our total cost of quality while maintaining the reliability standards for which our products are recognized. In addition, due to several years of increased sales, we plan to upgrade our manufacturing capacity at our military traveling wave tube manufacturing facility by adding new test equipment and implementing enhanced manufacturing techniques in order to improve manufacturing cycle times.

      Acquire Complementary Businesses. We intend to grow in market segments where we have a strong competitive position, both by developing new products and services and by acquiring highly complementary businesses. We are focused on acquiring companies or product lines that might add new products to existing markets, expand sales into related growth markets, increase service revenues or enhance manufacturing or distribution capabilities. Our goal is to leverage both operational and market synergies so that acquisitions result in improvements in earnings. For example, during the third quarter of 2002 we acquired Monitor Labs Incorporated, a supplier of environmental monitoring instrumentation for the detection, measurement and reporting of air pollutants. The acquisition of Monitor Labs Incorporated, coupled with our earlier 2001 acquisition of Advanced Pollution Instrumentation, Inc., greatly expanded our presence in the air quality monitoring segment of the environmental instrumentation market.

Our Business Segments

     Electronics and Communications

      Our Electronics and Communications segment, sometimes referred to as Teledyne Electronic Technologies, provides a wide range of specialized electronic systems, instruments, components and services that address niche market applications in commercial aerospace, communications, defense, industrial and medical markets.

          Instrumentation Products

      During 2001, we formed Teledyne Instruments, a group of business units drawn from our Electronics and Communications segment and our Systems Engineering Solutions segment, to focus on monitoring and process control instrumentation. In the fourth quarter of 2001, we acquired Advanced Pollution Instrumentation, Inc., a manufacturer of a broad line of instruments for monitoring low levels of gases such as sulfur dioxide, carbon monoxide and ozone. In September 2002, we acquired Monitor Labs Incorporated, a supplier of environmental monitoring instrumentation for the detection, measurement and reporting of air pollutants.

      Gas Analysis. Teledyne Analytical Instruments was a pioneer in the development of precision oxygen analyzers and now offers a broad range of products with various sensitivities for petrochemical, semiconductor manufacturing and other industrial applications. We also manufacture analyzers for a variety of other gases for such market applications and, with the additions of Teledyne Advanced Pollution Instrumentation, Inc., and Teledyne Monitor Labs, Inc., offer a wider range of products for environmental monitoring.

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

      Geophysical Instruments. We manufacture geophysical streamer cables, hydrophones and specialty products used in offshore drilling applications to locate oil reserves beneath the ocean floor. We have been adapting this technology for the military market, where these products can be used to detect submarines and torpedoes.

      Test Services. We manufacture torque sensors and provide technical services for such critical applications as monitoring valves in nuclear power plants.

          Data Acquisition and Communication Products

      Our aircraft information management solutions are designed to increase the safety and efficiency of airline transportation. With over 200 commercial airline customers, Teledyne Controls is a leading supplier of digital flight data acquisition systems for the commercial airline industry. These systems acquire data for use by the aircraft’s flight data recorder, and record additional data for the airline’s operation, such as performance and engine condition monitoring. We have provided these systems to our airline customers for over one-half of Boeing aircraft currently in production. We have been increasingly providing our systems to Airbus aircraft, including the single-aisle A319/320/321 and long-range A340/500-600. With many U.S. commercial airlines experiencing significant losses, including bankruptcy, we have increased our focus on providing our systems to non-U.S. airlines, such as Ryan Air in Europe.

      Our newest digital flight data acquisition units have some of the most advanced features in the industry. These systems conform to the required expansion of data recording capabilities, which were mandated by the FAA in 1997. At that time, the FAA increased the number of mandatory parameters to be monitored from the 17 then required to 88 by 2002.

      Our Wireless GroundLink ^TM product, used on Boeing 737 series and other aircraft, automates the transfer of in-flight data recorded by our data acquisition systems to an airline’s operations center. As soon as an aircraft lands, recorded flight data is transmitted to the airline’s operations center over the cellular telephone network and through the Internet. Our Flight Data Replay and Analysis System can process the data into useful formats that can be used by the airline to schedule maintenance services and implement proper crew training and safety procedures.

      The market for data acquisition systems has been extended to business and commuter aircraft as these aircraft have begun to mirror air transport aircraft in terms of data gathering and aircraft monitoring. We have obtained FAA certification for our mini flight data acquisition unit on multiple platforms. We are also one of the largest suppliers of air-to-ground telephony and data transmission products to the business and commuter aircraft market. Our SmartCabin Office ^TM system employs satellite links to provide integrated voice and high-speed data communications for business aircraft passengers.

      Although our data acquisition, recording and communications products are primarily used on commercial aircraft, we have been pursuing military applications. The U. S. Air Force selected our Optical Quick Access Recorder for use on its C-17 Globemaster III military transport aircraft. Teledyne Controls was also awarded a subcontract under a U. S. Air Force program to embed its communications software into aircraft flight management systems for the C-130 Transport and B-767 Tanker aircraft.

          Electronic Components

      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. Our traveling wave tubes have enabled the U. S. Army to modularize the transmitters used in the Firefinder and Sentinel battlefield radars to improve performance and reliability. Commercial applications include electromagnetic compatibility test equipment and satellite communication terminals for mobile newsgathering. Teledyne Technologies was the first company to offer multi-band tubes that permit a satellite communication earth station to quickly switch from one satellite system to another without the need for transmitter replacement.

      Microwave Amplifiers and Subsystems. We supply solid-state microwave power amplifiers used in satellite uplink terminals for corporate networking and to provide two-way Internet access via satellite for both consumer and commercial customers. Our line of integrated transceiver modules provides point-to-point connectivity in cellular telephone infrastructure. We have introduced transceivers covering new frequency bands to broaden our market opportunities.

      Relays. Teledyne Relays supplies electromechanical relays, solid-state power relays and other switching devices to industrial, commercial, aerospace and military markets. Applications include microwave and wireless communication infrastructure, RF and general broad band test equipment, test equipment used in semiconductor manufacturing, general purpose military applications, satellite and aircraft, and industrial and commercial machinery and control equipment.

      Connectors. We manufacture custom surface mount connectors for applications in computer disk drives and consumer medical electronic devices. Teledyne Interconnect Devices now manufactures a high-density microprocessor connector for high-end workstations and network servers.

      Rigid-Flex Printed Circuit Boards. Our patented rigid-flex printed circuit boards permit our customers to assemble reliable high-density electronic modules that are used in a variety of military and commercial aerospace applications. Our new VME-Flex ^TM products have been designed into two major defense programs.

      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-18 E-F and F/A-22. A newer generation sequencer is under development for the F-35 Joint Strike Fighter aircraft.

          Advanced Manufacturing Services

      Electronics Equipment and Printed Circuit Card Assembly. We serve the market for high-mix, low-volume manufacturing of electronic products principally through facilities in Tennessee and Mexico. The products we manufacture include sophisticated military electronics equipment. We also manufacture, principally for one customer, key subsystems in medical equipment such as magnetic resonance imaging (MRI) and x-ray systems.

      Microelectronic Modules. We develop and manufacture custom microelectronic modules that provide both high reliability and extremely dense packaging for military, implantable medical device and wireless communication products. Our microelectronic modules are used for optical communications on the F-22 Raptor aircraft and we have been selected to provide similar products for the new Joint Strike Fighter aircraft. Examples of applications in the medical field include cardiac pacemakers, defibrillators and cochlear implant hearing aids.

      Optoelectronic Modules. We provide turnkey manufacturing services for custom optoelectronic modules used in high data rate communications. Our capabilities include submicron alignment of single mode fiber, environmental and life certification, and test of transmitter and receiver capabilities at data rates up to 40 gigabits per second.

     Systems Engineering Solutions

      Our Systems Engineering Solutions segment, principally through Teledyne Brown Engineering, Inc., applies the skills of its extensive staff of engineers and scientists to solve the increasingly complex problems of our government defense and aerospace customers.

          Defense

      Teledyne Brown Engineering is a well-recognized full-service missile defense contractor with over 40 years’ experience in missile defense systems integration. Our diverse customer base in this field includes the U.S. Army Aviation and Missile Command (“AMCOM”), the U.S. Army’s Space and Missile Defense Command (“SMDC”), the Missile Defense Agency (“MDA”) and major prime defense contractors.

      Our Technologies Group plays significant roles in diverse national missile defense areas, which range from targets and countermeasures, systems engineering, modeling and simulation, to test and evaluation, as well as other related areas.

      Our engineering and technological services include systems design, development, integration and testing, with specialization in real-time distributed systems. Our expertise is evidenced by wide customer usage of our capabilities in systems such as our Missile Defense System Exerciser and our ground-based missile defense products. Our Systems Exerciser is a simulation tool used to verify the inter-operational compatibility of geographically separated, complex defense systems. The System Exerciser “drives” actual weapon systems with a simulated environment including threats, weather and terrain, creating a robust virtual world in which real systems can operate and interact. In 2002, the U.S. Navy selected our Shipboard Theater Air and Missile Exercise Controller software to train individual ships and entire battle groups in the detection, tracking and simulated engagement of ballistic missiles. During 2002, we also served as the flight test manager in two Integrated Flight Tests in our continuing support of the Ground-based Midcourse Defense (“GMD”) Program. We are working closely with the MDA in the development of the Hardware-in-the-Loop test tool for the Ballistic Missile Defense System. This tool will be used by MDA and major contractors in developing and integrating elements of the United States’ missile defense capability.

      We have developed and maintain a variety of world-class modeling and simulation tools, ranging from architecture/ force structure to components-requirement-focused tools. In 2002, we introduced the 43rd version of our Extended Air Defense Simulation program (“EADSIM”). The EADSIM software provides complex multi-force simulations of air, missile and space warfare. It is used by almost 400 agencies in 10 foreign countries for defense analysis training and operational planning.

      We continue to diversify our customer base. The U.S. Air Force awarded us a contract in its Task Force Enduring Look program, designed to shape the way the U.S. Air Force equips its forces and accomplishes its strategic and tactical tasks. During 2002, the Federal Aviation Administration included us on its nationally qualified vendor list for engineering, production, installation and maintenance services, and awarded us a basic ordering agreement. Subsequently, the FAA awarded us an order in support of its Automated Surface Observation Systems, which provides real-time weather and other data for pilots and traffic air controllers. We also became a subcontractor on the U.S. Coast Guard’s upgrading Deepwater program and will provide verification, validation and accreditation services for the simulation software used in test and evaluation.

          Aerospace

      We have been active in U.S. space programs for almost 50 years and continue to be a significant contributor to NASA programs. Our Systems Group plays a key role in the International Space Station (ISS), one of the most complex scientific endeavors ever undertaken, and has had roles in the Space Shuttle program. We have provided 24-hour-per-day service for the payload operation cadre for the ISS Payload Operations and Integration Center, located at NASA’s Marshall Space Flight Center. We have also manufactured more than 50 flight-qualified hardware items for use on cargo integration on the ISS.

      In June 2002, NASA selected us as the prime contractor for its Microgravity Systems Development and Operations Support Contract. Our work includes microgravity science, hardware and software development, integration, operation and maintenance of science facilities and payloads on the ISS. We provide technical and engineering support to microgravity science investigators, and provide management and administrative support to the Material Science and Applications Department of the Marshall Center’s Science Directorate.

      In July 2002, we received a one-year contract extension from NASA’s Marshall Space Flight Center for work performed under its Propellants, Pressurants, and Calibration contract, pending the next competitive award period in 2003. Under this contract, we furnish management, personnel, equipment and materials to operate and maintain the propellant and pressurant generating systems, storage and distribution systems, including work on the Space Shuttle and ISS, as well as management and operation of the calibration facilities at the Marshall Space Flight Center.

          Environmental Systems

      We support the U.S. Government’s efforts to clean up dangerous materials and waste. We operate the Rapid Response System, a mobile chemical waste treatment system developed by the U.S. Army. This system is used to process chemical agents for disposal. These chemical agents had been used in the past to train military personnel in the detection, measurement and decontamination of dangerous chemicals. We also produce canisters for the processing, stabilization and storage of nuclear-waste products. In addition, we produce detonation chambers for use in the disposal of both chemical weapons and conventional munitions.

      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 13 states, including Utah where the Department of Energy maintains its primary waste depository. With its Nuclear Utilities Procurement Issues Certification, the laboratory can serve commercial utilities.

      In the Homeland Security arena, we offer to police departments and other first responders our WaterSabre ^TM mobile disaster response system to investigate and neutralize suspected explosive devices. This system is a remotely operated, ultra-high-pressure waterjet cutting system, mounted on a hazardous duty robot, and integrated with an emergency response vehicle. Cameras mounted on the robot provide a view of the cutting process and suspected devices to the operator in the vehicle, which can be located up to approximately 1,300 feet away.

          Teledyne Solutions, Inc.

      Through Teledyne Solutions, Inc., we are the primary Ballistic Missile Defense (BMD) systems engineering and technical assistance contractor for the U.S. Army. Teledyne Solutions has responsibility for the Systems Engineering and Technical Assistance Contract (SETAC) in support of the U.S. Army Space and Missile Defense Command. Through the SETAC, Teledyne Solutions also directly supports the Program Executive Office for Air and Missile Defense and the Ground-Based Midcourse Defense Joint Program Office.

     Aerospace Engines and Components

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

          Piston Engines

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

      Our product lines include engines powering the Raytheon Beech Bonanza and Baron aircraft, the Mooney Aircraft line of advanced single engine aircraft, and the popular New Piper Seneca V twin-engine aircraft. In addition to these long-standing products, our engines power new high-speed composite aircraft that recently entered production, including the Cirrus SR-20 and SR-22 and the Diamond C1. Our engines will power the Lancair Columbia 300, the all-electric Columbia 350 and the turbocharged Columbia 400. In 2002, the U.S. Air Force Academy selected the Continental-powered Diamond C1 aircraft as its primary flight trainer aircraft. On March 3, 2003, we announced that Teledyne Continental Motors, Inc. and Honda Motor Co., Ltd. are beginning a joint feasibility study for a next-generation piston aviation engine currently in development by Honda.

      In addition to the sales of new aircraft engines to aircraft producers, we actively support the aircraft engine aftermarket. Piston aircraft engines are produced with a finite utilization life generally expressed as time between overhauls. Our after-market support includes the building and rebuilding of nearly 3,000 of these units annually with our Gold Medallion® Rebuilt Engine. We provide a full complement of spare parts such as cylinders, crankcases, fuel systems, crankshafts, camshafts and ignition products. In addition, through Teledyne Mattituck Services, Inc., located in Long Island, New York, we serve as an aftermarket supplier and piston engine overhauler to the general aviation marketplace. We continue to believe that these service capabilities will leverage our investments in manufacturing excellence and the development of digital electronic controls for piston aircraft engines.

      Through Aerosance, Inc., we developed the first production full authority digital electronic controls for piston aircraft engines. These controls, known as PowerLink ^TM FADEC (Full Authority Digital Electronic Control), 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. We continue the development of FADEC-equipped engines targeted at the most popular models of four and six cylinder piston aircraft engines in use throughout the world. When general economic conditions improve, we believe that these control systems will become standard equipment on new aircraft and will be retrofitted on higher-end, piston engine general aviation aircraft.

      In addition, our Gill ^TM line of lead acid batteries is widely recognized as the premier power source for general aviation. We are now working to have our batteries included in business 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 ^TM valve-regulated lead acid batteries.

          Turbine Engines

      We design, develop and manufacture small turbine engines for missiles and unmanned aerial vehicles. We also produce engines that power military trainer aircraft.

      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 JASSM system. The JASSM production requirement is currently estimated at 3,700 units.

      Another of our engines provides the turbine power for the Improved Tactical Air Launched Decoy (ITALD) being built for the U.S. Navy. The ITALD system enhances combat aircraft survivability by both serving as a decoy and identifying enemy radar sources. This low-cost turbine engine is the first of a family of lower-thrust engines to enter production.

      We are the sole source for major spare parts for the engine for the T-37 aircraft, the primary jet trainer for the U.S. Air Force. This engine has been in service for over 40 years and is expected to continue to power the T-37 well into this decade.

     Energy Systems

      Our Energy Systems segment, through Teledyne Energy Systems, Inc., provides hydrogen gas generators and thermoelectric and fuel-cell-based power sources. Teledyne Energy Systems, Inc., a majority owned subsidiary of TDY, was formed in 2001 by combining Teledyne Brown Engineering’s Energy Systems business unit with assets and intellectual properties of Florida-based Energy Partners, Inc.

      Our energy systems activities include a 50-year history of supplying high reliability energy conversion devices and gas generation products based on thermoelectric and electrochemical processes. We provided power systems for several successful deep-space missions such as the Viking 1 and Viking 2 Mars Landers and the Pioneer 10 and 11 missions to Jupiter and Saturn. The Pioneer 10 power system is still operating 30 years after its launch and is now more than 7.5 billion miles from earth. Earthbound applications have included systems for high reliability unattended power generation in remote installations such as gas pipeline control stations and electrolytic high-purity hydrogen and oxygen gas generation used in many industrial processes.

      The transaction with Energy Partners, Inc. added its capabilities in Proton Exchange Membrane (PEM) fuel cell technology to our existing capabilities in electrochemical conversion processes. Fuel cells produce electrical energy by direct electrochemical conversion of hydrogen and oxygen, without moving parts and with pure water as the only by-product. We believe that PEM technology is at the leading edge of the new global thrust to advance the development of fuel cell generators for a variety of uses ranging from space missions to distributed power generation, uninterruptible power supplies, and portable power applications using either hydrogen or natural gas as a fuel.

      We also 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 manufacture, optical fiber production, chemical processing and other industrial processes. In 2002, we delivered our first completely pre-assembled, enclosed hydrogen generation/compression system known as the Teledyne H ₂ Oasis ^TM . This turnkey plant, provided in a fully equipped transportable building, is designed to meet the near-term needs of industrial customers and provides a basis for responding to the gradually increasing demand for hydrogen refueling equipment.

      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. At present they are used for testing fuel cell components and single cells, but we have expanded this product line to provide systems capable of testing multi-cell stacks rated from watts to kilowatts.

      We continue to seek applications for high reliability, long endurance power systems for extreme environment applications. We have developed an advanced PEM fuel cell power plant for NASA’s Second Generation Reusable Launch Vehicle that is expected to replace the existing Space Shuttle fleet.

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 2002, 2001 or 2000.

      Approximately 46%, 45% and 44% of our total sales for 2002, 2001 and 2000, 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. In 2002, 2001 and 2000, our largest program with the U.S. Government, The Boeing Company — Ground-based Midcourse Defense contract, represented 7.5%, 7.4% and 6.6% 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

			2002				2001				2000
			(In millions)
Electronics and Communications			$	115.2			$	107.8			$	97.5
Systems Engineering Solutions				202.4				195.7				193.2
Aerospace Engines and Components				25.5				27.3				51.4
Energy Systems				9.3				7.8				5.2
	Total U.S. Government sales		$	352.4			$	338.6			$	347.3

      Our total backlog of confirmed orders was approximately $324.1 million at December 29, 2002, $300.8 million at December 30, 2001 and $339.2 million at December 31, 2000.

Sales and Marketing

      Our sales and marketing approach varies by segment and 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. Products are also advertised in appropriate trade journals and by means of various Internet web sites. 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.

      Principally through Teledyne Technologies International Corp., the Company has established branch 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 generally. Although we have certain advantages that we believe help us compete in our markets effectively, each of our markets is highly competitive. Our businesses vigorously compete on the basis of quality, product performance and reliability, technical expertise, price and service. Many of our competitors have, and potential competitors could have, greater name recognition, a larger installed base of products, more extensive engineering, manufacturing, marketing and distribution capabilities and greater financial, technological and personnel resources than we do.

Research and Development

      Our research and development efforts primarily involve engineering and design relating to improving product lines and developing new products and technologies in the same or related fields. We spent a total of $196.8 million, $210.7 million and $247.4 million on research and development and bid and proposal costs for 2002, 2001 and 2000, respectively. Customer-funded research and development, most of which was attributable to work under contracts with the U.S. Government, represented approximately 87%, 85% and 87% of total research and development costs for 2002, 2001 and 2000, respectively.

      In 2002, approximately 64% of the $26.2 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 $29.2 million in 2003.

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.

      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.

      In connection with our spin-off in 1999, an affiliate of ATI granted us an exclusive license to use the “Teledyne” name and related logos, symbols and marks in connection with our operations. The annual fee is $100,000 for this license and on November 24, 2004, we have an option to purchase all rights and interests in the Teledyne marks for $412,000.

Employees

      Our total current workforce consists of approximately 5,300 employees. The International Union of United Automobile, Aerospace and Agricultural Implement Workers of America represents approximately 20 of our employees in Toledo, Ohio under a collective bargaining agreement that expired by its terms on February 14, 2003, but which was subsequently extended by mutual agreement for 90 days. In addition, this union also represents approximately 280 employees in Mobile, Alabama under a collective bargaining agreement that expires on December 16, 2003 and approximately 50 employees in Abbeville, Alabama under a collective bargaining agreement that expires on October 15, 2004. We consider our relations with our employees to be good.

Executive Management

      TDY’s executive management includes:

Name and Title			Age				Principal Occupations Last 5 Years
Executive Officers*:
	Robert Mehrabian Chairman, President and Chief Executive Officer; Director			61			Dr. Mehrabian is the Chairman, President and Chief Executive Officer of TDY. He has been the President and Chief Executive Officer of TDY since its formation. Dr. Mehrabian became Chairman of the Board of Directors on December 14, 2000. Prior to the spin-off, he was the President and Chief Executive Officer of ATI’s Aerospace and Electronics segment since July 1999 and had served ATI at various senior executive capacities since July 1997. Before joining ATI, Dr. Mehrabian served as President of Carnegie Mellon University. He is a director of TDY, Mellon Financial Corporation and PPG Industries, Inc.
	Robert J. Naglieri Senior Vice President and Chief Financial Officer			54			Mr. Naglieri has been Senior Vice President and Chief Financial Officer of TDY since October 3, 2000. Prior to joining TDY, Mr. Naglieri served as divisional Chief Financial Officer for the agricultural business for CNH Global NV, the company formed by the merger of Case Corporation and New Holland, NV. Prior to that merger, he was the Controller for Case Corporation from 1994 until 1999. Prior to that, he spent 25 years with General Electric, last serving as the Finance Executive for the International Power Systems division.
	John T. Kuelbs Senior Vice President, General Counsel and Secretary			60			Mr. Kuelbs has been the Senior Vice President, General Counsel and Secretary of TDY since November 29, 1999, having joined ATI’s Aerospace and Electronics segment in October 1999. Mr. Kuelbs was Senior Vice President — Acquisition Policy for Raytheon Company from November 1998 to September 1999 and Senior Vice President — Legal of Raytheon Systems Company from January 1998 to November 1998. Before Raytheon’s acquisition of Hughes Aircraft Company, Mr. Kuelbs spent 17 years at Hughes Aircraft Company where he served as Senior Vice President, General Counsel and Secretary from 1994 to 1998.

Name and Title			Age				Principal Occupations Last 5 Years
	Dale A. Schnittjer Vice President and Controller			58			Mr. Schnittjer became a Vice President on December 19, 2001, and has been the Controller of TDY since November 29, 1999. Mr. Schnittjer also served as Acting Chief Financial Officer and Treasurer of TDY from June 1, 2000 to October 3, 2000. From 1998 to the spin-off, Mr. Schnittjer served as a financial executive to the Aerospace and Electronics and Industrial Segments of ATI. Prior to that, he was Vice President — Finance of Teledyne Wah Chang from 1997 to 1998 and Vice President — Finance of Teledyne Specialty Equipment from 1995 to 1997. Mr. Schnittjer has held various financial positions with several of Teledyne’s aerospace and electronics companies since 1971.
Segment Management:
	James M. Link President, Teledyne Brown Engineering, Inc.			60			Retired Lieutenant General Link has been the President of Teledyne Brown Engineering since July 2001. Prior to that, Mr. Link served as Senior Vice President of Science Applications International Corporation (SAIC) Applied Technology Group in Huntsville, Alabama. Before joining SAIC, Mr. Link had a distinguished 33-year career with the U.S. Army where he last served as Deputy Commanding General of the U.S. Army Materiel Command.
	Bryan L. Lewis President, Teledyne Continental Motors, Inc.			53			Mr. Lewis has been the President of Teledyne Continental Motors since 1992. From 1990 to 1992, he was President of the turbine engine operations of Teledyne, Inc. Mr. Lewis has held various technical and general management positions during his more than 20 years with Teledyne Technologies and its predecessors.
	Rhett Ross President, Teledyne Energy Systems, Inc.			38			Mr. Ross has been President of Teledyne Energy Systems, Inc. since its formation in June 2001 for the purposes of the transaction with Energy Partners, Inc. Prior to that, he was General Manager of the Teledyne Energy Systems business unit. Before joining the Company in July 2000, Mr. Ross operated R4 Energy, a consulting business specializing in energy technologies. From 1993 to 1999, Mr. Ross was Vice President — Product Development of Energy Partners, Inc., a fuel cell development company.
Other Officers:
	Robert W. Steenberge Chief Technology Officer			55			Mr. Steenberge has been TDY’s Chief Technology Officer since March 2000. Prior to that, he had been Vice President of Advanced Development at Teledyne Electronic Technologies since 1991. Since joining Teledyne in 1976, Mr. Steenberge has held various management positions with several of its aerospace and electronics companies.
	Ivars R. Blukis Chief Business Risk Assurance Officer			60			Mr. Blukis has been Chief Business Risk Assurance Officer since January 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. Since joining Teledyne in 1976, Mr. Blukis has held various financial and administrative positions with its microwave electronics components business unit.

Name and Title		Age				Principal Occupations Last 5 Years
Robyn E. Choi Vice President — Administration and Assistant Secretary			38			Ms. Choi has been Vice President — Administration of the Company since December 2000, and served as Director of Administration and an Assistant Secretary beginning at the time of the spin-off. Prior to joining ATI’s Aerospace and Electronics segment in August 1999, she was Director of the President’s Office and Secretary of the Corporation at Carnegie Mellon University.
Melanie S. Cibik Vice President, Associate General Counsel and Assistant Secretary			43			Miss Cibik has been Vice President of the Company since December 2000, Associate General Counsel since the spin-off, and an Assistant Secretary since October 1999. From April 1998 to the spin-off, Miss Cibik was Counsel — Corporate and Securities at ATI. Prior to joining ATI, she was Senior Counsel at PNC Bank Corp., now known as The PNC Financial Services Group, Inc., and had previously been associated with Kirkpatrick & Lockhart LLP.
Shelley D. Green Treasurer			44			Ms. Green has been the Treasurer of TDY since October 2000, and served as Assistant Treasurer since the spin-off. Prior to joining ATI’s Aerospace and Electronics segment in October 1999, she spent 16 years at Occidental Petroleum Corporation serving its treasury operations and debt administration, having last served as Assistant Treasurer — Financial Operations.

*	Such officers are subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended.

      Dr. Mehrabian has an Amended and Restated Employment Agreement with Teledyne Technologies, which provides that we will employ him as the Chairman, President and Chief Executive Officer. The agreement terminates on December 31 of each year, but will 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. Dr. Mehrabian has a base salary of $590,000 for 2003. The agreement provides that Dr. Mehrabian is entitled to participate in TDY’s 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 Technologies will pay him following his retirement, 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. The number of years for which such annual amount shall be paid will be equal to the number of years of his service to TDY (including service to ATI), but not more than 10 years.

      Fourteen current members of management have entered into Change in Control Severance Agreements with Teledyne Technologies. 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 TDY and (2) within three months before or 24 months after the change in control, either we terminate the executive’s employment for reasons other than for cause or the executive terminates employment for good reason. “Severance benefits” consist of:

	•	A cash payment equal to three times (in the case of Dr. Mehrabian and Messrs. Naglieri, Kuelbs and Link and one other executive) or two times (in the case of Mr. Schnittjer and eight other executives) the sum of (i) the executive’s highest annual base salary within the year preceding the change in control and (ii) the Annual Incentive Plan (“AIP”) bonus target for the year in which the change in control occurs or the year immediately preceding the change in control, whichever is higher.

 

	•	A cash payment for the current Annual Incentive Plan bonus based on the fraction of the year worked times the Annual Incentive Plan target objectives at 120 percent (with payment of the prior year bonus if not yet paid).
	•	Payment in cash for unpaid Performance Share Plan awards, assuming applicable goals are met at 120 percent of performance.
	•	Continued equivalent health and welfare (e.g., medical, dental, vision, life insurance and disability) benefits for a period of up to 36 months 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.
	•	Immediate vesting of all stock options, with options being exercisable for the full remaining term.
	•	Removal of restrictions on restricted stock issued by us under ATI’s Stock Acquisition and Retention Program and our Restricted Stock Award Programs.
	•	Full vesting under our pension plans (within legal parameters).
	•	Up to $25,000 reimbursement for actual professional outplacement services.

Risk Factors; Cautionary Statement as to Forward-Looking Statements

      The following text highlights various risks and uncertainties associated with Teledyne Technologies. 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. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K and in TDY’s 2002 Annual Report to Stockholders.

United States’ and global responses to the Middle East conflict, terrorism and perceived nuclear threats increase uncertainties with respect to many of our businesses and may adversely affect the Company’s business and results of operations.

      United States’ and global responses to the Middle East conflict, terrorism and perceived nuclear threats increase uncertainties with respect to U.S. and other business and financial markets. Several factors associated, directly or indirectly, with the Middle East conflict, terrorism and perceived nuclear threats and responses, may adversely affect the Company.

      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. Government spending could shift to defense programs, including Homeland Security, in which we do not participate or do not have current capabilities and curtail less pressing non-defense programs in which we do participate, including Department of Energy or NASA programs.

      The effect of the decline in air travel on the financial condition of many of our commercial airline and aircraft manufacturer customers could adversely affect our Electronics and Communications segment. A war in the Middle East could adversely affect our non-U.S. commercial airline and aircraft manufacturer customers who have not suffered deteriorating financial performance to the same extent as our U.S. commercial airline and aircraft manufacturer customers. Deterioration of financial performance of airlines could result in a further reduction of discretionary spending for upgrades of avionics and in-flight communications equipment, which would adversely affect our Electronics and Communications 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 would adversely affect our Aerospace Engines and Components segment. Potential reductions in the need for general aviation aircraft maintenance due to declines in air travel could also adversely affect our Aerospace Engines and Components segment.

      The Company is increasingly experiencing adverse effects of September 11th, which could increase in the event of additional terrorist attacks or a Middle East war. For example, the September 11th tragedy has had significant impacts on the insurance markets greatly increasing insurance costs. The Company’s existing aircraft product liability insurance policy expires in May 2003, and the Company is currently evaluating options relating to this insurance coverage. In addition, the resulting downturn in the stock market, exacerbated by various public company issues, has negatively affected the value of the Company’s pension assets. Absent improved market conditions, the Company will be required to make cash contributions to its pension plan in 2004. Worsening market conditions could increase the required contribution.

We may be unsuccessful in our efforts to increase our participation in certain new markets.

      We intend to both adapt our existing technology and develop new products to expand into new market segments. For example, we are 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 are also developing new electronic products, including high-density microprocessor connectors and microwave modules for radios used in cellular communications infrastructure, which are intended to access markets in which Teledyne does not currently participate. We may be unsuccessful in accessing these markets if our products do not meet our customers’ requirements, due to either changes in technology and industry standards or because of actions taken by our competitors.

      In 2000, we announced our intention to capitalize on our existing technology and experience to penetrate communications markets, particularly fiber optic communications components and wireless and satellite communications equipment. The downturn in the semiconductor, telecommunications and electronic manufacturing services markets, coupled with deteriorating general economic conditions, negatively impacted our optoelectronics growth initiative and our short-cycle electronics businesses, such as electronic relays used in semiconductor test equipment and communications applications.

Our dependence on revenue from government contracts subjects us to many risks, including the risk that we may not be successful in bidding for future contracts and the risk that U.S. Government funding for these 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. Sales under contracts with the U.S. Government as a whole, including sales under contracts with the Department of Defense, as prime contract or subcontractor, represented approximately 46% of our total revenue for 2002. Performance under government contracts has certain inherent risks that could have a material effect on our business, results of operations and financial condition.

      Government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress typically appropriates funds for a given program on a fiscal-year basis even though contract performance may take more than one year. As a result, at the beginning of a major program, a contract is typically only partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years.

      While the overall U.S. military budget declined in real dollars from the mid-1980s through the early 1990s, as a result of the September 11th terrorist attacks and given the current Middle East situation, U.S. defense spending has increased and is expected to increase over the next several years. Increased defense spending does not necessarily correlate to increased business for the Company, because not all the programs in which TDY participates or has current capabilities may be earmarked for increased funding.

      The Company, principally and traditionally through its Systems Engineering Solutions segment, has been a significant contributor to NASA programs. While the centerpiece of our current NASA activities is the International Space Station, as the payload integrator for NASA’s Marshall Space Flight Center, we have had major responsibilities in numerous scientific missions of the Space Shuttle. As a result of the Columbia Space Shuttle tragedy, NASA’s space shuttle programs could be negatively impacted, depending on the duration of the U.S. Government investigation and grounding of shuttle flights.

      Most of our U.S. Government contracts are subject to termination by the U.S. Government either at its convenience or upon the default of the contractor. Termination-for-convenience provisions provide only for the recovery of costs incurred or committed, settlement expenses, and profit on work completed prior to termination. Termination-for-default imposes liability on the contractor for excess costs incurred by the U.S. Government in reprocuring undelivered items from another source.

      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 (41% in 2002). Under these types of contracts, we bear the inherent risk that actual performance cost may exceed the fixed contract price. This is particularly true where the contract was awarded and the price finalized in advance of final completion of design. We believe that the U.S. Government is increasingly requesting proposals for fixed-price-type contracts.

      Certain fees under some of our U.S. Government contracts are linked to meeting development or testing deadlines. In 2002, certain fees were also dependent on the collective efforts and success of other defense contractors over which we had no control. In any event, if a test is delayed or a target is missed, we may not receive any award or incentive fee related to that particular test or target. In our Systems Engineering Solutions segment, there is no assurance that the level of government award and incentive fees received in 2002 will continue in 2003.

      We, like other government contractors, are subject to various audits, reviews and investigations (including private party “whistleblower” lawsuits) relating to our compliance with federal and state laws. In addition, we have a compliance program designed to surface issues that may lead to voluntary disclosures to the U.S. Government. Generally, claims arising out of these U.S. Government inquiries and voluntary disclosures can be resolved without resorting to litigation. However, should the business unit or division involved be charged with wrongdoing, or should the U.S. Government determine that the unit or division is not a “presently responsible contractor,” that unit or division, and conceivably our company as a whole, could be temporarily suspended or, in the event of a conviction, could be debarred for up to three years from receiving new government contracts or government-approved subcontracts. In addition, we could expend substantial amounts in defending against such charges and in damages, fines and penalties if such charges are proven or result in negotiated settlements. In October 2002, the Company was informed that the U.S. Government had declined to intervene in a lawsuit filed more than four years ago under seal pursuant to the False Claims Act. The Company intends to vigorously defend this continuing civil action against its Electronic Safety Products unit, which continues notwithstanding the U.S. Government’s non-intervention.

A declining stock market and lower interests rates negatively affect the value of our pension assets and could have a material adverse financial effect on us.

      We have a defined benefit pension plan covering substantially all of our employees. At year-end 2002, because of significant declines in the stock market and low interest rates, the value of the pension assets was less than our accumulated pension benefit obligation. The accounting rules applicable to our pension plan require that amounts recognized in financial statements to be determined on an actuarial basis, rather than as contributions are made to the plan. A significant element in determining our pension income or pension expense is the expected return on plan assets. We have assumed, based on the type of securities in which the plan assets are invested and the long-term historical returns of these investments, that the long-term expected return on pension assets will be 8.5% in 2003, compared to 9.0% in 2002, and its assumed discount rate will be 7.0% in 2003, compared to 7.5% in 2002.

      Since the spin-off, we have recorded non-cash pension income, which has significantly declined due to the completion, in 2001, of income amortization associated with the transition assets recorded pursuant to Statement of Financial Accounting Standards No. 87 — “Employers’ Accounting for Pensions”, as well as the continued decline in the value of our pension assets, coupled with reductions in our expected rate of return and discount rate assumptions used for pension plan calculations as described above. We currently expect approximately $7.0 million non-cash pension expense in 2003, compared to non-cash pension income of $2.3 million, $9.5 million and $9.0 million for 2002, 2001 and 2000, respectively. Given our pension plan’s current underfunded status, absent improved market conditions, we will be required to make cash contributions to our pension plan in 2004. Further declines in the stock market and lower rates of return could increase our required contribution. Also, under one of our spin-off agreements, the earliest we will be able to charge pension costs to the U.S. Government under our various government contracts will be November 29, 2004.

      Since the value of our pension assets at year-end 2002 was less than the accumulated pension benefit obligation, the Company recorded a $23.2 million non-cash charge to stockholders’ equity, a long-term intangible asset of $10.4 million and an additional long-term pension liability of $48.8 million. This charge to equity did not affect net income and is recorded net of deferred taxes. The charge will be reversed should the value of the pension assets exceed the accumulated pension benefit obligation as of a future measurement date.

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.

Technological change could cause certain of our products or services to become obsolete or non-competitive.

      The markets for a number of our products and services are generally characterized by rapid technological development, evolving industry standards, changes in customer requirements and new product introductions and enhancements. A faster than anticipated change in one or more of the technologies related to our products or services or in market demand for products 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 operation and financial condition. Currently accepted industry standards are also subject to change, which may contribute to the obsolescence of our products or services.

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 to develop new and enhanced products and continuously upgrade our process technology and manufacturing capabilities.

      Although we believe that anticipated cash flows from operations and available borrowings under our $200 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 resurgence of the 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.

Product liability claims or recalls could have a material adverse effect on our reputation, business, results of operations and financial condition.

      As a manufacturer and distributor of various products, our results of operations are susceptible to adverse publicity regarding the quality or safety of our products. In part, product liability claims challenging the safety of our products may result in a decline in sales for a particular product, which could adversely affect our results of operations. This could be true even if the claims themselves are proven to not be truthful 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 annual self-insured retention for general aviation aircraft liabilities incurred in connection with products manufactured by Teledyne Continental Motors, Inc. is $10.0 million. The September 11th tragedy has significantly impacted the insurance markets, greatly increasing insurance costs. Since our existing aircraft product liability insurance policy expires in May 2003, the Company is currently evaluating options relating to its aircraft product liability insurance coverage, including a greater annual self-insured retention.

      Product recalls and field service actions could also have a material adverse effect on our business, results of operations and financial condition. For example, Teledyne Continental Motors had been engaged in a product recall of piston engine crankshafts whereby the Company recorded a $12 million pretax charg