SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 30, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission
file number 1-15295
TELEDYNE TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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25-1843385
(I.R.S. Employer
Identification Number)
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1049 Camino Dos Rios
Thousand Oaks, California
(Address of principal executive offices)
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91360-2362
(Zip Code)
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(805) 373-4545
(Registrants telephone number, including area code)
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):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
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No
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Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Class
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Outstanding at April 30, 2008
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Common Stock, $.01 par value per share
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35,438,789 shares
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TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share amounts)
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March 30,
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December 30,
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2008
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2007
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(Unaudited)
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Assets
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Current Assets
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Cash and cash equivalents
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$
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21.2
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$
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13.4
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Accounts receivable, net
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282.1
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241.1
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Inventories, net
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204.2
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174.6
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Deferred income taxes, net
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36.6
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34.5
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Prepaid expenses and other current assets
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15.9
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13.1
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Total current assets
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560.0
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476.7
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Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $226.6
at March 30, 2008 and $218.3 at December 30, 2007
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187.2
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177.2
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Deferred income taxes, net
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49.9
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56.9
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Goodwill, net
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450.3
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351.6
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Acquired intangibles, net
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97.4
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61.7
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Other long-term assets
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36.8
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35.3
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Total Assets
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$
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1,381.6
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$
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1,159.4
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Liabilities and Stockholders Equity
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Current Liabilities
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Accounts payable
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$
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122.9
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$
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105.1
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Accrued liabilities
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160.8
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157.1
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Current portion of long-term debt and capital
lease obligation
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0.9
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0.8
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Total current liabilities
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284.6
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263.0
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Long-term debt and capital lease obligation
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299.5
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142.4
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Accrued pension obligation
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74.2
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74.3
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Accrued postretirement benefits
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22.4
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22.9
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Minority interest
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9.9
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8.9
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Other long-term liabilities
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126.0
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117.7
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Total Liabilities
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816.6
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629.2
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Stockholders Equity
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Common stock, $0.01 par value; outstanding shares
35,323,885
at March 30, 2008 and 35,150,117 at
December 30, 2007
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0.4
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0.4
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Additional paid-in capital
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213.9
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206.9
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Retained earnings
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412.0
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384.1
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Accumulated other comprehensive loss
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(61.3
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(61.2
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Total Stockholders Equity
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565.0
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530.2
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Total Liabilities and Stockholders Equity
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$
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1,381.6
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1,159.4
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The accompanying notes are an integral part of these financial statements.
2
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 30, 2008 AND APRIL 1, 2007
(Unaudited Amounts in millions, except per-share amounts)
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First Quarter
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2008
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2007
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Net Sales
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$
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451.8
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$
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385.6
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Costs and expenses
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Cost of sales
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315.3
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272.0
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Selling, general and administrative expenses
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88.8
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76.7
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Total costs and expenses
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404.1
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348.7
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Income before other income and expense and income taxes
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47.7
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36.9
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Other income (expense), net
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(0.2
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0.3
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Interest and debt expense, net
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(3.0
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(3.6
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Minority interest
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(1.0
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(0.7
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Income before income taxes
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43.5
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32.9
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Provision for income taxes
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15.6
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12.4
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Net income
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$
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27.9
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$
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20.5
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Basic earnings per common share
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$
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0.79
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$
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0.59
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Weighted average common shares outstanding
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35.2
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34.8
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Diluted earnings per common share
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$
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0.77
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$
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0.57
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Weighted average diluted common shares outstanding
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36.3
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35.8
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The accompanying notes are an integral part of these financial statements.
3
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 30, 2008 AND APRIL 1, 2007
(Unaudited Amounts in millions)
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Three Months
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2008
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2007
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Cash flow from operating activities
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Net income
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$
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27.9
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$
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20.5
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Adjustments to reconcile net income to net cash from operating activities:
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Depreciation and amortization
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10.7
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7.7
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(Gain) loss
on disposal of fixed assets
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0.1
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(0.1
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Deferred income taxes
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3.7
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(3.1
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Stock option compensation expense
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1.9
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1.7
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Excess income tax benefits from stock options
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(1.1
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(0.6
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Minority interest in net income of consolidated subsidiaries
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1.0
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0.7
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Changes in operating assets and liabilities, excluding the effect of acquisitions:
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Increase in accounts receivable
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(26.6
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(14.5
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Increase in inventories
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(10.7
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(2.8
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Decrease in prepaid expenses and other assets
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1.1
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Increase in accounts payable
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12.9
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6.2
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Increase (decrease) in accrued liabilities
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(8.2
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3.6
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Increase in income taxes payable, net
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5.9
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12.6
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Increase (decrease) in long-term assets
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(1.4
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0.3
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Increase in other long-term liabilities
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7.4
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0.9
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Increase (decrease) in accrued pension obligation
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(0.1
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2.8
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Decrease in accrued postretirement benefits
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(0.5
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(0.5
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Other operating, net
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(0.3
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Net cash provided by operating activities
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22.6
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36.5
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Cash flow from investing activities
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Purchases of property, plant and equipment
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(8.7
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(12.3
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Purchase of businesses, net of cash acquired
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(166.2
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(36.1
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Proceeds from sale of assets
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0.5
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Net cash used by investing activities
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(174.9
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(47.9
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Cash flow from financing activities
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Net proceeds from debt, net
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157.2
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12.5
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Proceeds from exercise of stock options
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1.8
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1.6
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Excess income tax benefits from stock options
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1.1
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0.6
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Net cash provided by financing activities
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160.1
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14.7
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Increase in cash and cash equivalents
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7.8
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3.3
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Cash and cash equivalentsbeginning of period
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13.4
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13.0
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Cash and cash equivalentsend of period
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$
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21.2
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$
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16.3
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The accompanying notes are an integral part of these financial statements.
4
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 30, 2008
Note 1. General
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by
Teledyne Technologies Incorporated (Teledyne Technologies or the Company) pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information and disclosures
normally included in notes to consolidated financial statements have been condensed or omitted
pursuant to such rules and regulations, but resultant disclosures are in accordance with
accounting principles generally accepted in the United States as they apply to interim
reporting. The condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto in Teledyne Technologies Annual
Report on Form 10-K for the fiscal year ended December 30, 2007 (2007 Form 10-K).
In the opinion of Teledyne Technologies management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly, in all material respects, Teledyne Technologies
consolidated financial position as of March 30, 2008, and the consolidated results of
operations and cash flows for the three months then ended. The results of operations and cash
flows for the period ended March 30, 2008 are not necessarily indicative of the results of
operations or cash flows to be expected for any subsequent quarter or the full fiscal year.
Certain reclassifications have been made to the financial statements and notes for the prior
year to conform to the 2008 presentation. In the fourth quarter of 2007, the company realigned
Teledyne Energy Systems, Inc., Teledyne Turbine Engines and Teledyne Battery Products in a new
segment called Energy and Power Systems. Both the turbine engine business and the battery
products business were previously part of the Aerospace Engines and Components segment. In
addition, the Systems Engineering Solutions segment was renamed Engineered Systems. Previously
reported segment financial data for the first quarter of 2007 reflects the new segment
presentation to provide comparability between periods. This segment realignment had no effect
on the Companys consolidated financial position, results of operations or cash flows for the
periods presented and also did not affect the results of the Electronics and Communications or
Engineered Systems segments.
Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (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 Companys consolidated
results of operations or financial position.
5
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 (FSP) 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 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 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 GBP 29.1 million in cash
(approximately $57.1 million). 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 GBP 12.0
million (approximately $23.9 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 March 30, 2007, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc.,
completed the acquisition of assets of D.G. OBrien, Inc. (DGO) for consideration of $37.1
million, which includes a $1.0 million purchase price adjustment. DGO, headquartered in
Seabrook, New Hampshire, manufacturers highly reliable electrical and fiber-optic interconnect
systems, primarily for subsea military and offshore oil and gas
6
applications. DGO had sales of $26.2 million for its fiscal year ended September 30, 2006.
Teledyne Technologies operates this business under the name Teledyne D.G. OBrien.
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. The ODI minority stockholders have the option to sell their shares of ODI to
Teledyne Instruments following the end of each quarter through the quarter ended March 31,
2009, at a formula-determined price. 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. In the first quarter of 2008, Teledyne Instruments
acquired an additional 1.2% of ownership in ODI for $1.7 million. At March 30, 2008, Teledyne
Instruments owns 63.0% of ODI. All shares not sold to Teledyne Instruments following the
quarter ended March 31, 2009, will be purchased by Teledyne Instruments following the quarter
ended June 30, 2009, at the same formula-determined price, at which time Teledyne Instruments
will own all of the ODI shares held by the participating stockholders. Based on the
formula-determined purchase price as of the quarter ended March 30, 2008, the aggregate amount
of funds required to repurchase all the shares held by the remaining minority ODI stockholders
would be approximately $59.4 million. However, the actual aggregate amount of funds that we
will spend to repurchase the shares held by minority stockholders through June 30, 2009, could
be significantly higher or lower than this amount, as this amount will depend on when
individual stockholders elect to exercise their put options and on the actual financial
performance of ODI.
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 acquisitions made in 2008 (in millions):
|
|
|
|
|
Current assets
|
|
$
|
37.6
|
|
Property, plant and equipment
|
|
|
8.9
|
|
Goodwill
|
|
|
97.8
|
|
Acquired intangible assets
|
|
|
37.9
|
|
Current liabilities
|
|
|
(15.0
|
)
|
Long-term liabilities
|
|
|
(3.0
|
)
|
|
|
|
|
Total net assets acquired
|
|
$
|
164.2
|
|
|
|
|
|
7
Teledyne Technologies goodwill was $450.3 million at March 30, 2008 and $351.6 million at
December 30, 2007. Teledyne Technologies net acquired intangible assets were $97.4 million at
March 30, 2008 and $61.7 million at December 30, 2007. The change in the balance of goodwill
in 2008 primarily resulted from the acquisitions made in fiscal 2008 and additional share
purchases of ODI. The change in the balance of acquired intangible assets in 2008 resulted
from the acquisitions made in fiscal 2008, an adjustment for the DGO acquisition and
amortization of acquired intangible assets. In all acquisitions, the results of operations and
cash flows are included in the Companys consolidated financial statements from the date of
each respective acquisition. Each of the companies acquired is part of the Electronics and
Communications segment. The Company completed the process of specifically identifying the
amount to be assigned to intangible assets, as well as certain assets and liabilities for the
DGO and Tindall acquisitions made in 2007. The amount of goodwill and acquired intangible
assets recorded as of March 30, 2008 for the DGO acquisition was $16.6 million and $9.0
million, respectively. The preliminary amount of goodwill and acquired intangible assets
recorded as of December 30, 2007 for the DGO acquisition was $17.7 million and $7.9 million,
respectively. The change in goodwill from December 30, 2007 reflects a $1.1 million adjustment
to acquired intangible assets based on the completed appraisal report for the valuation of
acquired intangible assets. The amount of goodwill and acquired intangible assets recorded as
of March 30, 2008 for the Tindall acquisition was $4.1 million and $1.5 million, respectively,
and did not change from December 30, 2007. 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 four acquisitions made in fiscal 2008. The Company made preliminary
estimates as of March 30, 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 March 30, 2008 for the Judson acquisition was $14.8
million and $5.0 million, respectively. The preliminary amount of goodwill and acquired
intangible assets recorded as of March 30, 2008 for the TSS acquisition was $32.7 million and
$15.9 million, respectively. The preliminary amount of goodwill and acquired intangible assets
recorded as of March 30, 2008 for the Impulse acquisition was $22.7 million and $9.0 million,
respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of
March 30, 2008 for the Storm acquisition was $27.6 million and $8.0 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 Companys internal review. Goodwill resulting
from the Judson, TSS, Impulse and DGO 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 first
quarter of 2008 and 2007 consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
2008
|
|
|
2007
|
|
Net income
|
|
$
|
27.9
|
|
|
$
|
20.5
|
|
Other comprehensive gain, net of tax:
|
|
|
|
|
|
|
|
|
Foreign currency translation losses
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
27.8
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
Note 4. Earnings Per Share
Basic and diluted earnings per share were computed based on net earnings. The weighted average
number of common shares outstanding during the period was used in the calculation of basic
earnings per share. This number of shares was increased by contingent shares that could be
issued under various compensation plans as well as by the dilutive effect of stock options
based on the treasury stock method in the calculation of diluted earnings per share.
8
The following table sets forth the computations of basic and diluted earnings per share
(amounts in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
2008
|
|
|
2007
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27.9
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
35.2
|
|
|
|
34.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.79
|
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27.9
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
35.2
|
|
|
|
34.8
|
|
Dilutive effect of exercise of options outstanding
|
|
|
1.1
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
36.3
|
|
|
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
0.77
|
|
|
$
|
0.57
|
|
|
|
|
|
|
|
|
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 $1.7 million in
stock option compensation expense for the first quarter of 2008 and the first quarter of 2007,
respectively. In 2008, the Company expects approximately $7.8 million in stock option
compensation expense based on current assumptions regarding the estimated fair value of
expected stock option grants during the remainder of the year. However, our assessment of the
estimated compensation expense is affected by our stock price and actual stock option grants
during 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.
9
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 extended to the longest-dated options publicly available, generally six
to nine months. The expected dividend yield is based on Teledynes 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 option 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:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
34.7
|
%
|
|
|
33.0
|
%
|
Risk-free interest rate
|
|
|
3.3
|
%
|
|
|
4.9
|
%
|
Expected life in years
|
|
|
5.6
|
|
|
|
5.6
|
|
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
quarter ended March 30, 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Shares
|
|
Exercise Price
|
Beginning balance
|
|
|
2,702,157
|
|
|
$
|
24.71
|
|
Granted
|
|
|
352,798
|
|
|
$
|
50.79
|
|
Exercised
|
|
|
(93,278
|
)
|
|
$
|
19.31
|
|
Canceled or expired
|
|
|
(16,750
|
)
|
|
$
|
27.76
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
2,944,927
|
|
|
$
|
27.98
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at quarter-end
|
|
|
2,138,744
|
|
|
$
|
22.15
|
|
|
|
|
|
|
|
|
|
|
Stock option transactions for Teledyne Technologies non-employee director stock option plan
for the first quarter ended March 30, 2008 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Shares
|
|
Price
|
Beginning balance
|
|
|
348,266
|
|
|
$
|
22.44
|
|
Granted
|
|
|
3,268
|
|
|
$
|
34.14
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
351,534
|
|
|
$
|
22.55
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at quarter-end
|
|
|
305,850
|
|
|
$
|
19.50
|
|
|
|
|
|
|
|
|
|
|
10
Note 6. Cash Equivalents
Cash equivalents consist of highly liquid money-market mutual funds and bank deposits with
maturities of three months or less when purchased. Cash equivalents totaled $8.3 million at
March 30, 2008 and $1.0 million at December 30, 2007.
Note 7. Inventories
Inventories are primarily valued under the LIFO method. Since an actual valuation of inventory
under the LIFO method can be made only at the end of each year based on the inventory levels
and costs at that time, interim LIFO calculations must necessarily be based on the Companys
estimates of expected year-end inventory levels and costs. Because these are subject to many
factors beyond the Companys control, interim results are subject to the final year-end LIFO
inventory valuation. Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
Balance at
|
|
March 30, 2008
|
|
|
December 30, 2007
|
|
Raw materials and supplies
|
|
$
|
78.3
|
|
|
$
|
64.7
|
|
Work in process
|
|
|
133.0
|
|
|
|
122.6
|
|
Finished goods
|
|
|
23.1
|
|
|
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
234.4
|
|
|
|
204.9
|
|
Progress payments
|
|
|
(4.4
|
)
|
|
|
(4.7
|
)
|
LIFO reserve
|
|
|
(25.8
|
)
|
|
|
(25.6
|
)
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
204.2
|
|
|
$
|
174.6
|
|
|
|
|
|
|
|
|
Note 8. Supplemental Balance Sheet Information
Other long-term assets included amounts related to deferred compensation of $24.1 million and
$24.2 million at March 30, 2008 and December 30, 2007, respectively. Accrued liabilities
included salaries and wages and other related compensation liabilities of $67.3 million and
$69.9 million at March 30, 2008 and December 30, 2007, respectively. Accrued liabilities also
included customer related deposits and credits of $25.7 million and $28.1 million at March 30,
2008 and December 30, 2007, respectively. Other long-term liabilities included aircraft
product liability reserves of $53.9 million and $50.6 million at March 30, 2008 and December
30, 2007, respectively and deferred compensation liabilities of $23.9 million and $23.8 million
at March 30, 2008 and December 30, 2007, respectively. Other long-term liabilities also
included reserves for workers compensation, environmental liabilities and the long-term
portion of compensation liabilities.
Some of the Companys products are subject to specified warranties and the Company provides for
the estimated cost of product warranties. The adequacy of the preexisting warranty liabilities
is assessed regularly and the reserve is adjusted as necessary based on a review of historic
warranty experience with respect to the applicable business or products, as well as the length
and actual terms of the warranties, which are typically one year. The product warranty reserve
is included in current accrued liabilities on the balance sheet. Changes in the Companys
product warranty reserve during the first quarter are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
First Three Months
|
|
|
|
2008
|
|
|
2007
|
|
Balance at beginning of year
|
|
$
|
11.4
|
|
|
$
|
11.4
|
|
Accruals for
product warranties charged to expense
|
|
|
3.4
|
|
|
|
1.6
|
|
Cost of product warranty claims
|
|
|
(2.2
|
)
|
|
|
(1.7
|
)
|
Acquisitions
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
13.4
|
|
|
$
|
11.4
|
|
|
|
|
|
|
|
|
11
Note 9. Income Taxes
The Companys effective tax rate for the first quarter of 2008 was 35.9% compared with 37.7%
for the first quarter of 2007. The Company completed an analysis of research and development
spending for 2007, as well as the base period years, and anticipates the receipt of income tax
refunds for the 2007 tax year. The effective tax rate for the first quarter of 2008 reflects
the impact of an expected research and development income tax refund of $1.3 million for the
2007 tax year. Excluding this item, the companys effective tax rate for the first quarter of
2008 would have been 38.8%. The effective tax rate for the first quarter of 2007 reflects the
reversal of $0.5 million in income tax contingency reserves which were determined to be no
longer needed due to the expiration of applicable statutes of limitations. Excluding this
item, the companys effective tax rate for the first quarter of 2007 would have been 39.0%.
Except for claims for refunds related to credits for research activities, the Company has
concluded all U.S. federal income tax matters for years through 2003. Substantially all
material state and local, and foreign income tax matters have been concluded for years through
2002. The Company believes appropriate provisions for all outstanding issues have been made
for all jurisdictions and all open years.
During the first quarter of 2008, the unrecognized tax benefits increased $0.8 million for tax
positions taken during a prior period, and $5.0 million for tax positions taken during the
current period. The total amount of unrecognized tax benefits that would affect the effective
tax rate increased $5.0 million during the quarter.
Note 10. Long-Term Debt and Capital Lease
At March 30, 2008, Teledyne Technologies had $295.0 million outstanding under its $590.0
million credit facility. Excluding interest and fees, no payments are due under the credit
facility until it matures in July 2011. Available borrowing capacity under the $590.0 million
credit facility, which is reduced by borrowings and outstanding letters of credit, was $285.9
million at March 30, 2008. The credit agreement requires the Company to comply with various
financial and operating covenants, including maintaining certain consolidated leverage and
interest coverage ratios, as well as minimum net worth levels and limits on acquired debt. At
March 30, 2008, the Company was in compliance with these covenants. The Company also has two
$5.0 million uncommitted credit lines available. These credit lines are utilized, as needed,
for periodic cash needs. Total debt at March 30, 2008 includes $295.0 million outstanding
under the $590.0 million credit facility at a weighted average interest rate of 3.5% and $1.3
million in other debt, of which $0.7 million is current. No amounts were outstanding under the
uncommitted credit lines at March 30, 2008. The Company also has a $4.1 million capital lease,
of which $0.2 million is current. At March 30, 2008, Teledyne Technologies had $9.1 million in
outstanding letters of credit.
Note 11. Lawsuits, Claims, Commitments, Contingencies and Related Matters
The Company is subject to federal, state and local environmental laws and regulations which
require that it investigate and remediate the effects of the release or disposal of materials
at sites associated with past and present operations, including sites at which the Company has
been identified as a potentially responsible party under the federal Superfund laws and
comparable state laws.
In accordance with the Companys accounting policy disclosed in Note 2 to the consolidated
financial statements in the 2007 Form 10-K, environmental liabilities are recorded when the
Companys liability is probable and the costs are reasonably estimable. In many cases,
however, investigations are not yet at a stage where the Company has been able to determine
whether it is liable or, if liability is probable, to reasonably estimate the loss or range of
loss, or certain components thereof. Estimates of the Companys liability are subject to
uncertainties as described in Note 15 to the consolidated financial statements in the 2007 Form
10-K. As investigation and remediation of these sites proceeds, it is likely that adjustments
in the Companys accruals will be necessary to reflect new information. The amounts of any
such adjustments could have a material adverse effect on the Companys results of operations in
a given period, but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available information, management
does not believe that future environmental costs in excess of those
12
accrued, with respect to
sites with which the Company has been identified, are likely to have a material
adverse effect on the Companys financial condition. The Company cannot provide assurance that
additional future developments, administrative actions or liabilities relating to environmental
matters will not have a material adverse effect on the Companys financial condition or results
of operations.
At March 30, 2008, the Companys reserves for environmental remediation obligations totaled
$3.9 million, of which $0.7 million is included in other current liabilities. The Company
periodically evaluates whether it may be able to recover a portion of future costs for
environmental liabilities from its insurance carriers and from third parties.
The timing of expenditures depends on a number of factors that vary by site, including the
nature and extent of contamination, the number of potentially responsible parties, the timing
of regulatory approvals, the complexity of the investigation and remediation, and the standards
for remediation. The Company expects that it will expend present accruals over many years, and
will complete remediation of all sites with which it has been identified in up to 30 years.
Various claims (whether based on U.S. Government or Company audits and investigations or
otherwise) may be asserted against the Company related to its U.S. Government contract work,
including claims based on business practices and cost classifications and actions under the
False Claims Act. Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal legal or
administrative proceedings may ensue. Depending on the circumstances and the outcome, such
proceedings could result in fines, penalties, compensatory and treble damages or the
cancellation or suspension of payments under one or more U.S. Government contracts. Under
government regulations, a company, or one or more of its operating divisions or units, can also
be suspended or debarred from government contracts based on the results of investigations.
Although the outcome of these matters cannot be predicted with certainty, management does not
believe there is any audit, review or investigation currently pending against the Company, of
which management is aware, that is likely to result in suspension or debarment of the Company,
or that is otherwise likely to have a material adverse effect on the Companys financial
condition. The resolution in any reporting period of one or more of these matters could,
however, have a material adverse effect on the Companys results of operations for that period.
A number of other lawsuits, claims and proceedings have been or may be asserted against the
Company, including those pertaining to product liability, patent infringement, commercial
contracts, employment and employee benefits. While the outcome of litigation cannot be
predicted with certainty, and some of these lawsuits, claims or proceedings may be determined
adversely to the Company, management does not believe that the disposition of any such pending
matters is likely to have a material adverse effect on the Companys financial condition. The
resolution in any reporting period of one or more of these matters could have a material
adverse effect on the Companys results of operations for that period. Teledyne Technologies
has aircraft and product liability insurance with an annual self-insured retention for general
aviation aircraft liabilities incurred in connection with products manufactured by Teledyne
Continental Motors of $21.0 million for its current aircraft product liability insurance
policies which expire on May 31, 2008.
13
Note 12. Pension Plans and Postretirement Benefits
Teledyne Technologies has a defined benefit pension plan covering substantially all employees
hired before January 1, 2004. As of January 1, 2004, non-union new hires participate in an
enhanced defined contribution plan as opposed to the Companys existing defined benefit pension
plan. The Companys assumed discount rate on plan liabilities is 6.0% for 2008 and 2007. The
Companys assumed long-term rate of return on plan assets is 8.5% for 2008 and 2007.
Teledyne Technologies net periodic pension expense was $2.3 million for the first quarter of
2008, compared with net periodic pension expense of $3.0 million for the first quarter of 2007
in accordance with the pension accounting requirements of SFAS No. 87 and SFAS No. 158.
Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards
(CAS) was $2.3 million for the first quarter of 2008, compared with $2.5 million for the
first quarter of 2007. Pension expense determined under CAS can generally be recovered through
the pricing of products and services sold to the U.S. Government.
The Company sponsors several postretirement defined benefit plans including a plan acquired
with the acquisition of Scientific Company that cover certain salaried and hourly employees.
The plans provide health care and life insurance benefits for certain eligible retirees.
The following tables set forth the components of net period pension benefit expense for
Teledyne Technologies defined benefit pension plans and postretirement benefit plans for the
first quarter of 2008 and 2007 (in millions):
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Pension Benefits
|
|
2008
|
|
|
2007
|
|
Service cost benefits earned during the period
|
|
$
|
4.2
|
|
|
$
|
4.1
|
|
Interest cost on benefit obligation
|
|
|
9.6
|
|
|
|
9.2
|
|
Expected return on plan assets
|
|
|
(12.4
|
)
|
|
|
(11.7
|
)
|
Amortization of prior service cost
|
|
|
0.2
|
|
|
|
0.4
|
|
Recognized actuarial loss
|
|
|
0.7
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
Net periodic benefit expense
|
|
$
|
2.3
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Postretirement Benefits
|
|
2008
|
|
|
2007
|
|
Service cost benefits earned during the period
|
|
$
|
|
|
|
$
|
|
|
Interest cost on benefit obligation
|
|
|
0.4
|
|
|
|
0.3
|
|
Amortization of prior service cost
|
|
|
(0.1
|
)
|
|
|
|
|
Recognized actuarial gain
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
|
Net periodic benefit expense
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
Note 13. Industry Segments
Teledyne is a leading provider of sophisticated electronic components and subsystems,
instrumentation and communications products, engineered systems and information technology
services, general aviation engines and components, and energy generation, energy storage and
small propulsion products. Its customers include government agencies, aerospace prime
contractors, energy exploration and production companies, major industrial companies, and
airlines and general aviation companies.
14
Teledyne operates in four business segments: Electronics and Communications, Engineered
Systems, Aerospace Engines and Components and Energy and Power Systems. In the fourth quarter
of 2007, the Company realigned two business units. The turbine engine business and the battery
products business have been moved from the Aerospace Engines and Components segment to the
Energy and Power Systems segment. The former Energy Systems segment was renamed to Energy and
Power Systems segment. In addition to these changes, the Systems Engineering Solutions segment
has been renamed Engineered Systems. As required by SFAS No. 131, the Company has restated its
historical segment information to be consistent with the current reportable segment structure.
This segment restatement had no effect on the Electronics and Communications or Engineered
Systems segments. The factors for determining the reportable segments were based on the
distinct nature of their operations. They are managed as separate business units because each
requires and is responsible for executing a unique business strategy.
Segment operating profit includes other income and expense directly related to the segment, but
excludes minority interest, interest income and expense, gains and losses on the disposition of
assets, sublease rental income and non-revenue licensing and royalty income, domestic and
foreign income taxes and corporate office expenses.
The following table presents Teledyne Technologies interim industry segment disclosures for
net sales and operating profit including other segment income. The table also provides a
reconciliation of segment operating profit and other segment income to total net income
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
First
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
2008
|
|
|
2007 (a)
|
|
|
% Change
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
301.3
|
|
|
$
|
248.3
|
|
|
|
21.3
|
%
|
Engineered Systems
|
|
|
83.5
|
|
|
|
73.9
|
|
|
|
13.0
|
%
|
Aerospace Engines and Components
|
|
|
46.5
|
|
|
|
46.4
|
|
|
|
0.2
|
%
|
Energy and Power Systems
|
|
|
20.5
|
|
|
|
17.0
|
|
|
|
20.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
451.8
|
|
|
$
|
385.6
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit and other segment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
40.3
|
|
|
$
|
30.2
|
|
|
|
33.4
|
%
|
Engineered Systems
|
|
|
8.1
|
|
|
|
6.5
|
|
|
|
24.6
|
%
|
Aerospace Engines and Components
|
|
|
4.6
|
|
|
|
6.0
|
|
|
|
(23.3
|
)%
|
Energy and Power Systems
|
|
|
2.2
|
|
|
|
1.8
|
|
|
|
22.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income:
|
|
$
|
55.2
|
|
|
$
|
44.5
|
|
|
|
24.0
|
%
|
Corporate expense
|
|
|
(7.5
|
)
|
|
|
(7.6
|
)
|
|
|
(1.3
|
)%
|
Other income (expense), net
|
|
|
(0.2
|
)
|
|
|
0.3
|
|
|
|
*
|
%
|
Minority interest
|
|
|
(1.0
|
)
|
|
|
(0.7
|
)
|
|
|
42.9
|
%
|
Interest expense, net
|
|
|
(3.0
|
)
|
|
|
(3.6
|
)
|
|
|
(16.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
43.5
|
|
|
|
32.9
|
|
|
|
32.2
|
%
|
Provision for income taxes (b)
|
|
|
15.6
|
|
|
|
12.4
|
|
|
|
25.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27.9
|
|
|
$
|
20.5
|
|
|
|
36.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Previously reported information for the first
quarter of 2007 was changed to reflect the current segment
structure effective in the fourth quarter of 2007.
|
|
(b)
|
|
The first quarter of 2008 includes income tax
credits of $1.3 million. The first quarter of 2007 includes the
reversal of $0.5 million in income tax contingency reserves
which were determined to be no longer needed due to the
expiration of applicable statutes of limitations.
|
|
*
|
|
percentage change not meaningful
|
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Strategy
Our strategy continues to emphasize growth in our core markets of instrumentation, defense
electronics and government engineered systems. We intend to strengthen and expand our core
businesses with targeted acquisitions. We intend to aggressively pursue operational excellence to
continually improve our margins and earnings. At Teledyne, operational excellence includes the
rapid integration of the businesses we acquire. Over time, our goal is to create a set of
businesses that are truly superior in their niches. We intend to continue to evaluate our product
lines to ensure that they are aligned with our strategy.
Results of Operations
First quarter of 2008 compared with the first quarter of 2007
Teledyne Technologies first quarter 2008 sales were $451.8 million, compared with sales of $385.6
million for the same period of 2007, an increase of 17.2%. Net income for the first quarter of
2008 was $27.9 million ($0.77 per diluted share) compared with net income of $20.5 million ($0.57
per diluted share) for the first quarter of 2007, an increase of 36.1%. The increase in sales for
the 2008 period, compared with the same 2007 period, was driven by acquisitions and organic growth.
The first quarter of 2008, compared with the same period in 2007, reflected higher sales in each
business segment. The higher sales in the Electronics and Communications segment resulted from
organic sales growth and strategic acquisitions, including the acquisition of assets of D.G.
OBrien, Inc. (DGO) on March 30, 2007, the acquisition of assets of Impulse Enterprise (Impulse)
on December 31, 2007, the acquisition of Storm Products Co. (Storm) on December 31, 2007, the
acquisition of S G Brown Limited and its wholly-owned subsidiary TSS (International) Limited
(together TSS International) on January 31, 2008 and the acquisition of assets of Judson
Technologies, LLC (Judson) on February 1, 2008. Incremental revenue in the first quarter of 2008
from businesses acquired since the end of 2006 was $31.8 million.
The increase in earnings for the first quarter of 2008, compared with the same period of 2007,
reflected improved operating profit in each operating segment except the Aerospace Engines and
Components segment. Incremental operating profit in the first quarter of 2008 from businesses
acquired since the end of 2006, including synergies, was $3.8 million.
The first quarter of 2008 included pension expense, in accordance with the pension requirements of
Statement of Financial Accounting Standards (SFAS) No. 87 and No. 158 of $2.3 million, compared
with pension expense of $3.0 million in the first quarter of 2007. Pension expense allocated to
contracts pursuant to U.S. Government Cost Accounting Standards (CAS) was $2.3 million in the
first quarter of 2008, compared with pension expense of $2.5 million in the first quarter of 2007.
For the first quarter of 2008 and 2007, we recorded a total of $1.9 million and $1.7 million,
respectively, in stock option compensation expense.
Cost of sales in total dollars was higher in the first quarter of 2008, compared with the first
quarter of 2007, primarily due to higher sales, driven by acquisitions. Cost of sales as a
percentage of sales for the first quarter of 2008 decreased to 69.8% from 70.5% for the first
quarter of 2007 and reflected sales mix differences. Cost of sales for the first quarter of 2008
also reflected lower LIFO expense of $0.4 million.
Selling, general and administrative expenses, including research and development and bid and
proposal expense, in total dollars were higher in the first quarter of 2008, compared with the
first quarter of 2007. This increase was primarily due to higher sales, driven by acquisitions.
Selling, general and administrative expenses for the first quarter of 2008, as a percentage of
sales, decreased slightly to 19.7%, compared with 19.9% in the first quarter of 2007.
Interest expense, net of interest income, was $3.0 million in the first quarter of 2008, compared
with $3.6 million for the first quarter of 2007. The decrease in net interest expense reflected
the impact of lower outstanding debt levels and lower average interest rates. Minority interest
reflects the minority ownership interest in ODI and Teledyne Energy Systems, Inc.
16
The Companys effective tax rate for the first quarter of 2008 was 35.9% compared with 37.7% for
the first quarter of 2007. The Company completed an analysis of research and development spending
for 2007, as well as the base
period years, and anticipates the receipt of income tax refunds for the 2007 tax year. The
effective tax rate for the first quarter of 2008 reflects the impact of an expected research and
development income tax refund of $1.3 million for the 2007 tax year. Excluding this item, the
companys effective tax rate for the first quarter of 2008 would have been 38.8%. The effective
tax rate for the first quarter of 2007 reflects the reversal of $0.5 million in income tax
contingency reserves which were determined to be no longer needed due to the completion of state
tax audits and the expiration of applicable statutes of limitations. Excluding this item, the
companys effective tax rate for the first quarter of 2007 would have been 39.0%.
Review of Operations:
In the fourth quarter of 2007, the company realigned Teledyne Energy Systems, Inc., Teledyne
Turbine Engines and Teledyne Battery Products in a new segment called Energy and Power Systems.
Both the turbine engine business and the battery products business were previously part of the
Aerospace Engines and Components segment. In addition, the Systems Engineering Solutions segment
was renamed Engineered Systems. Previously reported segment financial data for the first quarter
of 2007 reflects the new segment presentation to provide comparability between periods. The
following table sets forth the sales and operating profit for each segment (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
First
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
2008
|
|
|
2007 (a)
|
|
|
% Change
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
301.3
|
|
|
$
|
248.3
|
|
|
|
21.3
|
%
|
Engineered Systems
|
|
|
83.5
|
|
|
|
73.9
|
|
|
|
13.0
|
%
|
Aerospace Engines and Components
|
|
|
46.5
|
|
|
|
46.4
|
|
|
|
0.2
|
%
|
Energy and Power Systems
|
|
|
20.5
|
|
|
|
17.0
|
|
|
|
20.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
451.8
|
|
|
$
|
385.6
|
|
|
|
17.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit and other segment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
40.3
|
|
|
$
|
30.2
|
|
|
|
33.4
|
%
|
Engineered Systems
|
|
|
8.1
|
|
|
|
6.5
|
|
|
|
24.6
|
%
|
Aerospace Engines and Components
|
|
|
4.6
|
|
|
|
6.0
|
|
|
|
(23.3
|
)%
|
Energy and Power Systems
|
|
|
2.2
|
|
|
|
1.8
|
|
|
|
22.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income:
|
|
$
|
55.2
|
|
|
$
|
44.5
|
|
|
|
24.0
|
%
|
Corporate expense
|
|
|
(7.5
|
)
|
|
|
(7.6
|
)
|
|
|
(1.3
|
)%
|
Other income (expense), net
|
|
|
(0.2
|
)
|
|
|
0.3
|
|
|
|
*
|
%
|
Minority interest
|
|
|
(1.0
|
)
|
|
|
(0.7
|
)
|
|
|
42.9
|
%
|
Interest expense, net
|
|
|
(3.0
|
)
|
|
|
(3.6
|
)
|
|
|
(16.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
43.5
|
|
|
|
32.9
|
|
|
|
32.2
|
%
|
Provision for income taxes (b)
|
|
|
15.6
|
|
|
|
12.4
|
|
|
|
25.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
27.9
|
|
|
$
|
20.5
|
|
|
|
36.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Previously reported information for the first
quarter of 2007 was changed to reflect the current segment
structure effective in the fourth quarter of 2007.
|
|
(b)
|
|
The first quarter of 2008 includes income tax
credits of $1.3 million. The first quarter of 2007 includes the
reversal of $0.5 million in income tax contingency reserves
which were determined to be no longer needed due to the
expiration of applicable statutes of limitations.
|
|
*
|
|
percentage change not meaningful
|
17
Electronics and Communications
First quarter of 2008 compared with the first quarter of 2007
Our Electronics and Communications segments first quarter 2008 sales were $301.3 million, compared
with first quarter 2007 sales of $248.3 million, an increase of 21.3%. First quarter 2008
operating profit was $40.3 million, compared with operating profit of $30.2 million in the first
quarter of 2007, an increase of 33.4%.
The first quarter 2008 sales improvement resulted from revenue growth in electronic instruments,
defense electronics, and other commercial electronics. The revenue growth of $38.5 million in
electronic instruments was driven by organic sales growth and the acquisition of assets of DGO on
March 30, 2007, the acquisition of assets of Impulse on December 31, 2007, the acquisition of Storm
on December 31, 2007 and the acquisition of TSS International on January 31, 2008. Organic sales
growth in electronic instruments reflected increased sales of geophysical sensors for the energy
exploration market. The revenue growth of $11.5 million in defense electronics was driven by
organic sales growth, the acquisition of Storm on December 31, 2007 and the acquisition of assets
of Judson on February 1, 2008. Higher sales of other commercial electronics primarily reflected
increased avionics sales, partially offset by lower sales of medical electronic manufacturing
services. The increase in segment revenue in the first quarter of 2008 from acquisitions made
since the end of the fourth quarter of 2006 was $31.8 million. Segment operating profit was
favorably impacted by revenue from acquisitions. Incremental operating profit in the first quarter
of 2008, from businesses acquired since 2006, including synergies, was $3.8 million. Segment
operating profit was negatively impacted by $0.9 million of stock option compensation expense in
the first quarter of 2008, compared with $0.8 million for the first quarter of 2007. Segment
operating profit for the first quarter of 2008 reflected lower LIFO expense of $0.4 million.
Pension expense, in accordance with the pension accounting requirements of SFAS No. 87 and No. 158,
was $0.8 million in the first quarter of 2008, compared with $1.0 million in the first quarter of
2007. Pension expense allocated to contracts pursuant to CAS was $0.4 million in both the first
quarter of 2008 and 2007.
Engineered Systems
First quarter of 2008 compared with the first quarter of 2007
Our Engineered Systems segments first quarter 2008 sales were $83.5 million, compared with $73.9
million in the first quarter of 2007, an increase of 13.0%. First quarter 2008 operating profit
was $8.1 million, compared with operating profit of $6.5 million in the first quarter of 2007, an
increase of 24.6%.
The first quarter 2008 sales improvement primarily reflected revenue growth in aerospace programs.
Operating profit in the first quarter of 2008 reflected the impact of higher revenue, partially
offset by lower margins in certain environmental programs. Operating profit also included pension
expense under SFAS No. 87 and No. 158, of $1.2 million in the first quarter of 2008, compared with
$1.6 million in the first quarter of 2007. Pension expense allocated to contracts pursuant to CAS
was $1.8 million in the first quarter of 2008, compared with $2.0 million in the first quarter of
2007. Segment operating profit was impacted by $0.2 million of stock option compensation expense
for both the first quarter of 2008 and 2007.
Aerospace Engines and Components
First quarter of 2008 compared with the first quarter of 2007
Our Aerospace Engines and Components segments first quarter 2008 sales were $46.5 million,
compared with $46.4 million in the first quarter of 2007, an increase of 0.2%. First quarter 2008
operating profit was $4.6 million, compared with $6.0 million in the first quarter of 2007, a
decrease of 23.3%. Operating profit for the first quarter of 2008 reflected sales mix differences
compared with the first quarter of 2007.
Segment operating profit was impacted by $0.1 million of stock option compensation expense for both
the first quarter of 2008 and 2007. Segment operating profit also included pension expense, under
SFAS No. 87 and No. 158, of $0.1 million in the first quarter of 2008 compared with $0.2 million in
the first quarter of 2007.
18
Energy and Power Systems
First quarter of 2008 compared with the first quarter of 2007
Our Energy and Power Systems segments first quarter 2008 sales were $20.5 million, compared with
$17.0 million in the first quarter of 2007, an increase of 20.6%. First quarter 2008 operating
profit was $2.2 million, compared with $1.8 million in the first quarter of 2007, an increase of
22.2%.
First quarter 2008 sales reflected higher commercial hydrogen generators and government power
systems sales, partially offset by lower sales in the turbine engine business. Operating profit
reflected higher margins and sales in the hydrogen generator business, which were partially offset
by the impact of lower sales and lower margins in the turbine engine business. Segment operating
profit also included pension expense, under SFAS No. 87 and No. 158, of $0.1 million for both the
first quarter of 2008 and the first quarter of 2007. Pension expense allocated to contracts
pursuant to CAS was $0.1 million for both the first quarter of 2008 and the first quarter of 2007.
Financial Condition, Liquidity and Capital Resources
Our net cash provided by operating activities was $22.6 million for the first three months of 2008,
compared with $36.5 million for the same period of 2007. The lower net cash provided in the first
three months of 2008, compared with the first three months of 2007, was primarily due to increased
working capital requirements and higher pension contributions of $2.2 million.
Our net cash used by investing activities was $174.9 million for the first three months of 2008,
compared with cash used by investing activities of $47.9 million for the first three months of
2007. The 2008 and 2007 amount included $166.2 million and $36.1 million, respectively, for the
purchase of businesses, net of cash acquired.
On February 1, 2008, Teledyne Technologies through its subsidiary, Teledyne Scientific & Imaging,
LLC, completed the acquisition of assets of 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 TSS
International for GBP 29.1 million in cash (approximately $57.1 million). 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 revenue of GBP 12.0 million (approximately $23.9 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 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 revenue of $45.7 million for its fiscal year ended
March 31, 2007. Teledyne operates this business under the name Teledyne Storm Products, Inc.
On March 30, 2007, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc.,
completed the acquisition of assets of DGO for consideration of $37.1 million, which includes a
$1.0 million purchase price adjustment. 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. DGO had sales of
19
$26.2 million for its fiscal year
ended September 30, 2006. Teledyne Technologies operates this business under the name Teledyne
D.G. OBrien.
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. The ODI minority stockholders have the option to sell their shares of ODI to Teledyne
Instruments following the end of each quarter through the quarter ended March 31, 2009, at a
formula-determined price. 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. In the first quarter of 2008, Teledyne Instruments acquired an additional
1.2% of ownership in ODI for $1.7 million. At March 30, 2008, Teledyne Instruments owns 63.0% of
ODI. All shares not sold to Teledyne Instruments following the quarter ended March 31, 2009, will
be purchased by Teledyne Instruments following the quarter ended June 30, 2009, at the same
formula-determined price, at which time Teledyne Instruments will own all of the ODI shares held by
the participating stockholders. Based on the formula-determined purchase price as of the quarter
ended March 30, 2008, the aggregate amount of funds required to repurchase all the shares held by
the remaining minority ODI stockholders would be approximately $59.4 million. However, the actual
aggregate amount of funds that we will spend to repurchase the shares held by minority stockholders
through June 30, 2009, could be significantly higher or lower than this amount, as this amount will
depend on when individual stockholders elect to exercise their put options and on the actual
financial performance of ODI.
Teledyne Technologies funded the acquisitions primarily from borrowings under its credit facility
and cash on hand.
Capital expenditures for the first three months of 2008 and 2007 were $8.7 million and $12.3
million, respectively.
Teledyne Technologies goodwill was $450.3 million at March 30, 2008 and $351.6 million at December
30, 2007. Teledyne Technologies net acquired intangible assets were $97.4 million at March 30,
2008 and $61.7 million at December 30, 2007. The change in the balance of goodwill in 2008
primarily resulted from the acquisitions made in fiscal 2008 and additional share purchases of ODI.
The change in the balance of acquired intangible assets in 2008 resulted from the acquisitions
made in fiscal 2008, an adjustment for the DGO acquisition and amortization of acquired intangible
assets. In all acquisitions, the results of operations and cash flows are included in the
Companys consolidated financial statements from the date of each respective acquisition. Each of
the companies acquired is part of the Electronics and Communications segment. The Company
completed the process of specifically identifying the amount to be assigned to intangible assets,
as well as certain assets and liabilities for the DGO and Tindall acquisitions made in 2007. The
amount of goodwill and acquired intangible assets recorded as of March 30, 2008 for the DGO
acquisition was $16.6 million and $9.0 million, respectively. The preliminary amount of goodwill
and acquired intangible assets recorded as of December 30, 2007 for the DGO acquisition was $17.7
million and $7.9 million, respectively. The change in goodwill from December 30, 2007 reflects a
$1.1 million adjustment to acquired intangible assets based on the completed appraisal report for
the valuation of acquired intangible assets. The amount of goodwill and acquired intangible assets
recorded as of March 30, 2008 for the Tindall acquisition was $4.1 million and $1.5 million,
respectively, and did not change from December 30, 2007. 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 four acquisitions made in fiscal 2008. The Company made preliminary
estimates as of March 30, 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 March 30, 2008 for the Judson acquisition was $14.8 million and
$5.0 million, respectively. The preliminary amount of goodwill and acquired intangible assets
recorded as of March 30, 2008 for the TSS acquisition was $32.7 million and $15.9 million,
respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of
March 30, 2008 for the Impulse acquisition was $22.7 million and $9.0 million, respectively. The
preliminary amount of goodwill and acquired intangible assets recorded as of March 30, 2008 for the
Storm acquisition was $27.6 million and $8.0 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 Companys internal review. Goodwill resulting from the Judson, TSS, Impulse and
DGO acquisitions will be deductible for tax purposes.
Cash used by financing activities for the first three months of 2008 and 2007 included net
borrowings of $157.2 million and $12.5 million, primarily to fund acquisitions. The first three
months of 2008 and 2007 included $1.1
20
million and $0.6 million, respectively, in excess tax
benefits related to stock-based compensation. Proceeds from the exercise of stock options were
$1.8 million and $1.6 million for the first three months of 2008 and 2007, respectively.
Working capital was $275.4 million at March 30, 2008, compared with $213.7 million at December 30,
2007. The increase from December 30, 2007 primarily reflected working capital from acquisitions.
Our principal capital requirements are to fund working capital needs, capital expenditures, pension
contributions and debt service requirements, as well as acquisitions. It is anticipated that
operating cash flow, together with available borrowings under the credit facility described below,
will be sufficient to meet these requirements over the next twelve months. To support
acquisitions, we may need to raise additional capital. We currently expect capital expenditures to
be approximately $45.0 million in 2008, of which $8.7 million has been spent in the first three
months of 2008.
Our credit facility has lender commitments totaling $590.0 million and expires on July 14, 2011.
Excluding interest and fees, no payments are due under the credit facility until it matures. The
credit agreement requires the Company to comply with various financial and operating covenants,
including maintaining certain consolidated leverage and interest coverage ratios, as well as
minimum net worth levels and limits on acquired debt. At March 30, 2008, the Company was in
compliance with these covenants. Available borrowing capacity under the $590.0 million credit
facility, which is reduced by borrowings and outstanding letters of credit, was $285.9 million at
March 30, 2008.
Our liquidity is not dependent upon the use of off-balance sheet financial arrangements. We have
no off-balance sheet financing arrangements that incorporate the use of special purpose entities or
unconsolidated entities.
Critical Accounting Policies
Our critical accounting policies are those that are reflective of significant judgments and
uncertainties, and may potentially result in materially different results under different
assumptions and conditions. Our critical accounting policies are the following: revenue
recognition; aircraft product liability reserve; accounting for pension plans; accounting for
business combinations, goodwill and other long-lived assets; and accounting for income taxes. For
additional discussion of the application of these and other accounting policies, see Managements
Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting
Policies and Note 2 of the Notes to Consolidated Financial Statements included in Teledyne
Technologies Annual Report on Form 10-K for the fiscal year ended December 30, 2007 (2007 Form
10-K).
Recent Accounting Pronouncements
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 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 Companys consolidated results of operations or financial
position.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, 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
21
February 2008, the
FASB issued FASB Staff Position (FSP) 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 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.
Outlook
Based on its current outlook, the Companys management believes that second quarter 2008 earnings
per share will be in the range of approximately $0.72 to $0.74. The full year 2008 earnings per
share outlook is expected to be in the range of approximately $2.98 to $3.06, an increase from the
prior outlook of $2.86 to $2.94. The Companys 2008 outlook reflects anticipated sales growth in
its defense electronics and instrumentation businesses, due primarily to the recent acquisitions.
In addition, the Companys second quarter and full year 2008 earnings per diluted share outlook
reflects an anticipated increase in expenses, including intangible asset amortization and higher
interest expense, as a result of these acquisitions. The Companys estimated effective tax rate
for 2008 is expected to be 39.0%, excluding expected research and development income tax refunds of
$1.3 million recorded in the first quarter of 2008.
The full year 2008 earnings outlook includes approximately $10.0 million in pension expense under
SFAS No. 87 and No. 158, or $0.6 million in net pension expense after recovery of allowable pension
costs from our CAS covered government contracts. Full year 2007 earnings included $11.9 million in
pension expense under SFAS No. 87 and No. 158, or $1.7 million in net pension expense after
recovery of allowable pension costs from our CAS covered government contracts. The decrease in
full year 2008 pension expense reflects an increase in the market value of assets during 2007 and
pension contributions made in 2007.
The Companys 2008 earnings outlook also reflects $7.8 million in stock option compensation
expense. The Companys 2007 earnings included $6.8 million in stock option compensation expense.
EARNINGS PER SHARE SUMMARY (a)
(Diluted earnings per common share from continuing operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Full Year Outlook
|
|
|
2007
|
|
|
2006
|
|
|
|
Low
|
|
|
High
|
|
|
Actual
|
|
|
Actual
|
|
Earnings per share (excluding net
pension expense, stock option
expense and excluding income tax
benefit)
|
|
$
|
3.08
|
|
|
$
|
3.16
|
|
|
$
|
2.72
|
|
|
$
|
2.36
|
|
Pension expense SFAS No. 87
|
|
|
(0.17
|
)
|
|
|
(0.17
|
)
|
|
|
(0.21
|
)
|
|
|
(0.27
|
)
|
Pension expense CAS (b)
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share (excluding stock option expense and income tax
benefit)
|
|
|
3.07
|
|
|
|
3.15
|
|
|
|
2.69
|
|
|
|
2.27
|
|
Stock option expense (c)
|
|
|
(0.13
|
)
|
|
|
(0.13
|
)
|
|
|
(0.12
|
)
|
|
|
(0.10
|
)
|
Income tax benefit (d)
|
|
|
0.04
|
|
|
|
0.04
|
|
|
|
0.15
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share GAAP
|
|
$
|
2.98
|
|
|
$
|
3.06
|
|
|
$
|
2.72
|
|
|
$
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(a)
|
|
We believe that this supplemental non-GAAP information is useful to assist management and
the investment community in analyzing the financial results and trends of ongoing
operations. The table facilitates comparisons with prior periods and reflects a
measurement management uses to analyze financial performance.
|
|
(b)
|
|
Pension expense determined allowable under CAS can generally be recovered through the
pricing of products and services sold to the U.S. Government.
|
|
(c)
|
|
Effective January 2, 2006, we adopted the provisions of SFAS No. 123(R) and began
recording stock option compensation expense.
|
|
(d)
|
|
Fiscal year 2008 reflects income tax credits of $1.3 million in the first quarter of 2008.
Fiscal year 2007 reflects income tax credits of $4.4 million and also reflects the
reversal of $1.1 million in income tax contingency reserves for the year which were
determined to be no longer needed due to the completion of state tax audits and the
expiration of applicable statutes of limitations. Fiscal year 2006 included the reversal
of income tax contingency reserves of $3.3 million, which were determined to be no longer
needed due to the expiration of applicable statutes of limitations.
|
22
Safe Harbor Cautionary Statement Regarding Outlook and Forward-Looking Information
From time to time we make, and this report contains forward looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, relating to earnings, growth opportunities,
product sales, pension matters, stock option compensation expense, tax credits and strategic plans.
All statements made in this Managements Discussion and Analysis of Financial Condition and
Results of Operations that are not historical in nature should be considered forward-looking.
Actual results could differ materially from these forward-looking statements. Many factors,
including changes in demand for products sold to the defense electronics, instrumentation and
energy exploration and production, commercial aviation, semiconductor and communications markets,
funding, continuation and award of government programs, continued liquidity of our customers
(including commercial aviation customers) and economic and political conditions, could change the
anticipated results. In addition, financial market fluctuations affect the value of our pension
assets.
Global responses to terrorism and other perceived threats increase uncertainties associated with
forward-looking statements about our businesses. Various responses to terrorism and perceived
threats could realign government programs, and affect the composition, funding or timing of our
programs. Flight restrictions would negatively impact the market for general aviation aircraft
piston engines and components. Changes in the leadership of the U.S. Government could result, over
time, in reductions in defense spending and further changes in programs in which the company
participates.
We continue to take action to assure compliance with the internal controls, disclosure controls and
other requirements of the Sarbanes-Oxley Act of 2002. While we believe our control systems are
effective, there are inherent limitations in all control systems, and misstatements due to error or
fraud may occur and not be detected.
While our growth strategy includes possible acquisitions, we cannot provide any assurance as to
when, if or on what terms any acquisitions will be made. Acquisitions involve various inherent
risks, such as, among others, our ability to integrate acquired businesses and to achieve
identified financial and operating synergies.
Additional information concerning factors that could cause actual results to differ materially from
those projected in the forward-looking statements is contained in Teledyne Technologies periodic
filings with the Securities and Exchange Commission, including its 2007 Form 10-K and this Form
10-Q. We assume no duty to update forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the information provided under Item 7A, Quantitative and
Qualitative Disclosure About Market Risk included in our 2007 Annual Report on Form 10-K. At
March 30, 2008, Teledyne had one currency forward contract outstanding for a notional amount of
$1.0 million which we consider immaterial and expires in four equal amounts during the months of
April through July 2008. The contract was entered into in February 2008 and involves British
Pounds and US Dollars. There were no other hedging contracts outstanding at March 30, 2008.
Interest Rate Exposure
We are exposed to market risk through the interest rate on our borrowings under our amended and
restated credit facility. Borrowings under our credit facility are at fixed rates that vary with
the term and timing of each loan under the facility. Loans under the facility typically have terms
of one, three or six months and the interest rate for each such loan is subject to change if the
loan is continued or converted following the applicable maturity date. Interest rates are also
subject to change based on our debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) ratio. As of March 30, 2008, we had $295.0 million in outstanding
indebtedness under our amended and restated credit facility. A 100 basis point change in interest
rates would result in an increase in annual interest expense of approximately $3.0 million,
assuming the $295.0 million in debt was outstanding for the full year.
23
Item 4. Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be
disclosed in reports that we file or submit, under the Securities Exchange Act of 1934, are
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Our Chairman, President and Chief Executive
Officer and our Senior Vice President and Chief Financial Officer, with the participation and
assistance of other members of management, have reviewed the effectiveness of our disclosure
controls and procedures and have concluded that the disclosure controls and procedures, as of March
30, 2008, are effective in timely alerting them to material information relating to the Company
that is required to be included in its SEC periodic filings.
In connection with our evaluation during the quarterly period ended March 30, 2008, we have made no
change in our internal controls over financial reporting that have materially affected or are
reasonably likely to materially affect our internal controls over financial reporting. There also
were no significant deficiencies or material weaknesses identified for which corrective action
needed to be taken.
PART II OTHER INFORMATION
Item 1A. Risk Factors
There are no material changes to the risk factors previously disclosed in our 2007 Annual Report on
Form 10-K in response to Item 1A to Part 1 of Form 10-K. See also our Outlook discussion
beginning at page 23 for some factors reflected in our 2008 earnings per share outlook.
Item 4. Submission of Matters to a Vote of Security Holders
Our 2008 Annual Meeting of Stockholders was held on April 23, 2008. The following actions were
taken at the Annual Meeting, for which proxies were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended:
|
1.
|
|
The four nominees proposed by the Board of Directors were elected as Class III
directors for a three-year term expiring at the 2011 Annual Meeting by the following
votes:
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|
|
|
|
|
|
|
|
|
Name
|
|
For
|
|
Withheld
|
Roxanne S. Austin
|
|
|
31,504,125
|
|
|
|
256,343
|
|
Robert P. Bozzone*
|
|
|
31,406,877
|
|
|
|
353,591
|
|
Frank V. Cahouet
|
|
|
31,503,139
|
|
|
|
257,329
|
|
Kenneth C. Dahlberg
|
|
|
30,291,847
|
|
|
|
1,468,621
|
|
|
|
|
*
|
|
In accordance with Teledyne Technologies retirement policy for the
Board of Directors, Mr. Bozzone will retire at the 2009 Annual Meeting unless the
Board of Directors grants a waiver to the retirement policy.
|
|
|
|
Other continuing directors include (1) Class I directors, Simon M. Lorne, Paul D.
Miller, and Wesley W. von Schack, whose terms expire at the 2009 Annual Meeting and
(2) Class II directors, Charles Crocker, Robert Mehrabian and Michael T. Smith whose
terms expire at the 2010 Annual Meeting.
|
|
|
2.
|
|
A proposal to approve the 2008 incentive award plan was approved by a vote of
25,348,248 for versus 4,396,007 against. There were 71,750 abstentions and 1,944,463
broker non-votes with respect to this action.
|
|
|
3.
|
|
A proposal to ratify the appointment of Ernst & Young LLP as our independent
auditors for 2008 was approved by a vote of 30,499,413 for versus 1,227,347 against.
There were 33,711 abstentions and no broker non-votes with respect to this action.
|
24
Item 6. Exhibits
|
|
|
Exhibit 10.1
|
|
Teledyne Technologies Incorporated 2008 Incentive Award Plan
(incorporated by reference to Annex A of the Companys Definitive Proxy
Statement filed March 7, 2008)
|
|
|
|
Exhibit 10.2
|
|
Teledyne Technologies Incorporated Adminstrative Rules of the 2008
Incentive Award Plan Related to Non-Employee Director Stock Compensation
|
|
|
|
Exhibit 10. 3
|
|
First Amendment to the Amended and Restated Credit Agreement, dated as
of February 8, 2008, by and among Teledyne Technologies Incorporated, certain
subsidiaries of Teledyne as Guarantors, the Lender parties thereto and Bank of
America, N.A. as Administrative Agent (incorporated by reference to Exhibit
10.1 to the Registrants Current Report on Form 8-K dated February 8, 2008)
|
|
|
|
Exhibit 31.1
|
|
302 Certification Robert Mehrabian
|
|
|
|
Exhibit 31.2
|
|
302 Certification Dale A. Schnittjer
|
|
|
|
Exhibit 32.1
|
|
906 Certification Robert Mehrabian
|
|
|
|
Exhibit 32.2
|
|
906 Certification Dale A. Schnittjer
|
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
TELEDYNE TECHNOLOGIES INCORPORATED
|
|
DATE: May 2, 2008
|
By:
|
/s/ Dale A. Schnittjer
|
|
|
|
Dale A. Schnittjer, Senior Vice President and
|
|
|
|
Chief Financial Officer
(Principal Financial Officer and Authorized Officer)
|
|
26
Teledyne Technologies Incorporated
Index to Exhibits
|
|
|
Exhibit Number
|
|
Description
|
|
|
|
Exhibit 10.1
|
|
Teledyne Technologies Incorporated 2008 Incentive Award Plan (incorporated by
reference to Annex A of the Companys Definitive Proxy Statement filed March 7, 2008)
|
|
|
|
Exhibit 10.2
|
|
Teledyne Technologies Incorporated Adminstrative Rules of the 2008 Incentive Award
Plan Related to Non-Employee Director Stock Compensation
|
|
|
|
Exhibit 10. 3
|
|
First Amendment to the Amended and Restated Credit Agreement, dated as of February
8, 2008, by and among Teledyne Technologies Incorporated, certain subsidiaries of Teledyne
as Guarantors, the Lender parties thereto and Bank of America, N.A. as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
dated February 8, 2008)
|
|
|
|
Exhibit 31.1
|
|
302 Certification Robert Mehrabian
|
|
|
|
Exhibit 31.2
|
|
302 Certification Dale A. Schnittjer
|
|
|
|
Exhibit 32.1
|
|
906 Certification Robert Mehrabian
|
|
|
|
Exhibit 32.2
|
|
906 Certification Dale A. Schnittjer
|
27
Exhibit 10.2
TELEDYNE TECHNOLOGIES INCORPORATED
ADMINSTRATIVE RULES OF THE 2008 INCENTIVE AWARD PLAN
RELATED TO NON-EMPLOYEE DIRECTOR STOCK COMPENSATION
(As of February 19, 2008)
ARTICLE I.
GENERAL
1.1.
Purpose
. The terms of the Companys 2008 Stock Incentive Plan shall be applied in
accordance with the following Rules for the purpose of providing an opportunity for Non-Employee
Directors to elect to receive Options and/or Common Stock in lieu of Directors Retainer Fee
Payments and Meeting Fees, the automatic payment of a portion of the Directors Retainer Fee
Payment in the form of Common Stock to those Non-Employee Directors not electing to receive such
portion in the form of Options and/or Common Stock and granting each Non-Employee Director annually
an option covering 4,000 shares of Common Stock. It is the purpose of these Rules to promote the
interests of the Company and its stockholders by attracting, retaining and providing an incentive
to Non-Employee Directors through the acquisition of a proprietary interest in the Company and an
increased personal interest in its performance. It is recognized that Non-Employee Directors
dedicate time and provide significant and valuable services to the Company, its subsidiaries and
its stockholders.
1.2.
Adoption and Term
. These Rules have been approved by the Personnel and
Compensation Committee of the Board and shall become effective as of the Effective Date (as
hereinafter defined). These Rules shall terminate without further action upon the earlier of (a)
the tenth anniversary of the effective date of the Plan, and (b) the first date upon which no
shares of Common Stock remain available for issuance under these Rules.
1.3.
Definitions
. Capitalized terms not otherewise defined herein shall have the same
meaning as those terms defined in the Plan. As used herein the following terms have the following
meanings:
(a) Annual Options means the Options issuable under Section 4.4(a) of these Rules.
(b) Board means the Board of Directors of the Company.
(c) Code means the Internal Revenue Code of 1986, as amended. References to a section of
the Code shall include that section and any comparable section or sections of any future
legislation that amends, supplements or supersedes said section.
(d) Committee means the Nominating and Governance Committee of the Board.
(e) Common Stock means the common stock, par value $0.01 per share, of the Company.
(f) Company means Teledyne Technologies Incorporated, a Delaware corporation, and any
successor thereto.
(g) Compensation Year means each calendar year or portion thereof during which these
Rules are in effect.
(h) Director means a member of
the Board.
(i) Directors Retainer Fee Payment means the dollar value of that portion of the annual
retainer fee payable by the Company to a Non-Employee Director for serving as a Director
and for serving as the chair of the Board or any committee of the Board as of a particular
Payment Date, as established by the Board and in effect from time to time.
(j) Effective Date means the date the 2008 Incentive Award Plan is approved by the
stockholders of the Company.
(k) Employee means any employee of the Company or an affiliate.
(l) Exchange Act means the Securities Exchange Act of 1934, as amended. References to a
section of the Exchange Act or rule promulgated thereunder shall include that section or
rule and any comparable section(s) or rule(s) of any future legislation or rulemaking that
amends, supplements or supersedes said section or rule.
(m) Non-Employee Director means a Director who is not an Employee.
(n) Non-Employee Director Notice means a written notice delivered in accordance with
Section 4.2.
(o) Payment Date means the first business day of January and July of each Compensation
Year on which the Directors Retainer Fee Payment for serving as a Director is paid by the
Company and the first business day of January of each Compensation Year on which the
Directors Retainer Fee Payment for serving as the chair of the Board or any committee of
the Board is paid by the Company.
(p) Plan means the Teledyne Technologies Incorporated 2008 Incentive Award Plan, as it
may hereafter be amended from time to time.
(q) Retainer Fee Options means the Options issuable under Section 4.3 of these Rules.
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(r) Rules means these administrative rules under the Teledyne Technologies Incorporated
2008 Incentive Award Plan, as they may hereafter be amended from time to time.
(s) TDY Deferred Compensation Plan shall mean the Teledyne Technologies Incorporated
Executive Deferred Compensation Plan, as amended and as may be amended from time to time
1.4.
Shares Subject to these Rules
. The shares to be offered under the Plan pursuant
to these Rules shall consist of the Companys authorized but unissued Common Stock or treasury
shares that are available to be offered under the Plan and, subject to adjustment as provided in
Section 5.1 hereof, the aggregate amount of such stock which may be issued or subject to Options
issued hereunder shall not exceed 200,000 shares. If any Option granted under the Plan pursuant to
these Rules shall expire or terminate for any reason, without having been exercised or vested in
full, as the case may be, the unpurchased shares subject thereto shall again be available for
issuance under the Plan pursuant to these Rules. Options granted under the Plan pursuant to these
Rules will not be qualified as incentive stock options under Section 422 of the Code.
ARTICLE II.
ADMINISTRATION
2.1.
The Committee
. Subject to the provisions of these Rules and the Plan, the
Committee shall interpret the Rules, promulgate, amend, and rescind other rules and regulations
relating to the Rules and make all other determinations necessary or advisable for their
administration and implementation. Interpretation and construction of any provision of these Rules
by the Committee shall be final and conclusive. Notwithstanding the foregoing, the Committee shall
have or exercise no discretion with respect to the selection of persons eligible to participate
hereunder, the determination of the number of shares of Common Stock or number of Options issuable
to any person or any other aspect of the administration of the Rules with respect to which such
discretion is not permitted in order for grants of shares of Common Stock and Options to be exempt
under Rule 16b-3 promulgated under the Exchange Act.
ARTICLE III.
PARTICIPATION
3.1.
Participants
. Each Non-Employee Director shall participate in the Plan pursuant
to these Rules on the terms and conditions hereinafter set forth.
ARTICLE IV.
PAYMENT OF DIRECTORS FEES
4.1.
General
. The Directors Retainer Fee Payment shall be paid to each Non-Employee
Director, as of each Payment Date, as set forth in these Rules and subject to such other payment
policies and procedures as the Board may establish from time to
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time. If, for the applicable Compensation Year, a Non-Employee Director has not made an
election pursuant to Section 4.2 to receive Options or Common Stock in lieu of at least twenty-five
percent (25%) of the Directors Retainer Fee Payment, then seventy-five percent (75%) of such
Directors Retainer Fee Payment shall be paid in cash and twenty-five percent (25%) of the
Directors Retainer Fee Payment shall be paid in the form of Common Stock.
4.2.
Non-Employee Director Notice
. A Non-Employee Director may file with the Secretary
of the Company or other designee of the Board of Directors prior to the commencement of a
Compensation Year a Non-Employee Director Notice making an election to receive either twenty-five
percent (25%), fifty percent (50%), seventy-five percent (75%) or one hundred (100%) of his or her
Directors Retainer Fee Payment in the form of Options and/or Common Stock with the balance to be
paid in cash. Notwithstanding the foregoing, elections to receive Common Stock or Options may be
made at any time during a Compensation Year so long as such elections are made irrevocably in
advance of receiving the corresponding Common Stock or Options and approved in accordance with Rule
16b-3 under the Exchange Act.
4.3
Conversion of Retainer Fee Payment to Shares
. Each Non-Employee Director who
pursuant to Section 4.1 or 4.2 is to receive Common Stock as all or part of his or her Directors
Retainer Fee Payment with respect to a Compensation Year and who is elected or reelected or is a
continuing Non-Employee Director as of the date of commencement of such Compensation Year as of the
applicable Payment Date, shall receive as of each Payment Date during such Compensation Year a
number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of the
Directors Retainer Fee Payment to be paid in the form of Common Stock by (ii) the Fair Market
Value of the Common Stock per share on such Payment Date. Cash shall be paid in lieu of any
fractional shares.
4.4
Options
.
(a)
Annual Option Grants
. An Annual Option covering 4,000 shares of Common Stock will be
granted to each Non-Employee Director automatically at the conclusion of each Company Annual
Meeting. If, after the Effective Date, a director first becomes a Non-Employee Director on a date
other than an Annual Meeting date, an Annual Option covering 2,000 shares of Common Stock will be
granted to such director on his or her first date of Board service. The purchase price of the
Common Stock covered by each Annual Option will be the Fair Market Value of a share of Common Stock
as of the date of grant of the Annual Option.
(b)
Retainer Fees Options
. Retainer Fee Options will be granted on the Payment Dates of
each Compensation Year. The number of shares of Common Stock to be subject to a Retainer Fee Option
shall be equal to the nearest number of whole shares determined by multiplying the Fair Market
Value of a share of Company Common Stock on the date of grant by 0.3333 and dividing the result
into the applicable portion of the Directors Retainer Fee Payment elected to be received as
Options by the Non-Employee Director
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for the Compensation Year. The purchase price of each share covered by each Retainer Fee Option
shall be equal to the Fair Market Value of a share of Common Stock on the date of grant of the
Retainer Fee Option multiplied by 0.6666. The Retainer Fee Options shall be deemed granted at Fair
Market Value and any difference between Fair Market Value and the recorded exercise price of the
Retainer Fee Option shall be as a result of the prepayment of a portion of the aggregate exercise
price of the Retainer Fee Option equal to the amount of the Retainer Fee paid.
(c)
Duration and Exercise of Options
. Subject to Section 4.4(f) below, Annual Options and
Retainer Fee Options become exercisable on the first anniversary of the date on which they were
granted. Options shall terminate upon the expiration of ten years from the date of grant. No
Options may be exercised for a fraction of a share and no partial exercise of any Options may be
for less than one hundred (100) shares. The Committee shall determine the time period, including
the time period following a Termination of Service, during which the Non-Employee Director has the
right to exercise the vested Options issued pursuant to these Rules, which time period may not
extend beyond the term of the Option term. Except as limited by requirements of Section 409A or
Section 422 of the Code and regulations and rulings thereunder, the Committee may extend the term
of any outstanding Option issued pursuant to these Rules, and may extend the time period during
which vested Options issued under these Rules may be exercised, in connection with any Termination
of Service of the Non-Employee Director, and may amend any other term or condition of such Option
issued under these Rules relating to such a Termination of Service.
(d)
Purchase Price
. The purchase price for the shares shall be paid in full at the time of
exercise (i) in cash or by check payable to the order of the Company, (ii) by delivery of shares of
Common Stock of the Company already owned by, and in the possession of Options holder, or (iii) by
delivering a properly executed exercise notice together with irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan proceeds to pay the Options price (in
which case the exercise will be effective upon receipt of such proceeds by the Company). Shares of
Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market
Value on the date of exercise.
(e)
Transferability
. Options granted hereunder shall not be transferable, other than by
will or the laws of descent and distribution, and shall be exercisable during a Options holders
lifetime only by the Options holder or by his or her guardian or legal representative, except to
the extent transfer is permitted by Rule 16b-3 promulgated under the Exchange Act and approved by
the Board or its designee. Subject to the foregoing, Options shall not be assigned, pledged or
otherwise encumbered by the holder thereof, either voluntarily or by operation of law.
(f)
Termination of Directorship
. If a director ceases to be a director of the Company for
any reason other than death or removal by the Board of Directors or the stockholders, the
directors Options shall continue to vest as provided in Section 4.4 (c) above and the right of the
holder of the Option to exercise such Options shall continue until the options
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expire in accordance with Section 4.4(c). In no event may an Options be exercised after the
expiration of the period specified in Section 4.4(c). In the event of death of a director or former
director who holds an outstanding Options, all unvested Options shall automatically become fully
vested as of the date of death and the right of his or her estate or beneficiary to exercise the
Options shall terminate upon the expiration of twelve months from the date of death, but in no
event may a Options be exercised after the expiration of the term of the Option. In the event of
removal of a director from the Board of Directors, all rights of such director in a Options that
the director was entitled to exercise on the date of removal shall terminate on the 30th day (or,
if such day is not a business day, on the next business day) after the date of removal, but in no
event may such Options be exercised after the expiration of the term of the Option.
4.5
Meeting Fees
.
(a)
General
. A Non-Employee Director may elect to have all fees paid by the Company to a
Non-Employee Director for attending meetings of the Board or Committees of the Board during a
Compensation Year (Meeting Fees) either one hundred percent (100%) (i) in cash, (ii) in the form
of Common Stock, (iii) in the form of Options, or (iv) deferred under and in accordance with the
TDY Deferred Compensation Plan. If a Non-Employee Director has not made an election pursuant to
Section 4.5(b) below, Meeting Fees shall be paid in cash.
(b)
Notice
. A Non-Employee Director may file with the Secretary of the Company or other
designee of the Board prior to commencement of a Compensation Year written notice making an
election to receive any and all Meeting Fees for a Compensation Year either one hundred percent
(100%) (i) in cash, (ii) in the form of Common Stock, (iii) in the form of Options, or (iv)
deferred under and in accordance with the TDY Deferred Compensation Plan. Notwithstanding the
foregoing, in the case of a new Non-Employee Director, elections to receive Common Stock or Options
or to defer under the TDY Deferred Compensation Plan must be made within 30 days of the
commencement of status as a Non-Employee Director for the applicable Compensation Year.
(c)
Common Stock
. Each Non-Employee Director who pursuant to Section 4.5(b) is to receive
Common Stock as all of his or her Meeting Fees with respect to a Compensation Year shall receive as
of each Meeting Date during such Compensation Year a number of shares of Common Stock equal to the
quotient obtained by dividing (i) the amount of the Meeting Fee to be paid in Common Stock by (ii)
the Fair Market Value of the Common Stock per share on such Meeting Date. Cash shall be paid in
lieu of any fractional share.
(d)
Meeting Fee Options
. Meeting Fee Options will be granted on the Meeting Dates of each
Compensation Year. The number of shares of Common Stock to be subject to a Meeting Fee Options
shall be equal to the nearest number of whole shares determined by multiplying the Fair Market
Value of a share of Common Stock on the date of grant by 0.3333 and dividing the result into the
Meeting Fee elected to be received as Options by the Non-Employee Director for the applicable
Meeting Date for the Compensation Year. The purchase price of each share covered by each Meeting Fee Options shall be equal to
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the Fair
Market Value of a share of Common Stock on the date of grant of the Meeting Fee Option multiplied
by 0.6666. The provisions of clauses (c), (d), (e) and (f) of Section 4.4 of these Rules regarding
Annual Options and Retainer Fee Options shall apply to Options paid in respect of Meeting Fees.
The Meeting Fee Options shall be deemed granted at Fair Market Value and any difference between
Fair Market Value and the recorded exercise price of the Meeting Fee Option shall be as a result of
the prepayment of a portion of the aggregate exercise price of the Meeting Fee Option equal to the
amount of the Meeting Fee paid.
(e)
Meeting Date Defined
. Meeting Date means the date on which the meeting of the Board
or the Committee of the Board is held for which a Meeting Fee is payable.
4.6.
Deferral of Directors Retainer Fee Payment
(a)
Permitted Deferral of Directors Retainer Fee Payment
. Notwithstanding anything in
Article IV or these Rules to the contrary, a Non-Employee Director may elect to defer payment of,
as of a Payment Date for an applicable Compensation Year, twenty-five percent (25%), fifty percent
(50%) or seventy-five percent (75%) of his or her Directors Retainer Fee Payment under and in
accordance with the TDY Deferred Compensation Plan.
(b)
Notice of Deferral
. A Non-Employee Director may file with the Secretary of the Company
or other designee of the Board prior to commencement of a Compensation Year written notice making
an election to defer payment of twenty-five percent (25%), fifty percent (50%) or seventy-five
percent (75%) of his or her Directors Retainer Fee Payment under and in accordance with the TDY
Deferred Compensation Plan. If, for an applicable Compensation Year, a Non-Employee Director has
not made an election pursuant to Section 4.2 to receive Options or Common Stock in lieu of at least
twenty-five percent (25%) of his or her Directors Retainer Fee Payment or an election to defer
payment of a permitted percentage of his or her Directors Retainer Fee Payment, then seventy-five
percent (75%) of such Directors Retainer Fee Payment shall be paid in cash and twenty-five percent
(25%) shall be paid in the form of Common Stock.
(c)
TDY Deferred Compensation Plan
. Once the notice specified in Section 4.5(b) is timely
filed, permitted elected deferrals of a Directors Retainer Fee Payment shall be subject to the
terms and conditions, including without limitation investment elections and distribution
requirements, of the TDY Deferred Compensation Plan.
4.7
Deferral of Meeting Fees
(a)
Permitted Deferral of Meeting Fees
. Notwithstanding anything in Article IV or these
Rules to the contrary, a Non-Employee Director may elect to defer one hundred percent (100%) of his
or her Meeting Fees as of applicable Meeting Dates for any applicable Compensation Year.
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(b)
Notice of Deferral
. A Non-Employee Director may file with the Secretary of the Company
or other designee of the Board prior to commencement of a Compensation Year written notice making
an election to defer payment of one hundred percent (100%) of his or her Meeting Fees under and in
accordance with the TDY Deferred Compensation Plan.
(c)
TDY Deferred Compensation Plan
. Once the notice specified in Section 4.7(b) is timely
filed to defer payment of Meeting Fees under the TDY Deferred Compensation Plan, such permitted
elected deferrals of Meeting Fees shall be subject to the terms and conditions, including without
limitation investment elections and distribution requirements, of the TDY Deferred Compensation
Plan.
ARTICLE V.
MISCELLANEOUS
5.1.
Adjustments Upon Changes in Common Stock
. The number and kind of shares available
for issuance under the Plan pursuant to these Rules, and the number and kind of shares subject to,
and the exercise price of, outstanding Options, shall be appropriately adjusted to prevent dilution
or enlargement of rights by reason of any stock dividend, stock split, combination or exchange of
shares, recapitalization, merger, consolidation or other change in capitalization with a similar
substantive effect upon the Plan or the shares issuable under the Plan.
5.2.
Amendment and Termination
. The Committee shall have complete power and authority
to amend these Rules at any time; provided, however, that the Committee shall not, without the
affirmative approval of the shareholders of the Company, make any amendment which requires
shareholder approval under any applicable law or regulation of a national stock exchange on which
the Common Stock is traded. The Committee shall have the right and the power to terminate these
Rules at any time. No amendment or termination of the Rules may, without the consent of the
Non-Employee Director, adversely affect the right of such Non-Employee Director with respect to any
Options then outstanding.
5.3.
Requirements of Law
. The issuance of Common Stock under the Plan pursuant to
these Rules shall be subject to all applicable laws, rules and regulations and to such approval by
governmental agencies as may be required.
5.4.
No Guarantee of Membership
. Nothing in these Rules or in the Plan shall confer
upon a Non-Employee Director any right to continue to serve as a Director.
5.5
Construction
. Words of any gender used in these Rules shall be construed to
include any other gender, unless the context requires otherwise.
5.6
Governing Law
. These Rules shall be governed by, construed and interpreted in
accordance with the laws of the State of Delaware, without regard to its principles of
8
conflict of law, as to all matters, including matters of validity, construction, effect,
performance and remedies.
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