SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 28, 2008

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

     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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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):

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at October 30, 2008
Common Stock, $.01 par value per share		35,869,284 shares

 

 

TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS

		PAGE
Part I  Financial Information			2
Item 1. Financial Statements			2
Condensed Consolidated Statements of Income			2
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Cash Flows			4
Notes to Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			28
Item 4. Controls and Procedures			28
Part II Other Information			29
Item 1A. Risk Factors			29
Item 6. Exhibits			29
Signatures			30
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I FINANCIAL INFORMATION

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these financial statements.

TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 changes the way the consolidated income statement is presented and establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that does not result in deconsolidation. It also requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. This Statement will be effective for Teledyne’s 2009 fiscal year and interim periods within that fiscal year. SFAS No. 160 will be applied prospectively as of the beginning of the fiscal year 2009, except for the presentation and disclosure requirements. The presentation and disclosure requirements must be applied retrospectively for all periods presented. The Company is currently evaluating the impact of adopting this Statement.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 effective, December 31, 2007 and did not elect the fair value measurement option for any of our financial assets or liabilities.

In June 2007, the FASB ratified EITF No. 07-3, (“EITF 07-3”), “Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities”. EITF 07-3 requires non-refundable advance payments for goods and services to be used in future research and development activities to be recorded as an asset and the payments to be expensed when the research and development activities are performed. EITF 07-3 is effective for fiscal years beginning after December 15, 2007. The Company adopted EITF 07-3 effective, December 31, 2007 and it did not have an effect on the Company’s consolidated results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”) which defines fair value, establishes a framework in generally accepted accounting principles for measuring fair value, and expands disclosures about fair value measurements. This standard only applies when other standards require or permit the fair value measurement of assets and liabilities. It does not increase the use of fair value measurement. SFAS No. 157 is effective for financial assets and financial liabilities for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position 157-1 “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP 157-1”) which removed leasing transactions accounted for under SFAS No. 13 and related guidance from the scope of SFAS No. 157. Also in February 2008, the FASB issued FSP 157-2 “Partial Deferral of the Effective Date of Statement No. 157” (“FSP 157-2”), deferred the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008. The implementation of SFAS No. 157 for financial assets and financial liabilities, effective December 31, 2007, did not have a material impact on our consolidated financial position and results of operations. The Company is currently assessing the impact of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities on its consolidated financial position and results of operations.

Note 2. Business Combinations

On August 15, 2008, Teledyne Technologies through its subsidiary, Teledyne Limited, completed the acquisition of the defense electronics business of Filtronic PLC for £13.0 million (approximately $24.3 million) in cash. Total cash paid, net of cash acquired, was $23.7 million. The defense electronics business, principally based in Shipley, United Kingdom, provides customized microwave subassemblies and integrated subsystems to the global defense industry. The defense electronics business had sales of £14.5 million for its fiscal year ended May 31, 2008. Teledyne operates this business under the name Teledyne Defence Limited.

On July 7, 2008, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc., completed the acquisition of assets of Webb Research Corp. (“Webb Research”) for $24.2 million in cash or $24.3 million including certain expenses. Webb Research, located in E. Falmouth, Massachusetts, is a manufacturer of autonomous underwater gliding vehicles, as well as autonomous profiling drifters and floats. Webb Research had sales of $12.2 million for its fiscal year ended December 31, 2007. Teledyne operates this business under the name Teledyne Webb Research.

On February 1, 2008, Teledyne Technologies through its subsidiary, Teledyne Scientific & Imaging, LLC, completed the acquisition of assets of Judson Technologies, LLC (“Judson”) for $27.0 million in cash. Judson, headquartered in Montgomeryville, Pennsylvania, manufactures high performance infrared detectors utilizing a wide variety of materials such as Mercury Cadmium Telluride (“HgCdTe”), Indium Antimonide (“InSb”), and Indium Gallium Arsenide (“InGaAs”), as well as tactical dewar and cooler assemblies and other specialized standard products for military, space, industrial and scientific applications. Judson had sales of $13.8 million for its fiscal year ended December 31, 2006. Teledyne operates this business under the name Teledyne Judson Technologies.

On January 31, 2008, Teledyne Technologies through its subsidiary, Teledyne Limited, acquired all of the outstanding stock of S G Brown Limited and its wholly-owned subsidiary TSS (International) Limited (together “TSS International”) for £29.1 million (approximately $57.1 million) in cash. Total cash paid, net of cash acquired, was $54.8 million. TSS International, headquartered in Watford, United Kingdom, designs and manufactures inertial sensing, gyrocompass navigation and subsea pipe and cable detection systems for offshore energy, oceanographic and military marine markets. TSS International had sales of £12.0 million for its fiscal year ended March 31, 2007. The acquired businesses operate under the names Teledyne SG Brown Limited and Teledyne TSS Limited.

On December 31, 2007, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc., completed the acquisition of assets of Impulse Enterprise (“Impulse”) for $34.9 million in cash, net of a $0.1 million purchase price adjustment. Impulse, headquartered in San Diego, California, manufactures waterproof neoprene and glass reinforced epoxy connector products for harsh environments. Impulse had sales of $16.8 million for its fiscal year ended December 31, 2006. Teledyne operates this business under the name Teledyne Impulse.

On December 31, 2007, Teledyne Technologies through its subsidiary, Teledyne Reynolds, Inc., acquired Storm Products Co. (“Storm”) for $47.5 million in cash. Storm, with principal operations in Dallas, Texas and Woodridge, Illinois, manufactures specialty wire, cable and interconnect products, as well as flexible and semi-rigid microwave cable assemblies for defense, environmental monitoring, energy exploration and industrial customers. Storm had sales of $45.7 million for its fiscal year ended March 31, 2007. Teledyne operates this business under the name Teledyne Storm Products, Inc.

On June 20, 2007, Teledyne Technologies through its subsidiary, Teledyne Cougar, Inc., completed the acquisition of Tindall Technologies, Inc. (“Tindall”) a designer and supplier of microwave subsystems for defense applications for consideration of $6.6 million. At September 30, 2007 total cash paid, net of cash acquired, was $5.6 million. Teledyne Technologies also recorded $1.0 million in contingent payments, in connection with the acquisition, payable through 2010 in three installments. The first installment of $0.3 million was paid in the second quarter of 2008.

On March 30, 2007, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc., completed the acquisition of assets of D.G. O’Brien, Inc. (“DGO”) for consideration of $37.1 million, which includes a $1.0 million purchase price adjustment. The $1.0 million purchase price adjustment was paid on July 13, 2007. DGO, headquartered in Seabrook, New Hampshire, manufacturers highly reliable electrical and fiber-optic interconnect systems, primarily for subsea military and offshore oil and gas applications.

Our net cash used by investing activities for 2007 also included a $0.8 million contingent payment related to the Cougar Components Corporation acquisition made in 2005 and a payment of $3.7 million related to the RD Instruments acquisition made in 2005.

On August 16, 2006, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc., acquired an initial majority interest in Ocean Design, Inc. (“ODI”) for approximately $30 million in cash. 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 ODI’s earnings before interest, taxes, depreciation and amortization (EBITDA) for the twelve months preceding each applicable quarter end. In 2006, Teledyne Instruments acquired an additional 9.9% of ownership in ODI for $5.8 million. In 2007, Teledyne Instruments acquired an additional 0.9% of ownership in ODI for $0.9 million, of which $0.2 million was paid in the first nine months of 2007. In the first nine months of 2008, Teledyne Instruments acquired an additional 23.4% of ownership in ODI for $37.4 million. At September 28, 2008, Teledyne Instruments owned 85.2% of ODI. 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 stockholders. Based on the formula-determined purchase price as of the quarter ended September 28, 2008, the aggregate amount of funds required to purchase all the shares held by the remaining minority ODI stockholders would be approximately $22.3 million. However, the actual aggregate amount of funds that we will spend to purchase 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.

The primary reason for the above acquisitions was to strengthen and expand our core businesses by adding complementary product and service offerings, allowing greater integration of products and services, enhancing our technical capabilities and/or increasing our addressable markets. The significant factors that resulted in recognition of goodwill were: (a) the purchase price was based on cash flow and return on capital projections assuming integration with our businesses; and (b) the calculation of the fair value of tangible and intangible assets acquired that qualified for recognition.

Teledyne Technologies funded the acquisitions primarily from borrowings under its credit facility and cash on hand.

The following is a summary at the acquisition date of the estimated fair values allocated to the assets acquired and liabilities assumed for the six acquisitions made in during fiscal 2008 through September 28, 2008 (in millions):

Teledyne Technologies’ goodwill was $484.3 million at September 28, 2008 and $351.6 million at December 30, 2007. Teledyne Technologies’ net acquired intangible assets were $115.9 million at September 28, 2008 and $61.7 million at December 30, 2007. The increase in the balance of goodwill in 2008 primarily resulted from the acquisitions made in fiscal 2008 and a $31.5 million increase related to the additional share purchases of ODI. The change in the balance of acquired intangible assets in 2008 resulted from the acquisitions made in fiscal 2008 and amortization of acquired intangible assets. The Company is in the process of specifically identifying the amount to be assigned to intangible assets, as well as certain assets and liabilities for the six acquisitions made in fiscal 2008 through September 28, 2008. The Company made preliminary estimates as of September 28, 2008, since there was insufficient time between the acquisition dates and the end of the period to finalize the valuations. The preliminary amount of goodwill and acquired intangible assets recorded as of September 28, 2008 for the Judson acquisition was $15.8 million and $6.0 million, respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of September 28, 2008 for the TSS acquisition was $28.4 million and $22.5 million, respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of September 28, 2008 for the Impulse acquisition was $15.5 million and $16.2 million, respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of September 28, 2008 for the Storm acquisition was $26.8 million and $10.0 million, respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of September 28, 2008 for the Webb Research acquisition was $14.7 million and $7.0 million, respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of September 28, 2008 for the Filtronic acquisition was $4.9 million and $6.5 million, respectively. These amounts were based on estimates that are subject to change pending the receipt of certain valuation information and the completion of the Company’s internal review. In all acquisitions, the results of operations and cash flows are included in the Company’s consolidated financial statements from the date of each respective acquisition. Each of the companies acquired is part of the Electronics and Communications segment. Goodwill resulting from the Judson, TSS, Impulse, Webb Research and Filtronic acquisitions will be deductible for tax purposes.

Note 3. Comprehensive Income

Teledyne Technologies’ comprehensive income is comprised of net income and foreign currency translation adjustments. Teledyne Technologies’ total comprehensive income for the third quarter and first nine months of 2008 and 2007 consists of the following (in millions):

Note 5. Stock-Based Compensation Plans

Teledyne Technologies has long-term incentive plans pursuant to which it has granted non-qualified stock options, restricted stock and performance shares to certain employees. The Company also has non-employee director stock compensation plans, pursuant to which non-qualified stock options and common stock have been issued to its directors.

The following disclosures are based on stock options granted to Teledyne Technologies’ employees and directors. The Company recorded a total of $1.9 million and $5.6 million in stock option compensation expense for the third quarter and first nine months of 2008, respectively. For the third quarter and first nine months of 2007, the Company recorded a total of $1.8 million and $5.1 million, respectively in stock option expense. In 2008, the Company expects approximately $7.8 million in stock option compensation expense based on stock options already granted and current assumptions regarding the estimated fair value of stock option grants expected to be issued during the remainder of the year. However, our assessment of the estimated compensation expense will be affected by our stock price and actual stock option grants during the remainder of the year as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of our stock price and employee stock option exercise behaviors. The Company issues shares of common stock upon the exercise of stock options.

The Company used a combination of its historical stock price volatility and the volatility of exchange traded options on the Company stock to compute the expected volatility for purposes of valuing stock options issued. The period used for the historical stock price corresponded to the expected term of the options and was between five and six years. The period used for the exchange traded options included the longest-dated options publicly available, generally six to nine months. The expected dividend yield is based on Teledyne’s practice of not paying dividends. The risk-free rate of return is based on the yield of U. S. Treasury Strips with terms equal to the expected life of the options as of the grant date. The expected life in years is based on historical actual stock option exercise experience. The following assumptions were used in the valuation of stock options granted in 2008 and 2007:

Based on the assumptions in the table above, the grant date fair value of stock options granted in 2008 and 2007 was $19.35 and $15.54, respectively.

Stock option transactions for Teledyne Technologies’ employee stock option plans for the third quarter and nine months ended September 28, 2008 are summarized as follows:

Stock option transactions for Teledyne Technologies’ non-employee director stock option plan for the third quarter and nine months ended September 28, 2008 are summarized as follows: