Teledyne Technologies Incorporated
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number: 1-15295
Teledyne Technologies
Incorporated
(Exact name of
registrant as specified in its charter)
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Delaware
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25-1843385
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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1049 Camino Dos Rios
Thousand Oaks, California 91360
(Address of principal executive
offices) (Zip Code)
Registrants telephone number, including area code:
(805) 373-4545
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value
$.01 per share
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New York Stock Exchange
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Preferred Share Purchase Rights
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer 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 o
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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 o No þ
The aggregate market value of the registrants Common Stock
held by non-affiliates was $1,075.8 million, based on the
closing price of a share of Common Stock on June 30, 2006
($32.76), which is the last business day of the
registrants most recently completed fiscal second quarter.
Shares of Common Stock known by the registrant to be
beneficially owned by the registrants directors and the
registrants executive officers subject to Section 16
of the Securities Exchange Act of 1934 are not included in the
computation. The registrant, however, has made no determination
that such persons are affiliates within the meaning
of
Rule 12b-2
under the Securities Exchange Act of 1934.
At February 27, 2007, there were 34,847,339 shares of the
registrants Common Stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Selected portions of the registrants proxy statement for
its 2007 Annual Meeting of Stockholders (the 2007 Proxy
Statement) are incorporated by reference in Part III
of this Report. Information required by
paragraphs (d)(1)-(3) and (e)(5) of Item 407 of
Regulation S-K
is not incorporated by reference in this
Form 10-K
or in any other filing of the registrant. Such information shall
not be deemed soliciting material or to be filed
with the Commission as permitted by Item 407 of
Regulation S-K.
INDEX
Explanatory
Notes
In this Annual Report on
Form 10-K,
Teledyne Technologies Incorporated is sometimes referred to as
the Company or Teledyne. References to
ATI mean Allegheny Technologies Incorporated,
formerly known as Allegheny Teledyne Incorporated, the company
from which we were spun-off on November 29, 1999.
For a discussion of risk factors and uncertainties associated
with Teledyne and any forward looking statements made by us, see
the discussion beginning at page 13 of this Annual Report
on
Form 10-K.
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PART I
Who We
Are
Teledyne Technologies Incorporated is a leading provider of
sophisticated electronic components, instruments and
communications products, including defense electronics,
monitoring and control instrumentation for marine, environmental
and industrial applications, data acquisition and communications
equipment for airlines and business aircraft and components, and
subsystems for wireless and satellite communications. We also
provide systems engineering solutions and information technology
services for defense, space and environmental applications, and
manufacture general aviation and missile engines and components,
as well as
on-site gas
and power generation systems.
We serve niche market segments where performance, precision and
reliability are critical. Our customers include government
agencies, aerospace prime contractors, major industrial and
communications companies and general aviation companies.
Total sales in 2006 were $1,433.2 million, compared with
$1,206.5 million and $1,016.6 million in 2005 and
2004, respectively. Our aggregate segment operating profit and
other segment income were $155.3 million,
$126.6 million and $89.2 million in 2006, 2005 and
2004, respectively. Approximately 60% of our total sales in 2006
were to commercial customers and the balance was to the
U.S. Government, as a prime contractor or subcontractor.
Approximately 47% of these U.S. Government sales were
attributable to fixed price-type contracts and the balance to
cost plus fee-type contracts. International sales accounted for
approximately 21% of total sales in 2006.
Our four business segments and their respective contributions to
our total sales in 2006, 2005 and 2004 are summarized in the
following table:
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Segment
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2006
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2005
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2004
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Electronics and Communications
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63
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%
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60
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%
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56
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%
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Systems Engineering Solutions
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20
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%
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22
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%
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24
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%
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Aerospace Engines and Components
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15
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%
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16
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%
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18
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%
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Energy Systems
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2
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%
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2
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%
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2
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%
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100
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%
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100
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%
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100
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%
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We are a Delaware corporation that was spun off from ATI as an
independent company on November 29, 1999. In February 2007,
our principal executive offices relocated to 1049 Camino Dos
Rios, Thousand Oaks, California 91360. Our telephone number is
(805) 373-4545.
Strategy
Our strategy continues to emphasize growth in our core markets
of defense electronics, instrumentation and government systems
engineering. 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.
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Our
Recent Acquisitions
During 2006, we engaged in a number of acquisitions intended to
expand and strengthen our product and service offerings in our
core instrumentation and defense markets.
Marine
Instrumentation
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On January 27, 2006, we acquired Benthos, Inc.
(Benthos), a manufacturer of oceanographic products
and package inspection systems located in North Falmouth,
Massachusetts. This acquisition complements and expands our
underwater acoustic product lines, including the cable streamer
arrays of hydrophones manufactured by Teledyne Geophysical
Instruments for offshore oil and gas exploration and the
acoustic Doppler products of Teledyne RD Instruments, Inc. that
measure the speed of ocean and river currents as well as surface
and underwater vehicles. The aggregate consideration for the
outstanding Benthos shares was approximately $40.6 million
(including payments for the settlement of outstanding stock
options) or $32.2 million taking into consideration
$8.4 million of cash acquired.
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On August 16, 2006, we acquired an initial majority
interest in Ocean Design, Inc. (ODI), a leading
manufacturer of subsea, wet-mateable electrical and fiber-optic
interconnect systems used in offshore oil and gas production,
oceanographic research, and military applications, headquartered
in Daytona Beach, Florida. ODIs products are closely
related to both our expanding line of undersea acoustic
instrumentation and to our military high-voltage connectors and
cables. In the offshore oil and gas market, ODIs position
in production complements our existing exploration and offshore
drilling products. At December 31, 2006, total cash paid,
including the initial investment and subsequent share purchase,
net of cash acquired was $34.4 million.
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Defense
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On April 28, 2006, Teledyne Wireless, Inc. acquired assets
of KW Microwave Corporation (KW Microwave), a
manufacturer of defense microwave components and subsystems
located in Southern California. The addition of specialized
filters bolsters Teledyne Microwaves multiple function
product capabilities. Total cash paid, including the receipt of
a $0.2 million purchase price adjustment, was
$10.3 million.
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On August 16, 2006, we acquired Colorado Springs,
Colorado-based CollaborX, Inc. (CollaborX), a
provider of government engineering services primarily to the
U.S. Air Force and also to select joint military commands,
such as the Missile Defense Agency, the United States Joint
Forces Command and the United States Northern Command. We made
this acquisition in order to increase our capability of
providing systems engineering services throughout a
systems acquisition lifecycle, from concept development to
sustainment and support. At December 31, 2006, total cash
paid, including other fees, net of cash acquired was
$14.9 million.
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On September 15, 2006, we acquired Southern
California-based Rockwell Scientific Company LLC.
(Scientific Company), a leading provider of research
and development services to the Department of Defense, NASA and
major defense and aerospace companies, as well as a leader in
developing and manufacturing infrared and visible light imaging
sensors for surveillance applications. The companys
extensive R&D capabilities for microwave and millimeter-wave
semiconductors, RF MEMS and very high speed mixed signal
circuits are complementary to several of our business units that
manufacture microwave components and subsystems for military
radar, electronic warfare and communications systems. We believe
that the combination of our existing defense electronics
manufacturing capabilities with the acquired advanced imaging
technology should accelerate development and production of next
generation tactical infrared sensors and subsystems. At
December 31, 2006, total cash paid, including other fees,
net of $9.5 million of cash acquired was
$158.6 million.
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Teledyne spent $250.4 million, net of cash acquired, on
these acquisitions in 2006.
Each of the acquisitions, except for CollaborX, is part of the
Electronics and Communications segment. CollaborX, now Teledyne
Brown CollaborX, Inc., is part of the Systems Engineering and
Solutions segment.
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The results of all of our acquisitions are included in our
consolidated financial statements since the respective
acquisition dates of the acquired businesses.
Available
Information
Our Annual Report on
Form 10-K,
our Quarterly Reports on
Form 10-Q,
any Current Reports on
Form 8-K,
and any amendments to these reports, are available on our
Internet website as soon as reasonably practicable after we
electronically file such materials with, or furnish them to, the
SEC. In addition, our Corporate Governance Guidelines, our
Corporate Objectives and Guidelines for Employee Conduct, our
codes of ethics for financial executives and service providers
and the charters of the standing committees of our Board of
Directors are available on our website. Our website address is
www.teledyne.com.
You will be responsible for any costs normally associated with
electronic access, such as usage and telephone charges.
Alternatively, if you would like a paper copy of any such
Securities and Exchange Commission (SEC) report
(without exhibits) or document, please write to John T. Kuelbs,
Executive Vice President, General Counsel and Secretary,
Teledyne Technologies Incorporated, 1049 Camino Dos Rios,
Thousand Oaks, California 91360, and a copy of such requested
document will be provided to you, free of charge.
In April 2006, we submitted to the New York Stock Exchange the
CEO certification required by Section 303A.12(a) of the New
York Stock Exchange Listed Company Manual. The certification was
not qualified in any respect. Additionally, we filed with the
SEC as exhibits to this
Form 10-K
the CEO and CFO certifications required under Section 302
of the Sarbanes-Oxley Act of 2002.
Our
Business Segments
Financial information about our business segments can be found
in Note 13 to our consolidated financial statements
appearing elsewhere in this Annual Report on
Form 10-K.
Electronics
and Communications
Our Electronics and Communications segment provides a wide range
of specialized electronic systems, instruments, components and
services that address niche market applications in defense,
industrial, commercial aerospace, communications, scientific and
medical markets.
Defense Electronics, Products and Services
Traveling Wave Tubes. Our helix traveling wave
tubes are used to provide broadband power amplification of
microwave signals. Military applications include radar,
electronic warfare and satellite communication. Commercial
applications for traveling wave tubes include electromagnetic
compatibility test equipment and satellite communication
terminals for mobile newsgathering.
Microwave Components and Subsystems. We
design, develop, and manufacture RF and microwave components and
subassemblies used in aerospace and defense applications,
including electronic warfare and radar. With the 2005
acquisition of Cougar Components Corporation
(Cougar), our products include cascadable
amplifiers, voltage-controlled oscillators and microwave mixers.
The 2006 acquisition of assets of KW Microwave added RF
filters, multiplexers and diplexers.
High Voltage Connectors and
Subassemblies. Through Teledyne Reynolds, Inc.,
we supply specialized high voltage connectors and subassemblies
for defense, aerospace and industrial applications. We also
produce pilot helmet mounted display components and subsystems
for the Joint Helmet Mounted Cueing System used in the F-15,
F-16 and F-18 aircrafts. This system is designed to give
military pilots the ability to designate a target just by
looking at it.
Microelectronic Modules. We develop and
manufacture custom microelectronic modules that provide both
high reliability and extremely dense packaging for military
applications. We also develop custom tamper-resistant
microcircuits designed to provide enhanced security in military
communication.
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Imaging Sensors. Through Teledyne Imaging
Sensors, we design and produce advanced focal plane arrays,
sensors, and subsystems covering a broad spectrum of light from
below 0.3 micron ultra-violet to 18 micron long-wave infrared.
We provide large focal plane array sensors for both military and
space-science markets. We are one of two companies selected by
the U.S. Army to develop manufacturing processes to support
production of third generation dual band infrared imagers
designed to allow members of the armed forces to identify
threats on the battlefield before the enemy can detect their
presence. Our customers rely on us for solutions ranging from
standard imaging products to custom products integrated with
electronics and optical systems. Teledyne Imaging Sensors also
designs and manufactures advanced military laser protection
eyewear.
Sequencers. Teledyne Electronic Safety
Products continues to provide microprocessor-controlled aircraft
ejection seat sequencers and related support elements to
military aircraft programs, including the
F/A-18E/F
and F/A-22.
We have commenced production under a five-year contract, which
began during the fourth quarter of 2006, of the Digital Recovery
Sequencer to support the F-15, F-16, F22, F-117,
A-10, B-1
and B-2 aircrafts. We also have developed a new sequencer in
support of the F-35 Joint Strike Fighter program for which low
rate initial production is expected to begin in 2007.
Relays and Switches. Teledyne Relays supplies
electromechanical relays, solid-state power relays and coaxial
switching devices to military and aerospace markets.
Research and Development Services. Through
Teledyne Scientific Company, we provide research and engineering
services primarily in the areas of electronics, information
sciences and materials technology. Our scientific team delivers
research and development services and specialty products to
military, aerospace and industrial customers.
Electronic Manufacturing Services. We serve
the market for high-mix, low-volume manufacturing of
sophisticated military electronics equipment principally from
our facility in Tennessee.
Teledyne
Instruments
During 2001, we formed Teledyne Instruments, a group of business
units drawn from our Electronics and Communications segment and
our Systems Engineering Solutions segment, to focus on
monitoring and process control instrumentation. Since then,
through acquisitions, we have greatly expanded our presence in
the marine and environmental instrumentation markets.
Marine Instrumentation. Historically, we have
manufactured geophysical streamer cables, hydrophones and
specialty products used in offshore hydrocarbon exploration to
locate oil and gas reserves beneath the ocean floor. We continue
to adapt this technology for the military market, where these
products can be used to detect submarines, surface ships and
torpedoes.
With the acquisitions of RD Instruments, Inc., Benthos and most
recently our majority interest in ODI, we have expanded our
underwater acoustic and marine instrumentation capabilities.
Teledyne RD Instruments, Inc.s acoustic Doppler current
profilers perform precise measurement of currents at varying
depths in oceans and rivers, and its Doppler Velocity Logs are
used for navigation of civilian and military surface ships and
unmanned underwater vehicles and by U.S. Navy divers.
Teledyne Benthos manufactures oceanographic products used by the
U.S. Navy, energy exploration, oceanographic research and
port and harbor security services. Its products include acoustic
modems for networked underwater communication, a
three-dimensional sidescan sonar system and remotely operated
underwater vehicles. ODI manufactures subsea, wet-mateable
electrical and fiber-optic interconnect systems used in offshore
oil and gas production, oceanographic research and military
applications.
Environmental Instrumentation. As a result of
our acquisitions, we offer a wide range of products for
environmental monitoring. Teledyne Advanced Pollution
Instrumentation, Inc. manufactures a broad line of
instrumentation for monitoring low levels of gases such as
sulfur dioxide, carbon monoxide and ozone in the air we breathe.
Teledyne Monitor Labs, Inc. supplies environmental monitoring
systems for the detection, measurement and reporting of air
pollutants from industrial stack emissions. Teledyne Tekmar
Company manufactures instruments that automate the preparation
and concentration of drinking water and wastewater
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samples for the analysis of volatile organic compounds in gas
chromatographs. It also provides laboratory analytical systems
for the detection of total organic carbon. Through Teledyne
Leeman Labs, we provide inductively coupled plasma laboratory
spectrometers that are used by environmental and quality control
laboratories to detect low levels of inorganic contaminants in
water and other environmental samples.
Teledyne Isco, Inc. (Teledyne Isco) produces water
quality monitoring products such as wastewater samplers and open
channel flow meters. Flow meters detect leaks in sewer systems
and monitor run off in storm drains. Teledyne Isco also
manufactures chromatography instruments and accessories for
purification of organic compounds. Its liquid chromatography
customers include pharmaceutical laboratories involved in drug
discovery and development. Additionally, Teledyne Isco
manufactures chemical separation instrumentation for industrial
and research use.
Industrial Gas Analysis. Teledyne Analytical
Instruments was a pioneer in the development of precision oxygen
analyzers and now offers a broad range of products with various
sensitivities for petrochemical, semiconductor manufacturing and
other industrial applications. We also manufacture analyzers for
a variety of other gases for such market applications. In
addition, we sell gas analyzers to a leading supplier of carbon
dioxide to the food and beverage market.
Vacuum and Flow Measurement. Teledyne Hastings
Instruments manufactures a broad line of instruments for precise
measurement and control of vacuum and gas flows. Our instruments
are used in varied applications such as semiconductor
manufacturing, refrigeration, metallurgy and food processing.
Package Inspection Systems. Since the
acquisition of Benthos, under the
Taptone®
brand, we develop quality control equipment for flexible
plastic, glass and other packaging used in the beverage, food
and pharmaceutical markets.
Test Services. We manufacture torque sensors
and provide technical services for critical applications such as
monitoring valves in nuclear power plants.
Other
Commercial Electronics
Aircraft Information Management. Our aircraft
information management solutions are designed to increase the
reliability and efficiency of airline transportation. Through
Teledyne Controls, we are a leading supplier of digital flight
data acquisition and flight safety systems to the civil aviation
market. These systems acquire data for use by the
aircrafts flight data recorder as well as record
additional data for the airlines operation, such as
aircraft and engine condition monitoring. We also provide the
means to transfer this data, using Teledynes patented
wireless technology, from the aircraft to the airline operation
center. Additionally, we provide flight data monitoring services
to analyze the acquired data and to drive our flight data
visualization and animation products. Our data acquisition
systems are certified on the Airbus A320 and A330/340 and Boeing
737-NG and
747-400
aircraft. We estimate that our forward fit market share for such
systems was approximately 50% at the end of 2006. In addition,
our Aviation Information Solutions (AIS) business
designs and manufactures aerospace Electronic Flight Bag
equipment, networking products, and flight deck and cabin
displays.
Microelectronic Modules. In addition to
military microelectronic modules, we develop and manufacture
custom microelectronic modules that provide both high
reliability and extremely dense packaging for implantable
medical devices, such as pacemakers and defibrillators, and
commercial communication products.
Relays and Switches. In addition to military
and aerospace markets, Teledyne Relays supplies
electromechanical relays, solid-state power relays and coaxial
switching devices to industrial and commercial markets.
Applications include microwave and wireless communication
infrastructure, RF and general broadband test equipment, test
equipment used in semiconductor manufacturing, and industrial
and commercial machinery and control equipment.
Wireless Transceivers and Amplifiers. Our line
of integrated transceiver modules provides high data rate
point-to-point
connectivity in cellular telephone infrastructure. We also
supply microwave devices used in satellite uplink applications.
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Connectors. We manufacture custom surface
mount connectors for applications in computer disk drives and
consumer medical electronic devices.
Electronics Equipment and Printed Circuit Card
Assembly. We serve the market for high-mix,
low-volume manufacturing of electronic products.
Systems
Engineering Solutions
Our Systems Engineering Solutions segment, principally through
Teledyne Brown Engineering, Inc., (TBE) applies the
skills of its extensive staff of engineers and scientists to
provide innovative systems engineering and integration, advanced
technology application, software development, and manufacturing
solutions to space, military, environmental and missile defense
requirements.
Defense
Teledyne Brown Engineering is a well-recognized full-service
missile defense contractor with over 50 years of experience
in missile defense and related systems integration. Our diverse
customer base in this field includes the U.S. Army Aviation
and Missile Command (AMCOM), the
U.S. Armys Space and Missile Defense Command
(SMDC), the Missile Defense Agency (MDA)
and Defense Department major prime contractors.
We play significant roles in diverse missile defense areas,
which include targets and countermeasures, systems engineering,
modeling and simulation, test and evaluation, and complex
hardware-in-the-loop
integration. Our engineering and technological services include
systems design, development, integration and testing, with
specialization in real-time distributed systems.
During 2006, we continued our long-standing support of several
missile defense programs, including the Ground-based Midcourse
Defense (GMD) Program, Missile Defense Systems
Exerciser and, as part of the Lockheed Martin team, the Targets
and Countermeasures Program. These programs involve the test and
verification of ballistic missile defense system performance on
a large number of major programs, including the Airborne Laser,
the Kinetic Energy Interceptor, the Ground-based Midcourse
Defense, Aegis Ballistic Missile Defense, the Patriot Advanced
Capability 3, and the Terminal High Altitude Area Defense
(THAAD). Additionally, we continue to work on an
enhanced test program to support an integrated test lab for the
GMD system.
In addition to our missile defense activities, we are supporting
several other U.S. Army programs. Supported programs
include the Armys Future Combat System Multifunctional
Utility/Logistics and Equipment and Patriot Missile development
for the Lower Tier Project Office. Tasking spans complex
hardware integration and software testing, verification and
validation.
With the 2006 acquisition of CollaborX, we extended our
capabilities to include full system acquisition lifecycle
support from concept development to sustainment. CollaborX
provides engineering services to the U.S. Air Force,
U.S. Army, Office of Secretary of Defense, Missile Defense
Agency and select military combatant commands such as the
U.S. Joint Forces Command, U.S. Strategic Command, and
U.S. Northern Command. CollaborX provides the Air Force
with operational and systems expertise in the development, test,
integration, and fielding of new Command and Control and
Intelligence, Surveillance and Reconnaissance capabilities for
major Air Force weapons systems. CollaborXs services
complement TBEs support to the Army and NASA.
Aerospace
We have been active in U.S. space programs for almost
50 years and continue to be a significant contributor to
NASA programs. TBE was awarded NASAs 2006 George M. Low
Award in the Large Business Service Category. This award is
NASAs highest honor recognizing contractor quality and
technical performance.
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We have played a key role in the International Space Station
(ISS), and have had various roles in the Space
Shuttle program. We supply
24-hour-per-day
service for the payload operation cadre for the ISS Payload
Operations and Integration Center, located at NASAs
Marshall Space Flight Center. As a subcontractor to Lockheed
Martin, we also work on the ISS Cargo Mission Contract at the
Johnson Space Center. This six-year contract, which began in
2003, involves providing services related to planning,
preparation and execution of cargo missions to the ISS.
We are the prime contractor on the Marshall Space Flight Center
Systems Development and Operations Support Contract, which
provides engineering services and hardware development support
for a variety of space activities. We have been the prime
contractor for the Propellants, Pressurants and Calibration
Services Contract at Marshall Space Flight Center since 1971.
Under that contract we furnish management, personnel, equipment
and materials to operate and maintain the propellant and
pressurant generating systems, storage and distribution systems,
as well as management and operation of the calibration
facilities at the Marshall Space Flight Center.
Environmental
Systems
We support the U.S. Governments efforts to clean up
dangerous materials and waste. Since 1996, we have supported the
U.S. Armys Non-Stockpile Chemical Materiel Program
and we continue to operate the U.S. Armys Rapid
Response System, a mobile chemical waste treatment system used
to process chemical agents for disposal. These chemical agents
had been used in the past to train military personnel in the
detection, measurement and decontamination of dangerous
chemicals. We also began applying sophisticated computer aided
engineering, design, modeling and manufacturing skills to
support the U.S. Armys Edgewood Chemical and
Biological Center. In addition, we produce canisters for the
processing, stabilization and storage of nuclear-waste products.
We operate a Department of Energy-certified radiological
analysis services laboratory in Knoxville, Tennessee. This
laboratory has received certification from the National
Environmental Laboratory Accreditation Program in
12 states, including Utah where the largest commercial
radiological waste disposal site resides. With its Nuclear
Utilities Procurement Issues Committee certification, the
laboratory also serves one-third of the nuclear power plants in
United States.
Teledyne
Solutions, Inc.
Through Teledyne Solutions, Inc., we are a primary Missile
Defense systems engineering contractor for the U.S. Army.
Teledyne Solutions is a principal prime contractor for the
Systems Engineering and Technical Assistance Contract in support
of the U.S. Army Space and Missile Defense Command. We also
provide engineering and services support to other major
Department of Defense customers including the Missile Defense
Agency, the Program Executive Office for Missiles and Space, the
Defense Threat Reduction Agency, and the U.S. Army Aviation
and Missile Command.
Aerospace
Engines and Components
Our Aerospace Engines and Components segment focuses on the
design, development and manufacture of piston engines, turbine
engines, electronic engine controls and aviation batteries.
Piston
Engines
Principally through Teledyne Continental Motors, Inc., we
design, develop and manufacture piston engines, ignition
systems, and aftermarket engines and spare parts for general
aviation airframe manufacturers and the aftermarket. We are one
of two primary worldwide original equipment producers of piston
aircraft engines for the general aviation marketplace.
Our current OEM product lines include engines for the Cirrus
SR-20 and SR-22, the Diamond C1, Lancair Columbia 350 and 400
series, the Liberty XL2, twin-engine Adam A500, Beech Bonanza
and Baron aircraft, Mooney Ovation and Acclaim lines, and the
Piper Seneca V twin-engine aircraft.
7
In addition to the sales of OEM engines, we actively support the
replacement aircraft engine aftermarket. Piston aircraft engines
have a FAA authorized time between overhauls. Our aftermarket
support includes building and rebuilding of complete engines, as
well as providing a full complement of spare parts such as
cylinders, crankcases, fuel systems, crankshafts, camshafts and
ignition products. In addition, through Teledyne Mattituck
Services, Inc., located in Long Island, New York, and our
Fairhope, Alabama service center, we serve as an aftermarket
supplier of overhauled piston engines and engine installations
to the general aviation marketplace for both Teledyne
Continental Motors and Textron Lycoming aircraft engines.
Through Aerosance, Inc., we developed the first production full
authority digital electronic controls for piston aircraft
engines. These controls, known as
PowerLinktm
FADEC (Full Authority Digital Electronic Control), are designed
to automate many functions that currently require manual
control, such as fuel flow and power management. This system
also saves fuel as a result of improved engine management and
facilitates electronic-centered maintenance of our engines We
have developed and are certifying FADEC-equipped engines
targeted at the most popular OEM and aftermarket models of four
and six cylinder piston aircraft engines of the general aviation
fleet. We continue to believe that these control systems will
become standard equipment on selected new aircraft and will be
retrofitted on higher-end piston engine general aviation
aircraft.
In addition, our
Gill®
line of lead acid batteries is widely recognized as the premier
power source for general aviation. We have developed sealed
recombinant batteries for business and light jet applications.
Teledyne Battery Products, in conjunction with Teledyne
Controls, jointly developed an onboard charging and cockpit
display kit that permits existing NiCad battery systems to be
replaced with
Gill®
sealed lead acid batteries.
Turbine
Engines
We design, develop and manufacture small turbine engines
primarily used in tactical missiles for military markets.
Our J402 engine powers the Harpoon missile system. Derivatives
of this engine power the Standoff Land Attack Missile and the
Standoff Land Attack Missile-Expanded Response. Lockheed Martin
Corporation selected a derivative of the J402 engine to power
the Joint
Air-to-Surface
Standoff Missile (JASSM). We are the sole source
provider of engines for the baseline JASSM system.
Our J700 engine provides the turbine power for the Improved
Tactical Air Launched Decoy (ITALD) built for the
U.S. Navy. The ITALD system enhances combat aircraft
survivability by both serving as a decoy and identifying enemy
radar sources.
In 2006, we continued to work under a contract related to the
U.S. Armys Future Combat System for the development
of new and derivative turbine engines for unmanned air vehicles,
commonly called UAVs, and other future aircraft.
Energy
Systems
Our Energy Systems segment, through Teledyne Energy Systems,
Inc., provides hydrogen gas generators and thermoelectric and
fuel cell-based power sources. Teledyne Energy Systems, Inc., a
majority owned subsidiary of Teledyne, was formed in 2001 by
combining Teledyne Brown Engineerings Energy Systems
business unit with assets and intellectual properties of then
Florida-based Energy Partners, Inc.
We manufacture hydrogen/oxygen gas generators that utilize the
principle of electrolysis to convert water into high purity
hydrogen gas at useable pressures. Our Teledyne
Titantm
gas generators are used worldwide in electrical power generation
plants, semiconductor manufacturing, optical fiber production,
chemical processing, specialty metals, float glass and other
industrial processes. Historically, our sales of hydrogen
generators have been largely to developing countries. Over the
last few years, the combination of rising hydrogen prices and
weather-induced supply disruptions has increased our sales and
sales opportunities in the North American market.
For over 50 years, we have supplied high reliability energy
conversion devices and gas generation products based on
thermoelectric and electrochemical processes. We provided the
thermoelectric power
8
systems for the Pioneer 10 and 11 deep-space missions to Jupiter
and Saturn and for the Viking 1 and Viking 2 Mars Landers.
In 2006, in partnership with Boeing and under a ten-year
$57 million contract signed in 2003 with the
U.S. Department of Energy, we completed all of the testing
of the Multi-Mission Radioisotope Thermoelectric Generator
capable of supporting planetary landing and deep space probe
missions. Based on the success of the test phase, we received
approval to begin production in 2007 of this generator for
potential use to power the Mars Science Laboratory scheduled to
launch in 2009.
In conjunction with its thermoelectric power systems for space,
we also have ongoing development and prototyping work with NASA
on PEM fuel cell stacks and systems. These systems are being
developed in support of potential manned and robotic missions to
the moon and Mars.
We have a line of fuel cell test stations designed to provide a
completely integrated system for fuel cell testing for the PEM
fuel cell development market. Our Medusa line of fuel cell test
systems provides high quality, simple to use automated test
stations for fuel cell and fuel cell stack testing up to 12
kilowatts.
Customers
We have hundreds of customers in the electronics,
communications, aerospace and defense industries. No commercial
customer accounted for more than 10% of our total sales during
2006, 2005 or 2004.
Approximately 40%, 42%, and 43% of our total sales for 2006,
2005 and 2004, respectively, were derived from contracts with
agencies of, and prime contractors to, the U.S. Government.
Our principal U.S. Government customer is the
U.S. Department of Defense. These sales represented 30%,
32% and 33% of our total sales for 2006, 2005 and 2004,
respectively. In 2006 and 2005, our largest program with the
U.S. Government was the Systems Engineering and Technical
Assistance contract with the Space and Missile Defense Command,
and it represented 4.9% and 5.5% of total sales, respectively.
In 2004, our largest program with the U.S. Government was
The Boeing Company Ground-based Midcourse Defense
contract, representing 5.4% of total sales. Set forth below are
sales by our segments to agencies and prime contractors to the
U.S. Government for the periods presented:
U.S. Government
Sales
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2006
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2005
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|
|
2004
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(In millions)
|
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Electronics and Communications
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$
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249.1
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|
|
$
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198.5
|
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|
$
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147.3
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|
Systems Engineering Solutions
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|
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278.9
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|
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260.0
|
|
|
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240.4
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Aerospace Engines and Components
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24.9
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32.3
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26.0
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Energy Systems
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16.5
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19.8
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19.4
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|
|
|
|
|
|
|
|
|
|
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Total U.S. Government sales
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$
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569.4
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$
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510.6
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$
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433.1
|
|
|
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|
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|
|
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|
Our total backlog of confirmed orders was approximately
$582.4 million at December 31, 2006,
$521.9 million at January 1, 2006 and
$471.3 million at January 2, 2005. We expect to
fulfill 98% of such backlog of confirmed orders during 2007.
International sales accounted for approximately 21% of total
sales in 2006, as compared to 18% in 2005 and 19% in 2004. In
2006 we sold products to customers in over 100 foreign
countries. Ninety percent of our sales to foreign customers were
made to customers in 25 foreign countries.
Sales and
Marketing
Our sales and marketing approach varies by segment and by
products within our segments. A shared fundamental tenet is the
commitment to work closely with our customers to understand
their needs, with an aim to secure preferred supplier and
longer-term relationships.
Our business segments use a combination of internal sales
forces, distributors and commissioned sales representatives to
market and sell our products and services. As part of on-going
acquisition integration efforts, some of our Teledyne
Instruments companies continue to consolidate internal sales and
servicing efforts.
9
Products are also advertised in appropriate trade journals and
by means of various websites. To promote our products and other
capabilities, our personnel regularly participate in relevant
trade shows and professional associations.
Many of our government contracts are awarded after a competitive
bidding process in which we seek to emphasize our ability to
provide superior products and technical solutions in addition to
competitive pricing.
Through Teledyne Technologies International Corp. and other
subsidiaries, the Company has established offices in foreign
countries to facilitate international sales for various
businesses.
Competition
We believe that technological capabilities and innovation and
the ability to invest in the development of new and enhanced
products are critical to obtaining and maintaining leadership in
our markets and the industries in which we compete. Although we
have certain advantages that we believe help us compete
effectively in our markets, each of our markets is highly
competitive. Our businesses vigorously compete on the basis of
quality, product performance and reliability, technical
expertise, price and service. Many of our competitors have, and
potential competitors could have, greater name recognition, a
larger installed base of products, more extensive engineering,
manufacturing, marketing and distribution capabilities and
greater financial, technological and personnel resources than we
do.
Research
and Development
Our research and development efforts primarily involve
engineering and design related to improving product lines and
developing new products and technologies in the same or similar
fields. We spent a total of $307.0 million,
$291.5 million, and $263.3 million on research and
development and bid and proposal costs for 2006, 2005, and 2004,
respectively. Customer-funded research and development, most of
which was attributable to work under contracts with the
U.S. Government, represented approximately 83%, 85%, and
88% of total research and development costs for 2006, 2005, and
2004, respectively.
In 2006, approximately 80.2% of the $55.5 million in
Company-funded research and development and bid and proposal
costs were incurred in our electronics and communications
businesses. We expect the level of Company-funded research and
development and bid and proposal costs to be approximately
$60.7 million in 2007.
Intellectual
Property
While we own and control various intellectual property rights,
including patents, trade secrets, confidential information,
trademarks, trade names, and copyrights, which, in the
aggregate, are of material importance to our business, our
management believes that our business as a whole is not
materially dependent upon any one intellectual property or
related group of such properties. We own several hundred active
patents and are licensed to use certain patents, technology and
other intellectual property rights owned and controlled by
others. Similarly, other companies are licensed to use certain
patents, technology and other intellectual property rights owned
and controlled by us. As part of our acquisition of Scientific
Company in September 2006, we licensed certain intellectual
property of the acquired company to Rockwell Automation and
Rockwell Collins.
Patents, patent applications and license agreements will expire
or terminate over time by operation of law, in accordance with
their terms or otherwise. We do not expect the expiration or
termination of these patents, patent applications and license
agreements to have a material adverse effect on our business,
results of operations or financial condition.
Employees
Our total current workforce consists of approximately 7,700
employees. The International Union of United Automobile,
Aerospace and Agricultural Implement Workers of America
represents approximately 290 active employees in Mobile, Alabama
under a collective bargaining agreement that expired by its
terms on
10
February 20, 2007. This union also represents approximately
35 of our active employees in Toledo, Ohio under a collective
bargaining agreement that expires by its terms on
November 10, 2009. We consider our relations with our
employees to be good.
Executive
Management
Teledynes executive management includes:
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Name and Title
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Age
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|
Principal Occupations Last 5 Years
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Executive Officers:
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Robert Mehrabian*
Chairman, President and Chief Executive Officer; Director
|
|
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65
|
|
|
Dr. Mehrabian has served as
Chairman, President and Chief Executive Officer of Teledyne for
more than five years. He is a director of Teledyne, Mellon
Financial Corporation and PPG Industries, Inc.
|
John T. Kuelbs*
Executive Vice President, General Counsel and Secretary
|
|
|
64
|
|
|
Mr. Kuelbs has been Executive Vice
President, General Counsel and Secretary of Teledyne since
September 1, 2005. Prior to that, he was Senior Vice
President, General Counsel and Secretary of Teledyne.
|
Dale A. Schnittjer*
Senior Vice President and Chief Financial Officer
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|
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62
|
|
|
Mr. Schnittjer has been Senior
Vice President and Chief Financial Officer of the Company since
September 1, 2005. From January 27, 2004 to
September 1, 2005, he was Vice President and Chief
Financial Officer of Teledyne. He had served as interim Chief
Financial Officer since July 7, 2003. Mr. Schnittjer
first became a Vice President on December 19, 2001, and had
been the Controller of Teledyne from November 29, 1999 to
January 27, 2004. Mr. Schnittjer also served as Acting
Chief Financial Officer and Treasurer of Teledyne from
June 1, 2000 to October 3, 2000.
|
Susan L. Main*
Vice President and Controller
|
|
|
48
|
|
|
Ms. Main has been Vice President
and Controller of the Company since March 2004. Prior to joining
the Company, Ms. Main served as Vice President Controller
of Water Pik Technologies, Inc. from November 29, 1999 to
March 2004.
|
Segment Management:
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James M. Link*
President, Teledyne Brown
Engineering, Inc.
|
|
|
64
|
|
|
Retired Lieutenant General Link
has been the President of Teledyne Brown Engineering since July
2001. Prior to that, Mr. Link served as Senior Vice
President of Science Applications International Corporation
(SAIC) Applied Technology Group in Huntsville, Alabama.
Mr. Link is a director of Dewey Electronics Corporation and
Superior Bancorp.
|
Aldo Pichelli*
Senior Vice President and Chief Operating Officer, Electronics
and Communications Segment
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|
|
55
|
|
|
Mr. Pichelli has been Senior Vice
President and Chief Operating Officer of Teledynes
Electronics and Communications segment since July 22, 2003.
Prior to that, he served as Vice President and General Manager
of Teledyne Instruments since its formation in 2001. Prior to
that, Mr. Pichelli was the Vice President and General
Manager of Teledyne Analytical Instruments.
|
Bryan L. Lewis
President, Teledyne Continental Motors, Inc.
|
|
|
58
|
|
|
Mr. Lewis has been the President
of Teledyne Continental Motors for more than five years.
|
Rhett Ross
President, Teledyne Energy Systems, Inc.
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|
|
42
|
|
|
Mr. Ross has been President of
Teledyne Energy Systems, Inc. since its formation in June 2001
for the purposes of the transaction with Energy Partners, Inc.
Prior to that, he was General Manager of the Teledyne Energy
Systems business unit.
|
11
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|
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Name and Title
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Age
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Principal Occupations Last 5 Years
|
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Other Officers:
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Ivars R. Blukis
Chief Business Risk Assurance Officer
|
|
|
64
|
|
|
Mr. Blukis has been Chief Business
Risk Assurance Officer since January 22, 2002 and is
responsible for the internal audit function. Prior to that,
Mr. Blukis was the Vice President, Finance and
Administration, for Teledyne Electronics Technologies.
|
Melanie S. Cibik
Vice President, Associate General Counsel and Assistant Secretary
|
|
|
47
|
|
|
Miss Cibik has been Vice
President, Associate General Counsel and Assistant Secretary of
the Company for more than five years.
|
Shelley D. Green
Treasurer
|
|
|
48
|
|
|
Ms. Green has been the Treasurer
of Teledyne for more than five years.
|
Robyn E. McGowan
Vice President, Administration and Human Resources and Assistant
Secretary
|
|
|
42
|
|
|
Ms. McGowan has been Vice
President Administration and Human Resources of the
Company since April 2003 and Vice President
Administration since December 2000. Prior to becoming a Vice
President, she served as Director of Administration. She has
been an Assistant Secretary of Teledyne since November 29,
1999.
|
Robert L. Schaefer
Associate General Counsel and Assistant Secretary, General
Counsel of the Electronics and Communications Segment
|
|
|
61
|
|
|
Mr. Schaefer has been an Associate
General Counsel and an Assistant Secretary of Teledyne and the
General Counsel of Teledynes Electronics and
Communications segment for more than five years.
|
Robert W. Steenberge
Vice President and Chief Technology Officer
|
|
|
59
|
|
|
Mr. Steenberge became a Vice
President of the Company on February 21, 2006, and has been
Teledynes Chief Technology Officer for more than five
years.
|
Jason VanWees, Vice President,
Corporate Development and Investor Relations
|
|
|
35
|
|
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Mr. VanWees has been the Vice
President, Corporate Development and Investor Relations since
February 21, 2006. Prior to that, he was Director of
Corporate Development and Investor Relations of Teledyne for
more than five years.
|
|
|
|
* |
|
Such officers are subject to the reporting and other
requirements of Section 16 of the Securities Exchange Act
of 1934, as amended. |
Dr. Mehrabian and Teledyne have entered into a Second
Amended and Restated Employment Agreement dated as of
January 24, 2006. The agreement provides that we will
employ him as the Chairman, President and Chief Executive
Officer. The agreement terminates on December 31, 2007, but
will automatically be extended annually unless either party
gives the other written notice prior to October 31 of the
year of such term that it will not be extended. Under the
agreement, Dr. Mehrabians annual base salary is
$750,000. The agreement provides that Dr. Mehrabian is
entitled to participate in Teledynes annual incentive
bonus plan and other executive compensation and benefit
programs. The agreement provides Dr. Mehrabian with a
non-qualified pension arrangement, under which Teledyne will pay
him starting six months following his retirement, as payments
supplemental to any accrued pension under our qualified pension
plan, an amount equal to 50% of his base compensation as in
effect at retirement. The number of years for which such annual
amount shall be paid will be equal to the number of years of his
service to Teledyne (including service to ATI), but not more
than 10 years. On January 23, 2007, without amending
the Second Amended and Restated Employment Agreement,
Teledynes Board of Directors asked Dr. Mehrabian to
continue to serve as its Chairman, President and Chief Executive
Officer through at least December 31, 2009.
Fifteen current members of management have entered into Change
in Control Severance Agreements with Teledyne. The agreements
have a three-year, automatically renewing term. Under the
agreements, the executive is entitled to severance benefits if
(1) there is a change in control of Teledyne and
(2) within three months
12
before or 24 months after the change in control, either we
terminate the executives employment for reasons other than
for cause or the executive terminates employment for good
reason. Severance benefits consist of:
|
|
|
|
|
A cash payment equal to three times (in the case of
Dr. Mehrabian, Messrs. Kuelbs, Schnittjer and Link and
one other executive) or two times (in the case of Mr. Pichelli
and nine other executives) the sum of (i) the
executives highest annual base salary within the year
preceding the change in control and (ii) the AIP bonus
target for the year in which the change in control occurs or the
actual bonus payout for the year immediately preceding the
change in control, whichever is higher.
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A cash payment for the current AIP bonus cycle based on the
fraction of the year worked times the AIP target objectives at
120% (with payment of the prior year bonus if not yet paid).
|
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Payment in cash for unpaid Performance Share Program awards,
assuming applicable goals are met at 120% of performance.
|
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Continued equivalent health and welfare (e.g., medical, dental,
vision, life insurance and disability) benefits at
Teledynes expense for a period of up to 36 months
(24 months in some agreements) after termination (with the
executive bearing any portion of the cost the executive bore
prior to the change in control); provided, however, such
benefits would be discontinued to the extent the executive
receives similar benefits from a subsequent employer.
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Immediate vesting of all stock options, with options being
exercisable for the full remaining term.
|
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Removal of restrictions on restricted stock issued by the
Company under our Restricted Stock Award Programs.
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Full vesting under the Companys pension plans (within
legal parameters) such that the executive shall be entitled to
receive the full accrued benefit under all such plans in effect
as of the date of the change in control, without any actuarial
reduction for early payment.
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|
Up to $25,000 ($15,000 in some agreements) reimbursement for
actual professional outplacement services.
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|
A
gross-up-payment
to hold the executive harmless against the impact, if any, of
federal excise taxes imposed on the executive as a result of the
payments constituting an excess parachute as defined
in Section 280G of the Internal Revenue Code.
|
Item 1A. Risk
Factors.
Risk
Factors; Cautionary Statement as to Forward-Looking
Statements
The following text highlights various risks and uncertainties
associated with Teledyne. These factors could materially affect
forward-looking statements (within the meaning of
the Private Securities Litigation Reform Act of 1995) that
we may from time to time make, including forward-looking
statements contained in Item 1. Business and
Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations of this
Form 10-K
and in Teledynes 2006 Annual Report to Stockholders. It is
not possible for management to predict all of such factors, and
new factors may emerge. Additionally, management cannot assess
the impact of each such factor on Teledyne or the extent to
which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any
forward-looking statements.
Our
dependence on revenue from government contracts subjects us to
many risks:
|
|
|
Our
revenue from government contracts depends on the continued
availability of funding from the U.S. Government, and
accordingly, we have the risk that funding for our existing
contracts may be diverted to other uses or delayed.
|
We perform work on a number of contracts with the Department of
Defense and other agencies and departments of the
U.S. Government including
sub-contracts
with government prime contractors. Sales under contracts with
the U.S. Government as a whole, including sales under
contracts with the Department of
13
Defense, as prime contractor or subcontractor, represented
approximately 40% of our total revenue for 2006, as compared to
42% and 43% of our total revenue for 2005 and 2004,
respectively. Performance under government contracts has certain
inherent risks that could have a material effect on our
business, results of operations, and financial condition.
Government contracts are conditioned upon the continuing
availability of Congressional appropriations. Congress typically
appropriates funds for a given program on a fiscal-year basis
even though contract performance may take more than one year. As
a result, at the beginning of a major program, a contract is
typically only partially funded, and additional monies are
normally committed to the contract by the procuring agency only
as Congress makes appropriations available for future fiscal
years.
While U.S. defense spending increased as a result of the
September 11th terrorist attacks and the war in Iraq,
it is currently expected to continue to moderate over the next
few years. The continued war on terrorism and the Iraqi
situation could result in a diversion of funds from programs in
which Teledyne participates. Also, continued defense spending
does not necessarily correlate to continued business for us,
because not all the programs in which we participate or have
current capabilities may be provided with continued funding.
Further, the recent changes in the leadership of the
U.S. Congress could result over time in reductions in
defense spending and further changes in programs in which we
participate.
Our Electronics and Communications segment provides a variety of
products for newer military platforms such as the
F/A-22 and
F-35 aircraft. Development and production of these aircraft are
very expensive, and there is no guarantee that the Department of
Defense, as it balances budget priorities, will continue to
provide funding to manufacture and support these platforms.
Reallocation of funding priorities within the Department of
Defense could also affect repair and spares sales for older
military platforms, including, by way of example, sales of our
traveling wave tubes for F-15, F-16, F-18, EA-6B, B-52, B-1,
C-130 and U-2 aircraft.
|
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|
Our
participation in government programs may decrease or be subject
to renegotiation as those programs evolve over time.
|
Over time and for a variety of reasons, programs can evolve and
affect the extent of our participation. For example, Teledyne
Brown Engineerings Ground-based Midcourse Defense program
was restructured in 2003 to change the emphasis from a focus on
test and evaluation to a focus on deployment and sustainment.
This resulted in a nearly 16% decline in revenues from this
contract in 2003 compared to 2002 (from $58 million to
$49 million). Then, in 2004 and 2005, revenues related to
this program totaled approximately $54 million and
$51 million, respectively, with the increases over 2003
resulting from unanticipated ground tests. In 2006, revenues
related to this program declined to $48 million and are
expected to decline further in 2007.
The relocation to Huntsville, Alabama of the Missile Defense
Agency or MDA has resulted in the transfer to the MDA of certain
missions and functions from the U.S. Army Space and Missile
Defense Command or SMDC. We understand that work currently
performed under one or more existing SMDC contracts may be
transferred to one or more existing or new MDA contracts. Such
transfers may require us to recompete for some work currently
performed by us, and there is no guarantee that we would
maintain historic levels of revenue or profitability if we
successfully recompeted. Such changes could affect our Systems
Engineering Solutions segment, but it is too early to tell the
impact of such changes.
We have been a significant participant in NASA programs,
traditionally through our Systems Engineering Solutions segment
and more recently through Teledyne Scientific Company. The
centerpiece of our current NASA activities is the International
Space Station. While we anticipate participating in NASAs
lunar and interplanetary exploration activities, funding for
these activities has been reduced as NASA focuses on the
completion of the International Space Station and on keeping the
Space Shuttle fleet in continuous service, each of which is also
facing a tightened budget. These changes could adversely impact
us. For example, we have been advised that funding for Teledyne
Scientific Companys anticipated participation in the
Microlensed Planet Finder has been cancelled.
14
|
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We may
not be successful in bidding for future contracts.
|
We obtain many U.S. Government prime contracts and
subcontracts through the process of competitive bidding. We may
not be successful in having our bids accepted. In addition, we
may spend substantial amounts of time, money and effort,
including design, development and marketing activities, required
to prepare bids and proposals for contracts that may not be
awarded to us.
|
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|
Our
contracts with the U.S. Government are subject to
termination rights that could adversely affect us.
|
Most of our U.S. Government contracts are subject to
termination by the U.S. Government either at its
convenience or upon the default of the contractor.
Termination-for-convenience
provisions provide only for the recovery of costs incurred or
committed, settlement expenses, and profit on work completed
prior to termination.
Termination-for-default
clauses impose liability on the contractor for excess costs
incurred by the U.S. Government in reprocuring undelivered
items from another source. During 2006, Teledyne Microwave had
two U.S. Government contracts terminated for convenience.
We did not have any of our U.S. Government contracts
terminated for default during 2006.
|
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|
We may
lose money or generate less than expected profits on our
fixed-price government contracts and we may lose money if we
fail to meet certain pre-specified targets in government
contracts.
|
There is no guarantee that U.S. Government contracts will
be profitable. A number of our U.S. Government prime
contracts and subcontracts are fixed-price type contracts (47%
in 2006 and 2005, as compared to 43% in 2004). Under these types
of contracts, we bear the inherent risk that actual performance
cost may exceed the fixed contract price. This is particularly
true where the contract was awarded and the price finalized in
advance of final completion of design. Under such contracts, we
must absorb cost overruns, notwithstanding the difficulty of
estimating all of the costs we will incur in performing these
contracts. Our failure to anticipate technical problems,
estimate costs accurately or control costs during performance of
a fixed-price contract may reduce the profitability of a
fixed-price contract or cause a loss. We cannot assure that our
contract loss provisions in our financial statements will be
adequate to cover all actual future losses. We may lose money if
we fail to meet these targets.
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Our
business is subject to government contracting regulations, and
our failure to comply with such laws and regulations could harm
our operating results and prospects.
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Certain fees under some of our U.S. Government contracts
are linked to meeting specified technical, cost
and/or
schedule targets, including development or testing deadlines.
Fees may also be influenced or dependent on the collective
efforts and success of other defense contractors over which we
had no or limited control.
We, like other government contractors, are subject to various
audits, reviews and investigations (including private party
whistleblower lawsuits) relating to our compliance
with federal and state laws. We have a compliance program
designed to surface issues that may lead to voluntary
disclosures of contracting irregularities to the
U.S. Government. Generally, claims arising out of these
U.S. Government inquiries and voluntary disclosures can be
resolved without resorting to litigation. However, should the
business unit or division involved be charged with wrongdoing,
or should the U.S. Government determine that the unit or
division is not a presently responsible contractor,
that unit or division, and conceivably our Company as a whole,
could be temporarily suspended or, in the event of a conviction,
could be debarred for up to three years from receiving new
government contracts or government-approved subcontracts. In
addition, we could expend substantial amounts in defending
against such charges and in damages, fines and penalties if such
charges are proven or result in negotiated settlements. In
October 2002, we were informed that the U.S. Government had
declined to intervene in a lawsuit filed under seal pursuant to
the False Claims Act more than five years before. Our Electronic
Safety Products units involvement in this civil action is
over as a result of favorable court decisions.
15
Our
pension expenses and the value of our pension assets are
affected by factors outside of our control, including the
performance of plan assets, the stock market, interest rates and
actuarial data.
We have a defined benefit pension plan covering most of our
employees. At year-end 2006, the value of the combined pension
assets was less than our accumulated pension benefit obligation,
notwithstanding favorable market conditions and the merger into
our pension plan of the overfunded Scientific Company pension
plan, which was part of our September 2006 acquisition of
Scientific Company. Given our pension plans underfunded
status, in 2004 we began making required cash contributions to
our pension plan. For 2006 and 2005, cash contributions totaled
$20.9 million and $15.5 million, respectively, and we
currently expect such contributions to be approximately
$6.6 million for 2007. The lower contribution level in 2007
is due primarily to the merger into our pension plan of the
overfunded Scientific Company pension plan. The accounting rules
applicable to our pension plan require that amounts recognized
in financial statements be determined on an actuarial basis,
rather than as contributions are made to the plan. Two
significant elements in determining our pension income or
pension expense are the expected return on plan assets and the
discount rate used in projecting pension benefit obligations.
Declines in the stock market and lower rates of return could
increase required contributions to our pension plan. Any
decreases in interest rates, if and to the extent not offset by
contributions and asset returns, could also increase our
obligations under such plans. For additional discussion of
pension matters, see the discussion under Item 7.
Managements Discussion and Analysis of Results of
Operations and Financial Condition and Notes 2 and 12
to Notes to Consolidated Financial Statements.
United
States and global responses to terrorism, the Iraq
situation and nuclear proliferation concerns increase
uncertainties with respect to many of our businesses and may
adversely affect our business and results of
operations.
United States and global responses to terrorism, the Iraq
situation and nuclear proliferation concerns increase
uncertainties with respect to U.S. and other business and
financial markets. Several factors associated, directly or
indirectly, with terrorism, the Iraq situation and perceived
nuclear threats and responses may adversely affect us. The
reaction to Irans continuing desire to explore nuclear
capabilities could affect adversely oil prices and some of our
businesses.
While some of our businesses that provide products or services
to the U.S. Government experienced greater demand for their
products and services as a result of increased
U.S. Government defense spending, various responses could
realign government programs and affect the composition, funding
or timing of our government programs. The recent changes in the
leadership of the U.S. Congress could also further affect
responses and government programs. Government spending could
shift to the Department of Defense or Homeland Security programs
in which we may not participate or may not have current
capabilities and curtail less pressing non-defense programs in
which we do participate, including Department of Energy or NASA
programs. Government spending could also shift towards
non-defense programs in which we do not currently participate,
such as medical research programs of the National Institutes of
Health.
Air travel declines have occurred after terrorist attacks and
heightened security alerts, as well as after the SARS and bird
flu scares. Additional declines in air travel resulting from
such factors and other factors could adversely affect the
financial condition of many of our commercial airline and
aircraft manufacturer customers and in turn could adversely
affect our Electronics and Communications segment.
Deterioration of financial performance of airlines could result
in a reduction of discretionary spending for upgrades of
avionics and in-flight communications equipment, which would
adversely affect our Electronics and Communications segment.
The government continues to evaluate potential security issues
associated with general aviation. Increased government
regulations, including but not limited to increased airspace
regulations (including user fees), could lead to an overall
decline in air travel and have an adverse affect on our
Aerospace Engines and Components segment. As happened after the
September 11th terrorist attacks, reinstatement of
flight restrictions would negatively impact the market for
general aviation aircraft piston engines and components and our
Aerospace
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Engines and Components segment. Potential reductions in the need
for general aviation aircraft maintenance due to declines in air
travel could also adversely affect our Aerospace Engines and
Components segment.
Higher oil prices could reduce general aviation air travel,
negatively affecting our Aerospace Engines and Components
segment. Higher oil prices could also adversely affect
commercial airline-related customers of our Electronics and
Communications segment. Conversely, higher oil prices could
increase oil exploration activities and bolster our marine
instrumentation businesses, including Teledyne Geophysical
Instruments, Teledyne Benthos. and majority-owned ODI.
Acquisitions
involve inherent risks that may adversely affect our operating
results and financial condition.
Our growth strategy includes acquisitions. Acquisitions involve
various inherent risks, such as:
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our ability to assess accurately the value, strengths,
weaknesses, internal controls, contingent and other liabilities
and potential profitability of acquisition candidates;
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the potential loss of key personnel of an acquired business;
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our ability to integrate acquired businesses and to achieve
identified financial, operating and other synergies anticipated
to result from an acquisition;
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our ability to assess, integrate and implement internal controls
of acquired businesses in accordance with Section 404 of
the Sarbanes-Oxley Act of 2002;
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the distraction of management resulting from the need to
integrate acquired businesses;
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increased competition for acquisition targets, which may
increase acquisition costs; and
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unanticipated changes in business and economic conditions
affecting an acquired business.
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While we conduct financial and other due diligence in connection
with its acquisitions and generally seeks some form of
protection, including indemnification from a seller and
sometimes an escrow of a portion of the purchase price to cover
potential issues, such acquired companies may have weaknesses or
liabilities that are not accurately assessed or brought to our
attention at the time of the acquisition. Further, indemnities
or escrows may not fully cover such matters, particularly
matters identified after a closing.
We also have acquired several private companies, such as
Reynolds Industries, Incorporated (Reynolds),
Cougar, RD Instruments, Inc. and CollaborX. Private companies
generally may not have as formal or comprehensive internal
controls and compliance systems in place as public companies.
While we have required various sellers to take certain
compliance actions prior to the closing of an acquisition,
including with respect to export controls, and have sought
protections in the purchase agreement for such matters, there is
no assurance that we have identified all issues or will be fully
protected from historic liabilities.
With regard to our five 2006 acquisitions, while these
companies products and customer base are complementary to
some of Teledynes existing businesses, there is no
assurance that we will achieve all identified financial,
operating and marketing synergies. We may also experience
problems that arise in entering new markets through acquisitions
in which we may have little or no experience.
In connection with acquisitions, we may consolidate one or more
acquired facilities with other Teledyne facilities to obtain
synergies and cost-savings. For example, in 2006, we relocated,
with minimal disruption, the operations of the microwave
technical solutions assets acquired from Avnet Inc. to a
Teledyne Cougar facility in Sunnyvale, California. On a larger
scale, in 2006, we successfully consolidated into a newly leased
facility in Poway, California the operations of
2005-acquired
Teledyne RD Instruments, Inc.,
2005-acquired
MGD Technologies, Inc. (now part of Teledyne Isco) and Teledyne
Interconnect Devices. We are in the process of adding
2006-acquired
Teledyne KW Microwave to such facility. Nonetheless, despite
planning, relocation and consolidation of manufacturing
operations has inherent risks, as it tends to involve, among
other things, change of personnel, application of a new business
system software and learning or adaptation of manufacturing
processes and techniques. Production delays at a new operating
location could result.
17
As permitted by SEC rules, our current managements report
as to our assessment of the effectiveness of internal controls
over financial reporting includes in its scope and coverage our
January 2006 acquisition of Benthos, but excludes our other 2006
acquisitions from its scope and coverage. We plan to evaluate
more fully the internal controls of these acquired companies in
2007, and implement a formal and rigorous system of internal
controls at these acquired companies. We can provide no
assurance that we will be able to provide a report that contains
no significant deficiencies or material weaknesses with respect
to these acquired companies or other acquisitions.
Our
future financial results could be adversely impacted by asset
impairment charges.
Under Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other
Intangible Assets, we are required to test both acquired
goodwill and other indefinite-lived intangible assets for
impairment on an annual basis based upon a fair value approach,
rather than amortizing them over time. We have chosen to perform
our annual impairment reviews of goodwill and other
indefinite-lived intangible assets during the fourth quarter of
each fiscal year. We also are required to test goodwill for
impairment between annual tests if events occur or circumstances
change that would more likely than not reduce our enterprise
fair value below its book value. These events or circumstances
could include a significant change in the business climate,
including a significant sustained decline in an entitys
market value, legal factors, operating performance indicators,
competition, sale or disposition of a significant portion of the
business, or other factors. If the fair market value is less
than the book value of goodwill, we could be required to record
an impairment charge. The valuation of reporting units requires
judgment in estimating future cash flows, discount rates and
estimated product life cycles. In making these judgments, we
evaluate the financial health of the business, including such
factors as industry performance, changes in technology and
operating cash flows. As we have grown through acquisitions, we
have accumulated $313.6 million of goodwill, and have
$69.3 million of acquired intangible assets, which includes
$11.3 of indefinite-lived intangible assets, out of total assets
of $1,060.2 million at December 31, 2006. As a result,
the amount of any annual or interim impairment could be
significant and could have a material adverse effect on our
reported financial results for the period in which the charge is
taken. We also may be required to record an earnings charge or
incur unanticipated expenses if, due to a change in strategy or
other reason, we determined the value of other assets has been
impaired.
We account for the impairment of long-lived assets to be held
and used in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets (SFAS No. 144).
SFAS No. 144 requires that a long-lived asset to be
disposed of be reported at the lower of its carrying amount or
fair value less cost to sell. An asset (other than goodwill and
indefinite-lived intangible assets) is considered impaired when
estimated future cash flows are less than the carrying amount of
the asset. In the event the carrying amount of such asset is not
deemed recoverable, the asset is adjusted to its estimated fair
value. Fair value is generally determined based upon estimated
discounted future cash flows.
We may
not have sufficient resources to fund all future research and
development and capital expenditures or possible
acquisitions.
In order to remain competitive, we must make substantial
investments in research and development of new or enhanced
products and continuously upgrade our process technology and
manufacturing capabilities. Although we believe that anticipated
cash flows from operations and available borrowings under our
$400.0 million credit facility will be sufficient to
satisfy our anticipated working capital, research and
development and capital investment needs, we may be unable to
fund all of these needs or possible acquisitions. Our ability to
raise additional capital will depend on a variety of factors,
some of which will not be within our control, including the
existence of a public offering market, investor perceptions of
us, our businesses and the industries in which we operate, and
general economic conditions. We may be unable to successfully
raise additional capital, if needed. Failure to successfully
raise needed capital on a timely or cost-effective basis could
have a material adverse effect on our business, results of
operations and financial condition.
18
Our
indebtedness could materially and adversely affect our
business.
As of December 31, 2006, we had $231.9 million in
total outstanding indebtedness, including $216.9 million
under our $400 million credit facility. Our indebtedness
could harm our business by, among other things, reducing the
funds available to make new strategic acquisitions. Our
indebtedness could also have a material adverse effect on our
business by increasing our vulnerability to general adverse
economic and industry conditions or a downturn in our business.
General adverse economic and industry conditions or a downturn
in our business could result in our inability to repay this
indebtedness in a timely manner.
We may be
unsuccessful in our efforts to increase our participation in
certain new markets.
We intend to both adapt our existing technology and develop new
products to expand into new market segments. For example, we
have been developing new fuel cell related technologies. The
market for fuel cell technologies is not well established and
there are a number of companies that have announced intentions
to develop and market fuel cell products. Some of these
companies have greater financial
and/or
technological resources than we do.
We have also been developing new electronic products, including
electronic flight bags, high-power millimeter traveling wave
tubes and imaging sonar systems, which are intended to access
markets in which Teledyne does not currently participate or has
limited participation. We may be unsuccessful in accessing these
and other new markets if our products do not meet our
customers requirements, due to changes in either
technology and industry standards or because of actions taken by
our competitors.
We may be
unable to successfully introduce new and enhanced products in a
timely and cost-effective manner.
Our operating results depend in part on our ability to introduce
new and enhanced products on a timely basis. Successful product
development and introduction depend on numerous factors,
including our ability to anticipate customer and market
requirements, changes in technology and industry standards, our
ability to differentiate our offerings from offerings of our
competitors, and market acceptance. We may not be able to
develop and introduce new or enhanced products in a timely and
cost-effective manner or to develop and introduce products that
satisfy customer requirements. Our new products also may not
achieve market acceptance or correctly anticipate new industry
standards and technological changes. As an example, we have been
working to develop high power solid state power amplifiers,
which could replace our traveling wave tubes in some
applications, and in this area, there is a larger base of
potential competitors than for tube amplifiers. As a result, it
may be more difficult for our solid state power amplifier
products to gain market acceptance.
Additionally, new products may trigger increased warranty costs
as such products are tested further by actual usage. Accelerated
entry of new products to meet heightened market demand and
competitive pressures may cause additional warranty costs as
development and testing time periods might be condensed. In
2007, for example, Teledyne Energy Systems, Inc. currently
believes it will incur additional warranty costs as it continues
to roll out two new hydrogen generation product lines.
Technological
change and evolving industry standards could cause certain of
our products or services to become obsolete or
non-competitive.
The markets for a number of our products and services are
generally characterized by rapid technological development,
evolving industry standards, changes in customer requirements
and new product introductions and enhancements. A faster than
anticipated change in one or more of the technologies related to
our products or services, or in market demand for products or
services based on a particular technology, could result in
faster than anticipated obsolescence of certain of our products
or services and could have a material adverse effect on our
business, results of operations and financial condition. For
example, Teledyne Reynolds high voltage connector business
could be negatively impacted by marketplace shifts to lower
voltage requirements where the number of competitors is larger.
Most lighting displays in legacy aircraft use tubes that require
high
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voltage connectors. LED backlights, which are increasingly being
used for aircraft lighting displays, have substantially lower
voltage requirements.
Currently accepted industry and regulatory standards are also
subject to change, which may contribute to the obsolescence of
our products or services. For example, a European directive that
certain electronic products must not contain impermissible
levels of lead, mercury, cadmium, hexavalent chromium,
polybrominated biphenyls or polybrominated diphenyl ethers,
recently took effect on July 1, 2006. As a result, we must
make sure that certain of our electronic products sold into
European member states comply with this new directive. Although
many of our products are exempt from the European directive, we
expect that, over time, component manufacturers may discontinue
selling components that have the restricted substances. This
will, in turn, require us to accommodate changes in parameters,
such as the way parts are soldered, and may, in some cases,
require redesign of certain products. This could lead to
increased costs, which we may not be able to recover from our
customers, delays in product shipments and loss of market share
to competitors.
The
airline industry is heavily regulated and if we fail to comply
with applicable requirements, our results of operations could
suffer.
Governmental agencies throughout the world, including the
U.S. Federal Aviation Administration, or the FAA, prescribe
standards and qualification requirements for aircraft
components, including virtually all commercial airline and
general aviation products, as well as regulations regarding the
repair and overhaul of aircraft engines. Specific regulations
vary from country to country, although compliance with FAA
requirements generally satisfies regulatory requirements in
other countries. We include, with the products and replacement
parts that we sell to our aircraft manufacturing industry
customers, documentation certifying that each part complies with
applicable regulatory requirements and meets applicable
standards of airworthiness established by the FAA or the
equivalent regulatory agencies in other countries. In order to
sell our products, we and the products we manufacture must also
be certified by our individual OEM customers. If any of the
material authorizations or approvals qualifying us to supply our
products is revoked or suspended, then the sale of the subject
product would be prohibited by law, which would have an adverse
effect on our business, financial condition and results of
operations.
From time to time, the FAA or equivalent regulatory agencies in
other countries propose new regulations or changes to existing
regulations, which are usually more stringent than existing
regulations. If these proposed regulations are adopted and
enacted, we may incur significant additional costs to achieve
compliance, which could have a material adverse effect on our
business, financial condition and results of operations.
Product
liability claims, product recalls and field service actions
could have a material adverse effect on our reputation,
business, results of operations and financial
condition.
As a manufacturer and distributor of a wide variety of products,
including aircraft engines and medical devices, our results of
operations are susceptible to adverse publicity regarding the
quality or safety of our products. In part, product liability
claims challenging the safety of our products may result in a
decline in sales for a particular product, which could adversely
affect our results of operations. This could be the case even if
the claims themselves are proven untrue or settled for
immaterial amounts.
While we have general liability and other insurance policies
concerning product liabilities, we have self-insured retentions
or deductibles under such policies with respect to a portion of
these liabilities. For example, our current annual self-insured
retention for general aviation aircraft liabilities incurred in
connection with products manufactured by Teledyne Continental
Motors, Inc., is approximately $22.9 million, a decrease
from $25.0 million for the prior annual period. Our
existing aircraft product liability insurance policy expires on
May 31, 2007. Additionally, based on facts and
circumstances of claims, we have not always accrued amounts up
to the applicable annual self-insured retentions. Additionally,
awarded damages could be more than our accruals.
Product recalls can be expensive and tarnish our reputation and
have a material adverse effect on the sales of our products. For
example, Teledyne Continental Motors had been engaged in a
product recall of piston engine crankshafts as a result of which
we recorded a $12.0 million pretax charge in the second
quarter
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of 2000. In 2002, we reached a monetary settlement related to
the 2000 recall with two of three companies that manufactured
and processed allegedly defective steel subsequently made into
aircraft engine crankshafts. We failed to win a jury verdict
against a third company involved in making the steel. We
continue to pursue cost recovery through litigation against one
other materials supplier as a result of the 2000 product recall
program. There is no assurance that we will recover any costs.
Through Aerosance, Inc., we have developed electronic controls,
known as PowerLink FADEC, for piston aircraft engines that
automate many functions requiring manual control, such as fuel
flow and power management. While such control systems should
improve engine management and facilitate maintenance of engines,
we could face additional claims as they become standard
equipment on selected new piston engine aircraft or are
retrofitted on some piston engine aircraft. New products can
trigger additional product liability claims as such products are
further tested by actual usage. Additionally, general aviation
aircraft crash lawsuits tend to name as defendants manufacturers
of a multitude of aircraft-related products as discovery and
recoveries are pursued.
We have been joined, among a number of defendants (often over
100), in lawsuits alleging injury or death as a result of
exposure to asbestos. We have not incurred material liabilities
in connection with these lawsuits. The filings typically do not
identify any of our products as a source of asbestos exposure,
and we have been dismissed from cases for lack of product
identification, but only after some defense costs have been
incurred. Also, because of the prominent Teledyne
name, we may be mistakenly joined in lawsuits involving a
company or business that was not assumed by us as part of our
1999 spin-off. Our historic insurance coverage, including that
of its predecessors, may not fully cover such claims and defense
of such matters, as coverage depends on the year of purported
exposure and other factors. Nonetheless, we intend to defend
these claims vigorously. Congress from time to time has
considered tort reform to deal with asbestos-related claims, but
to date nothing has materialized.
Certain gas generators manufactured by Teledyne Energy Systems,
Inc. contain a sealed, wetted asbestos component. While the
company has been transitioning to a replacement material, has
placed warning labels on its products and takes care in handling
of this material by employees, there is no assurance that the
Company will not face product liability claims involving this
component.
Our Teledyne Brown Engineerings laboratory in Knoxville,
Tennessee performs radiological analyses. While the laboratory
is certified by the Department of Energy and has other
nuclear-related certifications and internal quality controls in
place, errors and omissions in analyses may occur. We currently
have errors and omissions insurance coverage and nuclear
liability insurance coverage that might apply depending on the
circumstances. We also have sought indemnities from some of our
customers. Our insurance coverage or indemnities, however, may
not be adequate to cover potential problems associated with
faulty radiological analyses.
We cannot assure that we will not have additional product
liability claims or that we will not recall any additional
products.
We may
have difficulty obtaining product liability and other insurance
coverages, or be subject to increased costs for such
coverage.
As a manufacturer of a variety of products including aircraft
engines used in general aviation aircraft, we have general
liability and other insurance policies that provide coverage
beyond self-insured retentions or deductibles. We cannot assure
that, for 2007 and in future years, insurance carriers will be
willing to renew coverage or provide new coverage for product
liability, especially as it relates to general aviation. Over
the last several years, the number of insurance companies
providing general aviation product liability insurance coverage
has decreased. If such insurance is available, we may be
required to pay substantially higher prices for coverage
and/or
increase our levels of self-insured retentions or reserves. Our
current aircraft product liability insurance policy expires in
May 2007 and has an annual self-insured retention of
approximately $22.9 million.
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To offset aircraft product liability insurance costs, we
continue to try to reduce manufacturing and other costs and also
to pass on such insurance costs through price increases on its
aircraft engines and spare parts. We cannot provide assurances
that further cost reduction efforts will prove successful or
that customers will accept additional price increases. Aircraft
engines and spare part cost increases, coupled with increased
costs of insurance for general aviation aircraft owners, tend to
result in decreasing aftermarket sales of our piston engines.
This, in turn, leaves our Aerospace Engines and Components
segment more dependent on sales to original equipment
manufacturers or OEMs, which is more dependent on general
economic conditions.
For certain electronic components for medical applications that
we manufacture, such as those that go into cochlear implants, we
have asked for indemnities from our customers
and/or to be
included under their insurance policies. We cannot, however,
provide any assurance that such indemnities or insurance will
offset potential liabilities that we may incur as a result of
our manufacture of such components.
Aside from the uncertainties created by external events that can
affect insurance coverages, such as the devastating 2005
hurricane season, our ability to obtain product liability
insurance and the cost for such insurance are affected by our
historical claims experience. While we have taken steps to
improve our claims management process over the last few years,
we cannot assure that, for 2007 and in future years, our ability
to obtain insurance, or the cost for such insurance, or the
amount of self-insured retentions or reserves will not be
negatively impacted by our experience in prior years.
Increasing
competition could reduce the demand for our products and
services.
Although we believe that we have certain advantages that help us
compete in our markets, each of our markets is highly
competitive. Many of our competitors have, and potential
competitors could have, greater name recognition, a larger
installed base of products, more extensive engineering,
manufacturing, marketing and distribution capabilities and
greater financial, technological and personnel resources than we
do. New or existing competitors may also develop new
technologies that could adversely affect the demand for our
products and services. Industry consolidation trends,
particularly among aerospace and defense contractors, could
adversely affect demand for our products and services if prime
contractors seek to control more aspects of vertically
integrated projects. For example, the pending combination of the
network activities of Nokia and Siemens could negatively impact
our wireless transceivers business. Our general aviation piston
engines business could face increasing competition from
German-based Thielert Aircraft Engines GmbH as it continues to
enter the U.S. market with retrofits and attracts OEMs.
We sell
products and services to customers in industries that are
cyclical and sensitive to changes in general economic
activity.
We develop and manufacture products for customers in the energy
exploration market, which has been cyclical and suffered from
over capacity in prior years. Strong demand and increased prices
for oil and natural gas contributed to substantial revenue
growth at Teledyne Geophysical Instruments and ODI since 2003. A
cyclical downturn in this market may affect future operating
results, particularly given our broader range of marine
instrumentation businesses since 2003.
We derive significant revenues from the commercial aerospace
industry. Domestic and international commercial aerospace
markets are cyclical in nature. Historic demand for new
commercial aircraft has been related to the stability and health
of domestic and international economies. Delays or changes in
aircraft and component orders could impact the future demand for
our products and have a material adverse effect on our business,
results of operations and financial condition. While the market
for commercial aircraft has improved since the downturn
triggered by the events of September 11th and the war
in Iraq, another such event could increase the level of
uncertainty regarding future orders for aircraft.
In addition, we sell products and services to customers in
industries that are sensitive to the level of general economic
activity and in mature industries that are sensitive to
capacity. Adverse economic conditions affecting these industries
may reduce demand for our products and services, which may
reduce our profits, or our production levels, or both.
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We sell
products to customers in industries that may undergo rapid and
unpredictable changes.
We develop and manufacture products for customers in industries
that have undergone rapid changes in the past. For example, we
manufacture products and provide manufacturing services to
companies that serve telecommunications markets. During 2001,
many segments of the telecommunications market experienced a
dramatic and rapid downturn that resulted in cancellations or
deferrals of orders for our products and services. This market,
or others that we serve, may exhibit rapid changes in the future
and may adversely affect our operating results, or our
production levels, or both.
We are
subject to the risks associated with international
sales.
During 2006, international sales accounted for approximately 21%
of our total revenues, as compared to 18% in 2005 and 19% in
2004. We anticipate that future international sales will
continue to account for a significant percentage of our
revenues. Risks associated with these sales include:
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political and economic instability;
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international terrorism;
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export controls;
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changes in legal and regulatory requirements;
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U.S. and foreign government policy changes affecting the markets
for our products;
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changes in tax laws and tariffs; and
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exchange rate fluctuations.
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Any of these factors could have a material adverse effect on our
business, results of operations and financial condition.
Exchange rate fluctuations may negatively affect the cost of our
products to international customers and therefore reduce our
competitive position. That is, if the U.S. Dollar
strengthens against the British Pound Sterling or Eurodollar,
our European customers may no longer find our product prices
more attractive than European competitors.
Concerns over theft of technology for military uses, nuclear
proliferation concerns, terrorism and other factors have
resulted in increased export scrutiny of international sales,
including some of our products to international customers. There
has also been increasing export oversight and regulation of
sales to China. Travel restrictions to Middle Eastern and other
countries may negatively affect continuing international sales
or service revenues from such regions.
Among other things, we are subject to the Foreign Corrupt
Practices Act, or FCPA, which generally prohibits
U.S. companies and their intermediaries from bribing
foreign officials for the purpose of obtaining or keeping
business or otherwise obtaining favorable treatment. In
particular, we may be held liable for actions taken by our
strategic or local partners even though our partners are not
subject to the FCPA. Any determination that we have violated the
FCPA could result in sanctions that could have a material
adverse effect on our business, financial condition and results
of operations
Compliance
with increasing environmental regulations and the effects of
potential environmental liabilities could have a material
adverse financial effect on us.
We, like other industry participants, are subject to various
federal, state, local and international environmental laws and
regulations. We may be subject to increasingly stringent
environmental standards in the future. Future developments,
administrative actions or liabilities relating to environmental
matters could have a material adverse effect on our business,
results of operations or financial condition.
While we have, as part of its overall risk management program,
an environmental management and compliance program applicable to
its operating facilities, including a review and
audit program to monitor compliance where each facility is
reviewed and audited by an internal environmental team every
three years, such program does not eliminate potential
environmental liabilities. In addition, as the Company continues
to
23
pursue acquisitions, while it conducts environmental-related due
diligence and generally seeks some form of protection, including
indemnification from a seller, such acquired companies may have
environmental liabilities that are not accurately assessed or
brought to our attention at the time of the acquisition.
For additional discussion of environmental matters, see the
discussion under the caption Other Matters
Environmental of Item 7. Managements
Discussion and Analysis of Results of Operations and Financial
Condition and Note 15 to Notes to Consolidated
Financial Statements.
Increased environmental regulatory monitoring requirements of
the air we breathe and water we drink could have a favorable
effect on the results of operations or financial condition of
our instrumentation businesses, including the sulfur dioxide,
carbon monoxide and ozone gas monitoring business of Teledyne
Advanced Pollution Instrumentation, Inc. and the water quality
monitoring business of Teledyne Isco.
Our
inability to attract and retain key personnel could have a
material adverse effect on our future success.
Our future success depends to a significant extent upon the
continued service of our executive officers and other key
management and technical personnel and on our ability to
continue to attract, retain and motivate qualified personnel.
Recruiting and retaining skilled technical and engineering
personnel has become even more competitive as the domestic
economy has improved in recent years. Also, our Systems
Engineering Solutions segment has already begun to face
increasing competition for qualified engineering personnel as a
result of the Department of Defense 2005 Base Realignment and
Closure (also known as BRAC) decisions, particularly as
positions are moved to Huntsville, Alabama over the next several
years. While we have engaged in succession planning, the loss of
the services of one or more of our key employees or our failure
to attract, retain and motivate qualified personnel could have a
material adverse effect on our business, financial condition and
results of operations.
We may
not be able to sell, or exit on acceptable terms, product lines
that we determine no longer meet with our growth
strategy.
Consistent with our growth strategy to focus on markets to
expand our profitable niche businesses, we continually evaluate
our product lines to ensure that they are aligned with our
strategy. For example, after the June 2004 acquisition of Isco,
Inc., we determined that the on-line process control
instrumentation business of its German subsidiary was not
aligned with our strategy, and in March 2005, we sold this
non-strategic business. In 2006, principally because of the
decision of a customer to manufacture certain medical products
at its facilities in India, we decided to close our contract
manufacturing operations in El Rubi, Mexico and are in the
process of transferring the remaining operations to our
La Mesa, Mexico facility and our Lewisburg, Tennessee
facility.
Our ability to dispose of or exit product lines that may no
longer be aligned with our growth strategy will depend on many
factors, including the terms and conditions of any asset
purchase and sale agreement, as well as industry, business and
economic conditions. We cannot provide any assurance that we
will be able to sell non-strategic product lines on terms that
are acceptable to us, or at all. Also, if the sale of any
non-strategic product line cannot be consummated or is not
practical, alternative courses of action, including closure, may
not be available to us or may be more costly than anticipated.
Provisions
of our governing documents, applicable law, and our Change in
Control Severance Agreements could make an acquisition of
Teledyne Technologies more difficult.
Our Restated Certificate of Incorporation, Amended and Restated
Bylaws and Rights Agreement and the General Corporation Law of
the State of Delaware contain several provisions that could make
the acquisition of control of Teledyne Technologies in a
transaction not approved by our board of directors more
difficult. We have also entered into Change in Control Severance
Agreements with 15 members of our management, which could
have an anti-takeover effect.
24
The
market price of our Common Stock has fluctuated significantly
since our spin-off from ATI, and could continue to do
so.
Since the spin-off on November 29, 1999, the market price
of our Common Stock has ranged from a low of $7.6875 to a high
of $44.59 per share. At February 27, 2007, our closing
stock price was $37.77. Fluctuations in our stock price could
continue. Among the factors that could affect our stock price
are:
|
|
|
|
|
quarterly variations in our operating results;
|
|
|
|
strategic actions by us or our competitors;
|
|
|
|
acquisitions;
|
|
|
|
adverse business developments;
|
|
|
|
war in the Middle East or elsewhere;
|
|
|
|
additional terrorist activities;
|
|
|
|
increased military or homeland defense activities; changes to
the Federal budget;
|
|
|
|
changes in the semiconductor, telecommunications, commercial
aviation, energy exploration and electronic manufacturing
services markets;
|
|
|
|
general market conditions; and
|
|
|
|
general economic factors unrelated to our performance.
|
The stock markets in general, and the markets for high
technology companies in particular, have experienced a high
degree of volatility not necessarily related to the operating
performance of these companies. We cannot provide assurances as
to our stock price.
Our
financial statements are based on estimates required by GAAP,
and actual results may differ materially from those estimated
under different assumptions or conditions.
Our financial statements are prepared in conformity with
generally accepted accounting principles in the United States.
These principles require our management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. For example, estimates are used when accounting for
items such as asset valuations, allowances for doubtful
accounts, depreciation and amortization, impairment assessments,
employee benefits, taxes, aircraft product and general liability
and contingencies. While we base our estimates on historical
experience and on various assumptions that we believe to be
reasonable under the circumstances at the time made, actual
results may differ materially from those estimated.
While we
believe our control systems are effective, there are inherent
limitations in all control systems, and misstatements due to
error or fraud may occur and not be detected.
We continue to take action to assure compliance with the
internal controls, disclosure controls and other requirements of
the Sarbanes-Oxley Act of 2002. Our management, including our
Chief Executive Officer and Chief Financial Officer, cannot
guarantee that our internal controls and disclosure controls
will prevent all possible errors or all fraud. A control system,
no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. In addition, the design of a control
system must reflect the fact that there are resource constraints
and the benefit of controls must be relative to their costs.
Because of the inherent limitations in all control systems, no
system of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Further, controls can be circumvented by individual
acts of some persons, by collusion of two or more persons, or by
management override of the controls. The design of any system of
controls also is based, in part, upon certain assumptions about
the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated
25
goals under all potential future conditions. Over time, a
control may be inadequate because of changes in conditions or
the degree of compliance with the policies or procedures may
deteriorate. Because of inherent limitations in a cost-effective
control system, misstatements resulting from error or fraud may
occur and may not be detected.
Natural
disasters, such as a serious earthquake in California or a major
hurricane in Alabama or Florida, could adversely affect our
business, results of operations and financial
condition.
Several of our facilities, as a result of their locations could
be subject to a catastrophic loss caused by an earthquake, a
hurricane or a tornado. Many of our production facilities and
our headquarters are located in California and thus are in areas
with above average seismic activity. In addition, we have
manufacturing facilities in the Southeastern United States and
Texas that have been threatened and struck by major hurricanes.
Our facilities in Alabama, Florida, Kansas, Nebraska and
Tennessee have also been threatened by tornados. While Teledyne
Continental Motors piston-engines manufacturing facility,
located in Mobile, Alabama, Teledyne Geophysical
Instruments facility in Houston, Texas, and ODIs
facility in Daytona Beach, Florida were relatively fortunate
with respect to the building damage and business interruption
they suffered during the severe 2005 hurricane season, there can
be no assurance that any one of them will be as fortunate in the
future. If any of our California facilities, including our
California headquarters, were to experience a catastrophic
earthquake loss or if any of our Alabama, Florida, Nebraska,
Tennessee or Texas facilities were to experience a catastrophic
hurricane, storm or tornado, such event could disrupt our
operations, delay production, shipments and revenue and result
in large expenses to repair or replace the facility or
facilities. While Teledyne has property insurance to partially
reimburse it for losses caused by windstorm and earth movement,
such insurance would not cover all possible losses. In addition,
our existing disaster recovery plans (including those relating
to our information technology systems) may not be fully
responsive to, or minimize losses associated with, catastrophic
events.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
26
Our principal facilities as of February 27, 2007 are listed
below. Although the facilities vary in terms of age and
condition, our management believes that these facilities have
generally been well maintained and are adequate for current
operations.
|
|
|
|
|
Facility Location
|
|
Principal Use
|
|
Owned/Leased
|
|
Electronics and Communications
Segment
|
Defense Electronics, Products
and Services
|
|
|
|
|
Camarillo, California
|
|
Production of focal plane arrays
and imaging sensors and subsystems
|
|
Leased
|
Los Angeles, California
|
|
Development and production of
electronic components and subsystems
|
|
Owned and Leased
|
Los Angeles, California
|
|
Development and production of high
voltage connectors and subassemblies and pilot helmet mounted
display components and subsystems
|
|
Leased
|
Mountain View, California
|
|
Production of microwave integrated
circuits and systems
|
|
Owned
|
Northridge, California
|
|
Development of electronic seat
ejection sequencers
|
|
Leased
|
Rancho Cordova, California
|
|
Development and production of
traveling wave tubes
|
|
Owned
|
Santa Maria, California
|
|
Development and production of high
voltage capacitor products
|
|
Leased
|
Sunnyvale, California
|
|
Development and production of RD
and microwave amplifiers and components
|
|
Owned and Leased
|
Thousand Oaks, California
|
|
Provision of research and
development services
|
|
Owned
|
Tracy, California
|
|
Development and production of
precision secondary explosive components including initiators
and detonators
|
|
Leased
|
Hudson, New Hampshire
|
|
Production of printed circuit boards
|
|
Owned
|
Instrumentation
Products
|
|
|
|
|
City of Industry, California
|
|
Development and production of
precision oxygen analyzers
|
|
Owned
|
San Diego, California
|
|
Development and production of
environmental monitoring instrumentation
|
|
Leased
|
Poway, California
|
|
Development and production of
underwater acoustic instrumentation
|
|
Leased
|
Englewood, Colorado
|
|
Development and production of
environmental monitoring systems
|
|
Leased
|
Daytona Beach, Florida
|
|
Development of subsea, wet-mateable
electrical and fiber-optic interconnect systems
|
|
Leased
|
North Falmouth, Massachusetts
|
|
Development and production of
underwater acoustic instrumentation and package inspection
systems
|
|
Owned
|
Lincoln, Nebraska
|
|
Development and production of water
quality monitoring products, chemical separation instruments and
flash chromatography instruments and consumables
|
|
Owned
|
Hudson, New Hampshire
|
|
Development and production of
elemental analysis instruments
|
|
Leased
|
Mason, Ohio
|
|
Development and production of
chemical analysis instruments
|
|
Leased
|
Houston, Texas
|
|
Development and production of
geophysical streamer cables and hydrophones for seismic
monitoring
|
|
Owned
|
Hampton, Virginia
|
|
Development and production of
vacuum and flow measurement instruments
|
|
Owned
|
Other Commercial
Electronics
|
|
|
|
|
Hawthorne, California
|
|
Production of electromechanical
relays
|
|
Owned
|
Los Angeles, California
|
|
Development and production of
digital data acquisition systems for monitoring commercial
aircraft and engines
|
|
Leased
|
Poway, California
|
|
Development and production of
connectors
|
|
Leased
|
Lewisburg, Tennessee
|
|
Development and manufacturing of
electronic components and subsystems
|
|
Owned
|
27
|
|
|
|
|
Facility Location
|
|
Principal Use
|
|
Owned/Leased
|
|
Systems Engineering Solutions
Segment
|
|
|
Huntsville, Alabama
|
|
Provision of engineering services
and products, including systems engineering, optical
engineering, software and hardware engineering, and
instrumentation technology
|
|
Owned and Leased
|
Colorado Springs, Colorado
|
|
Provision of engineering services
|
|
Leased
|
Knoxville, Tennessee
|
|
Laboratories and offices in support
of environmental services
|
|
Leased
|
Arlington, Virginia
|
|
Defense program offices supporting
governmental customers
|
|
Leased
|
Aerospace Engines and Components
Segment
|
|
|
Mobile, Alabama
|
|
Design, development and production
of new and rebuilt piston engines, ignition systems and spare
parts for the general aviation market
|
|
Leased
|
Redlands, California
|
|
Manufacturing of batteries for the
general aviation market
|
|
Owned
|
Mattituck, New York
|
|
Supply of aftermarket parts,
services and engine overhauls for the general aviation market
|
|
Leased
|
Toledo, Ohio
|
|
Design, development and production
of small turbine engines for aerospace and military markets
|
|
Leased
|
Energy Systems Segment
|
|
|
|
|
Hunt Valley, Maryland
|
|
Manufacturing, assembling and
maintenance of hydrogen gas generators, power generating systems
and fuel cell test stations
|
|
Leased
|
We also own or lease facilities and offices elsewhere in the
United States and outside the United States, including
facilities in: Tijuana, Mexico; Gloucester, Newbury and West
Drayton, England; Cumbernauld, Scotland; Singapore; Cwmbran,
Wales; Kreuztal, Germany; La Gaude, France; Shanghai,
China; and Ottawa, Canada. Our corporate executive offices are
located at 1049 Camino Dos Rios, Thousand Oaks, California 91360.
|
|
Item 3.
|
Legal
Proceedings.
|
From time to time, we become involved in various lawsuits,
claims and proceedings related to the conduct of our business,
including those pertaining to product liability, patent
infringement, commercial, employment and employee benefits.
While we cannot predict the outcome of any lawsuit, claim or
proceeding, our management does not believe that the disposition
of any pending matters is likely to have a material adverse
effect on our financial condition or liquidity. The resolution
in any reporting period of one or more of these matters,
however, could have a material adverse effect on the results of
operations for that period.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
No matters were submitted to a vote of Teledynes
stockholders during the fourth quarter of 2006.
28
PART II
Item 5. Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities.
Price
Range of Common Stock and Dividend Policy
Our Common Stock is listed on the New York Stock Exchange and
traded under the symbol TDY. The following table
sets forth, for the periods indicated, the high and low sale
prices for the Common Stock as reported by the New York Stock
Exchange.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2005
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
33.50
|
|
|
$
|
26.00
|
|
2nd Quarter
|
|
$
|
35.00
|
|
|
$
|
25.42
|
|
3rd Quarter
|
|
$
|
39.54
|
|
|
$
|
32.07
|
|
4th Quarter
|
|
$
|
37.90
|
|
|
$
|
27.85
|
|
2006
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
$
|
35.92
|
|
|
$
|
28.88
|
|
2nd Quarter
|
|
$
|
38.99
|
|
|
$
|
31.02
|
|
3rd Quarter
|
|
$
|
42.28
|
|
|
$
|
29.10
|
|
4th Quarter
|
|
$
|
44.59
|
|
|
$
|
38.39
|
|
2007
|
|
|
|
|
|
|
|
|
1st Quarter (through
February 27, 2007)
|
|
$
|
40.73
|
|
|
$
|
36.66
|
|
On February 27, 2007, the closing sale price of our Common
Stock as reported by the New York Stock Exchange was $37.77 per
share. As of February 20, 2007, there were 6,198 holders of
record of the Common Stock.
We currently intend to retain any future earnings to fund the
development and growth of our business. Therefore, we do not
anticipate paying any cash dividends in the foreseeable future.
29
Item 6. Selected
Financial Data.
The following table presents our summary consolidated financial
data. We derived the following historical selected financial
data from our audited consolidated financial statements. We have
reclassified some amounts reported in previous years to conform
to our 2006 presentation. These reclassifications did not affect
our reported results of operations or stockholders equity.
Our fiscal year is determined based on a 52 or
53-week
convention ending on the Sunday nearest to December 31. The
five-year summary of selected financial data should be read in
conjunction with the discussion under
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operation.
Five-Year
Summary of Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In millions, except per-share amounts)
|
|
|
Sales
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
$
|
1,016.6
|
|
|
$
|
840.7
|
|
|
$
|
772.7
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
|
$
|
29.7
|
|
|
$
|
25.4
|
|
Working capital
|
|
$
|
216.4
|
|
|
$
|
154.0
|
|
|
$
|
124.4
|
|
|
$
|
129.5
|
|
|
$
|
102.6
|
|
Total assets
|
|
$
|
1,061.4
|
|
|
$
|
728.2
|
|
|
$
|
624.8
|
|
|
$
|
433.6
|
|
|
$
|
398.9
|
|
Long-term debt and capital lease
obligations
|
|
$
|
230.7
|
|
|
$
|
47.0
|
|
|
$
|
74.4
|
|
|
$
|
|
|
|
$
|
|
|
Stockholders equity
|
|
$
|
431.8
|
|
|
$
|
326.0
|
|
|
$
|
262.1
|
|
|
$
|
221.0
|
|
|
$
|
176.8
|
|
Basic earnings per common share
|
|
$
|
2.34
|
|
|
$
|
1.93
|
|
|
$
|
1.29
|
|
|
$
|
0.92
|
|
|
$
|
0.79
|
|
Diluted earnings per common share
|
|
$
|
2.26
|
|
|
$
|
1.85
|
|
|
$
|
1.24
|
|
|
$
|
0.91
|
|
|
$
|
0.77
|
|
30
Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operation.
Teledyne Technologies Incorporated is a leading provider of
sophisticated electronic components, instruments and
communications products, including defense electronics,
monitoring and control instrumentation for marine, environmental
and industrial applications, data acquisition and communications
equipment for airlines and business aircraft and components, and
subsystems for wireless and satellite communications. We also
provide systems engineering solutions and information technology
services for defense, space and environmental applications, and
manufacture general aviation and missile engines and components,
as well as
on-site gas
and power generation systems.
We serve niche market segments where performance, precision and
reliability are critical. Our customers include government
agencies, aerospace prime contractors, major industrial and
communications companies and general aviation companies.
Strategy
Our strategy continues to emphasize growth in our core markets
of defense electronics, instrumentation and government systems
engineering. We intend to strengthen and expand our core
businesses with targeted acquisitions. We intend to aggressively
pursue operational excellence to continually improve our margins
and earnings. At Teledyne, operational excellence includes the
rapid integration of the businesses we acquire. Over time, our
goal is to create a set of businesses that are truly superior in
their niches. We intend to continue to evaluate our product
lines to ensure that they are aligned with our strategy.
Recent
Acquisitions
During 2006, we engaged in a number of acquisitions intended to
expand and strengthen our product and service offerings in our
core instruments and defense markets.
Marine
Instrumentation
|
|
|
|
|
On January 27, 2006, we acquired Benthos, Inc.
(Benthos), a manufacturer of oceanographic products
and package inspection systems located in North Falmouth,
Massachusetts. The aggregate consideration for the outstanding
Benthos shares was approximately $40.6 million (including
payments for the settlement of outstanding stock options) or
$32.2 million taking into consideration $8.4 million
of cash acquired.
|
|
|
|
On August 16, 2006, we acquired a majority interest in
Ocean Design, Inc. (ODI), a leading manufacturer of
subsea, wet-mateable electrical and fiber-optic interconnect
systems used in offshore oil and gas production, oceanographic
research, and military applications, headquartered in Daytona
Beach, Florida. In September 2006, we acquired an additional
9.9% of ownership in ODI. At December 31, 2006, total cash
paid, including the initial investment and subsequent share
purchase, net of cash acquired was $34.4 million.
|
Defense
|
|
|
|
|
On April 28, 2006, Teledyne Wireless, Inc. acquired assets
of KW Microwave Corporation (KW Microwave), a
manufacturer of defense microwave components and subsystems
located in Southern California. Total cash paid, including the
receipt of a $0.2 million purchase price adjustment, was
$10.3 million.
|
|
|
|
On August 16, 2006, we acquired Colorado Springs,
Colorado-based CollaborX, Inc. (CollaborX), a
provider of government engineering services primarily to the
U.S. Air Force and also to select joint military commands,
such as the Missile Defense Agency, the United States Joint
Forces Command and the United States Northern Command. At
December 31, 2006, total cash paid, including other fees,
net of cash acquired was $14.9 million.
|
31
|
|
|
|
|
On September 15, 2006, we acquired Southern
California-based Rockwell Scientific Company LLC
(Scientific Company), a leading provider of research
and development services to the Department of Defense, NASA and
major defense and aerospace companies, as well as a leader in
developing and manufacturing infrared and visible light imaging
sensors for surveillance applications. At December 31,
2006, total cash paid, including other fees, net of
$9.5 million of cash acquired was $158.6 million.
|
Teledyne spent $250.4 million, net of cash acquired, on
these acquisitions in 2006.
Each of the acquisitions, except for CollaborX, is part of the
Electronics and Communications segment. CollaborX, now Teledyne
Brown CollaborX, Inc., is part of the Systems Engineering and
Solutions segment. In all acquisitions, the results are included
in our consolidated financial statements since their respective
dates of acquisition.
Financial
Highlights
Our fiscal year is determined based on a 52 or
53-week
convention ending on the Sunday nearest to December 31. The
following is our financial information for 2006, 2005 and 2004
(in millions, except per-share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006(a)
|
|
|
2005
|
|
|
2004
|
|
|
Sales
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
$
|
1,016.6
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,020.2
|
|
|
|
869.6
|
|
|
|
746.3
|
|
Selling, general and
administrative expenses
|
|
|
287.9
|
|
|
|
236.2
|
|
|
|
203.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,308.1
|
|
|
|
1,105.8
|
|
|
|
949.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other income and
expense and income taxes
|
|
|
125.1
|
|
|
|
100.7
|
|
|
|
66.9
|
|
Interest and debt expense, net
|
|
|
(7.4
|
)
|
|
|
(3.5
|
)
|
|
|
(1.9
|
)
|
Other income (expense), net(b)
|
|
|
4.0
|
|
|
|
5.8
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
|
|
121.7
|
|
|
|
103.0
|
|
|
|
68.0
|
|
Provision for income taxes(c)
|
|
|
41.4
|
|
|
|
38.8
|
|
|
|
26.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$
|
2.34
|
|
|
$
|
1.93
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$
|
2.26
|
|
|
$
|
1.85
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Effective January 2, 2006, the company adopted the
provisions of SFAS No. 123(R) and began recording
stock option compensation expense and recorded $5.9 million
of stock option compensation expense for fiscal year 2006. No
compensation expense related to stock options was recorded in
2005 or in prior years. |
|
(b) |
|
Fiscal years 2006, 2005 and 2004 include the receipt of
$2.5 million, $5.0 million and $2.5 million,
respectively, pursuant to an agreement with Honda Motor Co.,
Ltd. related to the piston engine business. No further payments
will be received under this agreement. |
|
(c) |
|
Fiscal year 2006 includes the reversal of income tax contingency
reserves of $3.3 million. These reserves were determined to
be no longer needed due to the expiration of applicable statutes
of limitations. |
32
We operate in four business segments: Electronics and
Communications; Systems Engineering Solutions; Aerospace Engines
and Components; and Energy Systems. The segments
respective contributions as a percentage of total sales for
2006, 2005 and 2004 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Sales
|
|
Segment
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Electronics and Communications
|
|
|
63
|
%
|
|
|
60
|
%
|
|
|
56
|
%
|
Systems Engineering Solutions
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
24
|
%
|
Aerospace Engines and Components
|
|
|
15
|
%
|
|
|
16
|
%
|
|
|
18
|
%
|
Energy Systems
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results
of Operations
2006
Compared with 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Sales
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Electronics and Communications
|
|
$
|
899.4
|
|
|
$
|
717.8
|
|
|
|
25.3
|
%
|
Systems Engineering Solutions
|
|
|
283.0
|
|
|
|
263.7
|
|
|
|
7.3
|
%
|
Aerospace Engines and Components
|
|
|
223.9
|
|
|
|
196.6
|
|
|
|
13.9
|
%
|
Energy Systems
|
|
|
26.9
|
|
|
|
28.4
|
|
|
|
(5.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
|
18.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Net Income
|
|
2006(a)
|
|
|
2005
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Electronics and Communications
|
|
$
|
109.3
|
|
|
$
|
84.0
|
|
|
|
30.1
|
%
|
Systems Engineering Solutions
|
|
|
24.5
|
|
|
|
27.5
|
|
|
|
(10.9
|
)%
|
Aerospace Engines and Components(b)
|
|
|
20.5
|
|
|
|
13.5
|
|
|
|
51.9
|
%
|
Energy Systems
|
|
|
1.0
|
|
|
|
1.6
|
|
|
|
(37.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income
|
|
|
155.3
|
|
|
|
126.6
|
|
|
|
22.7
|
%
|
Corporate expense
|
|
|
(27.7
|
)
|
|
|
(20.9
|
)
|
|
|
32.5
|
%
|
Interest and debt expense, net
|
|
|
(7.4
|
)
|
|
|
(3.5
|
)
|
|
|
111.4
|
%
|
Other income, net
|
|
|
1.5
|
|
|
|
0.8
|
|
|
|
87.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes(c)
|
|
|
121.7
|
|
|
|
103.0
|
|
|
|
18.2
|
%
|
Provision for income taxes
|
|
|
41.4
|
|
|
|
38.8
|
|
|
|
6.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
|
25.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Effective January 2, 2006, the company adopted the
provisions of SFAS No. 123(R) and began recording
stock option compensation expense and recorded $5.9 million
of stock option compensation expense for fiscal year 2006. No
compensation expense related to stock options was recorded in
2005 or in prior years. |
|
(b) |
|
Fiscal years 2006 and 2005 include the receipt of
$2.5 million and $5.0 million, respectively, pursuant
to an agreement with Honda Motor Co., Ltd. related to the piston
engine business. |
|
(c) |
|
Fiscal year 2006 includes the reversal of income tax contingency
reserves of $3.3 million. These reserves were determined to
be no longer needed due to the expiration of applicable statutes
of limitations. |
33
We reported 2006 sales of $1,433.2 million, compared with
sales of $1,206.5 million for 2005, an increase of 18.8%.
Net income was $80.3 million ($2.26 per diluted share)
for 2006, compared with $64.2 million ($1.85 per
diluted share) for 2005, an increase of 25.1%.
The increase in sales in 2006, compared with 2005, reflected
improvement in our three largest reporting segments. The largest
increase in sales was in the Electronic and Communications
segment which grew, both organically and through strategic
acquisitions made in 2006 and in 2005 including: Cougar
Components Corporation (Cougar), acquired in June
2005; RD Instruments, Inc. (RDI), acquired in August
2005; the assets of the microwave technical solutions business
of Avnet, Inc., acquired in October 2005; Benthos, acquired in
January 2006; certain assets of KW Microwave acquired in April
2006; the initial majority interest (51%) in ODI, acquired in
August 2006; and Scientific Company, acquired in September 2006.
The increase in sales for the System Engineering Solutions
segment included the acquisition of CollaborX, in August 2006.
The incremental increase in revenue in 2006 from businesses
acquired since 2004 was $124.8 million.
The increase in segment operating profit and other segment
income for 2006, compared with 2005, reflected the impact of
higher sales. Operating profit and other segment income was
higher in the Electronics and Communications and the Aerospace
Engines and Components segments and lower in the System
Engineering Solutions and Energy Systems segments. Operating
profit in 2006 was negatively impacted by $1.5 million in
higher net pension expense compared with 2005. In fiscal year
2006 we also began recording stock option compensation expense
compared with no stock option compensation expense recorded in
2005, as noted below. Fiscal year 2006 also included the receipt
of $2.5 million pursuant to an agreement with Honda Motor
Co., Ltd. compared with $5.0 million received in 2005
pursuant to the agreement. The $25.3 million increase in
operating profit in the Electronics and Communications segment,
included incremental operating profit from acquisitions and
related synergies of $12.4 million.
Effective January 2, 2006, we adopted the provisions of
Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standard (SFAS)
No. 123(R), Share Based Payment
(SFAS No. 123(R)) using the modified
prospective method and began recording stock option compensation
expense in the consolidated statements of income, but did not
restate prior year financial statements. Stock option
compensation expense is recorded on a straight line basis over
the appropriate vesting period, generally three years. For
fiscal year 2006, we recorded a total of $5.9 million in
stock option expense related to stock options awarded after the
adoption of SFAS No. 123(R) and for stock options
which were not vested by the date of adoption of
SFAS No. 123(R). Of this amount $2.2 million was
recorded as corporate expense and $3.7 million was recorded
in the operating segment results. No stock option compensation
expense was recorded in 2005.
Cost of sales in total dollars was higher in 2006, compared with
2005, primarily due to higher sales which resulted from organic
growth and acquisitions. Fiscal year 2006 included
$0.7 million in LIFO expense, compared with
$2.1 million in LIFO expense in 2005. Cost of sales as a
percentage of sales for 2006 was lower compared with 2005. The
lower cost of sales percentage in 2006, primarily reflected a
lower cost of sales percentage for recent acquisitions which due
to the nature of their business, carry a lower cost of sales
percentage than most of Teledynes other businesses.
Selling, general and administrative expenses, including research
and development and bid and proposal expense, in total dollars
were higher in 2006, compared with 2005. This increase was
primarily due to higher sales, which resulted from organic
growth and acquisitions and also included $5.9 million in
stock option compensation expense in 2006 compared with no stock
option compensation expense in 2005. The increase also reflected
higher corporate expense including the impact of stock option
compensation expense and higher professional fees expense.
Selling, general and administrative expenses for 2006, as a
percentage of sales, were higher compared with 2005, and
reflected a higher general and administrative expense percentage
reflecting the impact of stock option compensation expense and a
higher selling expense percentage, partially offset by a
slightly lower research and development and bid and proposal
expense percentage. The higher selling expense percentage was
due to recent acquisitions which, due to the nature of their
business, carry a higher selling expense percentage than most of
Teledynes existing businesses.
34
Included in operating profit in 2006 was pension expense of
$15.4 million, of which $10.5 million was recoverable
in accordance with U.S. Government Cost Accounting
Standards (CAS) from certain government contracts.
Included in operating profit in 2005 was pension expense of
$12.7 million, of which $9.3 million was recoverable
in accordance with U.S. Government CAS. The increase in
pension expense in 2006 compared with 2005 reflects, in part, a
reduction in the discount rate assumption for the Companys
defined benefit plan to 6.00% in 2006 from 6.25% in 2005.
Pension expense determined under CAS can generally be recovered
through the pricing of products and services sold to the
U.S. Government.
The Companys effective tax rate for 2006 was 34.0%,
compared with 37.6% for 2005. The lower effective tax rate for
2006, compared with 2005 reflects the impact of the reversal of
income tax contingency reserves of $3.3 million during the
third quarter. These reserves were determined to be no longer
needed due to the expiration of applicable statutes of
limitations.
Sales under contracts with the U.S. Government were
approximately 40% of sales in 2006 and 42% of sales in 2005.
International sales represented approximately 21% in 2006,
compared with 18% of sales in 2005.
Total interest expense including credit facility fees and other
bank charges was $7.7 million in 2006 and $3.8 million
in 2005. Interest income was $0.3 million in both 2006 and
2005. The higher interest expense in 2006 primarily reflected
higher outstanding debt levels due to acquisitions and higher
average interest rates in 2006 compared with 2005.
Other income for 2006 and 2005 included the receipt of
$2.5 million and $5.0 million, respectively, pursuant
to an agreement with Honda Motor Co., Ltd. which is included as
part of the Aerospace Engines and Components segment operating
profit and other segment income for segment reporting purposes.
The $2.5 million received in January 2006 was the final
receipt pursuant to the agreement. Fiscal years 2006 and 2005,
also include sublease rental income and royalty income in other
income.
2005
Compared with 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Sales
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Electronics and Communications
|
|
$
|
717.8
|
|
|
$
|
567.9
|
|
|
|
26.4
|
%
|
Systems Engineering Solutions
|
|
|
263.7
|
|
|
|
242.2
|
|
|
|
8.9
|
%
|
Aerospace Engines and Components
|
|
|
196.6
|
|
|
|
181.8
|
|
|
|
8.1
|
%
|
Energy Systems
|
|
|
28.4
|
|
|
|
24.7
|
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
1,206.5
|
|
|
$
|
1,016.6
|
|
|
|
18.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
Net Income
|
|
2005
|
|
|
2004
|
|
|
Change
|
|
|
|
(In millions)
|
|
|
Electronics and Communications
|
|
$
|
84.0
|
|
|
$
|
54.4
|
|
|
|
54.4
|
%
|
Systems Engineering Solutions
|
|
|
27.5
|
|
|
|
27.1
|
|
|
|
1.5
|
%
|
Aerospace Engines and Components(a)
|
|
|
13.5
|
|
|
|
6.1
|
|
|
|
121.3
|
%
|
Energy Systems
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income
|
|
|
126.6
|
|
|
|
89.2
|
|
|
|
41.9
|
%
|
Corporate expense
|
|
|
(20.9
|
)
|
|
|
(19.8
|
)
|
|
|
5.6
|
%
|
Interest and debt expense, net
|
|
|
(3.5
|
)
|
|
|
(1.9
|
)
|
|
|
84.2
|
%
|
Other income, net
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
60.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
103.0
|
|
|
|
68.0
|
|
|
|
51.5
|
%
|
Provision for income taxes
|
|
|
38.8
|
|
|
|
26.3
|
|
|
|
47.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
|
|
54.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total year 2005 and 2004 includes the receipt of
$5.0 million and $2.5 million, respectively, pursuant
to an agreement with Honda Motor Co., Ltd. related to the piston
engine business. |
35
We reported 2005 sales of $1,206.5 million, compared with
sales of $1,016.6 million for 2004, an increase of 18.7%.
Net income was $64.2 million ($1.85 per diluted share)
for 2005, compared with $41.7 million ($1.24 per
diluted share) for 2004, an increase of 54.0%.
The increase in sales in 2005, compared with 2004, reflected
improvement in all four reporting segments. The largest increase
in sales was in the Electronic and Communications segment which
grew both organically and through strategic acquisitions made in
2005 and in 2004 including: Cougar, acquired in June 2005; RDI,
acquired in August 2005; Leeman Labs (Leeman)
assets acquired in February 2004; Isco Inc. (Isco),
acquired in June 2004; Reynolds Industries, Inc.
(Reynolds), acquired in July 2004; and
Celeriteks defense assets, acquired in October 2004. The
incremental increase in revenue from acquisitions in 2005,
compared with 2004, was $100.8 million.
The increase in segment operating profit and other segment
income for 2005, compared with 2004, reflected the impact of
higher sales and continued cost reduction initiatives. The
increase also reflected lower net pension expense of
$4.8 million in 2005, compared with 2004, and the receipt
in 2005 of $5.0 million pursuant to an agreement with Honda
Motor Co., Ltd. compared with the receipt of $2.5 million
in 2004. Operating profit and other segment income was higher in
the Electronics and Communications, System Engineering Solutions
and the Aerospace Engines and Components segments. The largest
increase was in the Electronics and Communications segment,
which included incremental operating profit from acquisitions
and related synergies of $15.1 million.
Cost of sales in total dollars was higher in 2005, compared with
2004. The increase was primarily due to higher sales which
resulted from organic growth and acquisitions. Fiscal year 2005
included $2.1 million in LIFO expense, compared with
$0.5 million in LIFO expense in 2004. Cost of sales as a
percentage of sales for 2005 was lower compared with 2004. The
lower cost of sales percentage in 2005, reflected a lower cost
of sales percentage for recent acquisitions which due to the
nature of their business, carry a lower cost of sales percentage
than most of Teledynes other businesses. The cost of sales
percentage for 2005, for Teledynes existing businesses,
was slightly lower compared with 2004.
Selling, general and administrative expenses, including research
and development and bid and proposal expense, in total dollars
were higher in 2005, compared with 2004. This increase was
primarily due to higher sales, which resulted from organic
growth and acquisitions. Selling, general and administrative
expenses for 2005, as a percentage of sales, were slightly lower
compared with 2004, and reflected a lower general and
administrative expense percentage, partially offset by a higher
selling expense percentage, and a higher research and
development and bid and proposal expense percentage. The higher
research and development percentage reflected increased spending
in the Electronics and Communications segment in the avionics
area. The higher selling expense percentage was due to recent
acquisitions which due to the nature of their business, carry a
higher selling expense percentage than most of Teledynes
existing businesses.
Included in operating profit in 2005 was pension expense of
$12.7 million, of which $9.3 million was recoverable
in accordance with CAS from certain government contracts.
Included in operating profit in 2004 was pension expense of
$8.7 million, of which $0.5 million was recoverable in
accordance with CAS. The increase in pension expense in 2005
compared with 2004, reflects, in part, a reduction in the
discount rate assumption for the Companys defined benefit
plan to 6.25% in 2005 from 6.50% in 2004, as well as the decline
in the market value of the Companys pension assets during
2002, 2001 and 2000. Under one of its spin-off agreements, after
November 29, 2004, the Company is able to charge pension
costs to the U.S. Government under certain government
contracts. Pension expense determined under CAS can generally be
recovered through the pricing of products and services sold to
the U.S. Government.
The Companys effective tax rate for 2005 was 37.6%,
compared with 38.7% for 2004. The lower effective tax rate for
2005, compared with 2004, primarily reflected the revaluation of
deferred tax assets in 2004 due to the impact of state income
tax rates.
Sales under contracts with the U.S. Government were
approximately 42% of sales in 2005 and 43% of sales in 2004.
International sales represented approximately 18% of sales in
2005 and 19% of sales in 2004.
36
Total interest expense including credit facility fees and other
bank charges was $3.8 million in 2005 and $2.2 million
in 2004. Interest income was $0.3 million in both 2005 and
2004. The higher interest expense in 2005 reflected interest on
debt incurred for acquisitions.
Other income for 2005 and 2004 included the receipt of
$5.0 million and $2.5 million, respectively, pursuant
to an agreement with Honda Motor Co., Ltd. which is included as
part of the Aerospace Engines and Components segment operating
profit and other segment income for segment reporting purposes.
Fiscal years 2005 and 2004, also include sublease rental income
and royalty income in other income.
Segments
The following discussion of our four segments should be read in
conjunction with Note 13 to the Notes to Consolidated
Financial Statements.
Electronics
and Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in millions)
|
|
|
Sales
|
|
$
|
899.4
|
|
|
$
|
717.8
|
|
|
$
|
567.9
|
|
Operating profit
|
|
$
|
109.3
|
|
|
$
|
84.0
|
|
|
$
|
54.4
|
|
Operating profit % of sales
|
|
|
12.2
|
%
|
|
|
11.7
|
%
|
|
|
9.6
|
%
|
International sales % of sales
|
|
|
29.1
|
%
|
|
|
24.8
|
%
|
|
|
27.6
|
%
|
Governmental sales % of sales
|
|
|
27.7
|
%
|
|
|
27.7
|
%
|
|
|
25.9
|
%
|
Capital expenditures
|
|
$
|
17.9
|
|
|
$
|
12.5
|
|
|
$
|
12.8
|
|
Our Electronics and Communications segment provides a wide range
of specialized electronic systems, instruments, components and
services that address niche market applications in defense,
commercial aerospace, communications, industrial, scientific and
medical markets.
2006
compared with 2005
Our Electronics and Communications segment sales were
$899.4 million in 2006, compared with sales of
$717.8 million in 2005, an increase of 25.3%. Operating
profit was $109.3 million in 2006, compared with
$84.0 million in 2005, an increase of 30.1%.
The 2006 sales improvement resulted primarily from revenue
growth in defense electronics and electronic instruments. The
revenue growth of $80.0 million in defense electronics was
driven by increased sales of traveling wave tubes, connectors
and the acquisitions of Scientific Company in September 2006,
the assets of KW Microwave in April 2006, the assets of the
microwave technical solutions business of Avnet, Inc. in October
2005 and Cougar in June 2005. The increase in revenue from
acquisitions in defense electronics products for 2006, compared
with 2005, was $51.6 million. The revenue growth of
$108.3 million in electronic instruments was primarily
driven by recent acquisitions as well as organic growth. Revenue
growth included the acquisitions of the majority interest in ODI
in August 2006, Benthos in January 2006 and RDI in August 2005
and also reflected increased sales of geophysical sensors for
the energy exploration market. The increase in revenue from
acquisitions in electronic instruments for 2006, compared with
2005, was $67.3 million. Revenue in avionics and other
commercial electronics decreased by $6.7 million and
reflected revenue growth in electronic relay products which was
more than offset by lower commercial contract manufacturing
services. The increase in revenue from all acquisitions for
2006, compared with 2005, was $118.9 million. Incremental
operating profit from all acquisitions including synergies for
2006, compared with 2005, was $12.4 million. Segment
operating profit was favorably impacted by revenue from
acquisitions, as well as organic sales growth. Segment operating
profit was negatively impacted by $2.4 million of stock
option compensation expense in 2006. No stock option
compensation expense was recorded in 2005. Fiscal year 2006 also
reflected lower LIFO expense of $0.8 million, compared with
fiscal year 2005. We also recorded $0.7 million in charges
in our commercial electronics business for warranty reserves and
inventory obsolescence related to the termination of a product
line. Pension expense, in accordance with the pension accounting
requirements of
37
SFAS No. 87, was $3.8 million in 2006, compared
with $3.3 million in 2005. Pension expense allocated to
contracts pursuant to CAS was $1.6 million in 2006,
compared with $1.0 million for 2005.
2005
compared with 2004
Our Electronics and Communications segment sales were
$717.8 million in 2005, compared with sales of
$567.9 million in 2004, an increase of 26.4%. Operating
profit was $84.0 million in 2005, compared with
$54.4 million in 2004, an increase of 54.4%.
Sales in 2005, compared with 2004, reflected revenue growth in
defense electronic products, electronic instruments and avionics
and other commercial electronics. The revenue growth of
$79.6 million in defense electronic products was driven by
sales of traveling wave tubes, printed circuit card assemblies,
the acquisition of Reynolds in July 2004, the acquisition of the
defense electronics business of Celeritek, Inc. in October 2004
and the acquisition of Cougar in June 2005. The increase in
revenue from acquisitions in defense electronic products for
2005, compared with 2004, was $52.6 million. The revenue
growth of $53.0 million in electronic instruments reflected
the impact of the acquisition of Isco in June 2004, the
acquisition of RDI in August 2005, the acquisition of
Leemans assets in February 2004 and increased sales of
geophysical sensors for the energy exploration market. The
increase in revenue from acquisitions in electronic instruments
for 2005, compared with 2004, was $48.2 million. The
revenue growth of $17.3 million in avionics and other
commercial electronics reflected revenue growth in relay
products which was driven by sales to the aviation and test and
measurement equipment markets and from commercial electronic
manufacturing services which had increases in medical sales. The
increase in revenue from all acquisitions for 2005, compared
with 2004, was $100.8 million. Incremental operating profit
from all acquisitions including synergies for 2005, compared
with 2004, was $15.1 million. Segment operating profit was
favorably impacted by acquisitions and organic sales growth and
lower pension expense. Pension expense, in accordance with the
pension accounting requirements of SFAS No. 87 was
$3.3 million for 2005, compared with $6.0 million for
2004. Pension expense allocated to contracts pursuant to CAS was
$1.6 million for 2005, compared with no allocations for
2004. Operating profit in 2005 was negatively impacted by a
$1.0 million increase in LIFO reserve compared with a $46
thousand increase in 2004.
Systems
Engineering Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in millions)
|
|
|
Sales
|
|
$
|
283.0
|
|
|
$
|
263.7
|
|
|
$
|
242.2
|
|
Operating profit
|
|
$
|
24.5
|
|
|
$
|
27.5
|
|
|
$
|
27.1
|
|
Operating profit % of sales
|
|
|
8.7
|
%
|
|
|
10.4
|
%
|
|
|
11.2
|
%
|
International sales % of sales
|
|
|
0.6
|
%
|
|
|
0.7
|
%
|
|
|
0.1
|
%
|
Governmental sales % of sales
|
|
|
98.6
|
%
|
|
|
98.6
|
%
|
|
|
99.3
|
%
|
Capital expenditures
|
|
$
|
1.4
|
|
|
$
|
1.3
|
|
|
$
|
1.7
|
|
Our Systems Engineering Solutions segment, principally through
Teledyne Brown Engineering, Inc., applies the skills of its
extensive staff of engineers and scientists to provide
innovative systems engineering, advanced technology, and
manufacturing solutions to defense, space, environmental, and
homeland security requirements.
2006
compared with 2005
Our Systems Engineering Solutions segment sales were
$283.0 million in 2006, compared with sales of
$263.7 million in 2005, an increase of 7.3%. Operating
profit was $24.5 million in 2006, compared with
$27.5 million in 2005, a decrease of 10.9%.
Sales for 2006, compared with 2005, reflected revenue growth in
aerospace and environmental programs and included
$5.9 million in revenue from the acquisition of CollaborX
in August 2006. The revenue growth of $8.7 million in
aerospace was primarily due to increased support for NASA. The
revenue growth of
38
$4.7 million in environmental programs was primarily due to
increased support of the U.S. Army at the Pine Bluff
Arsenal. Operating profit for 2006, compared with 2005,
reflected higher segment revenue and a favorable overhead claim
settlement of $1.3 million in 2006, compared with a
favorable overhead claim settlement of $0.8 million in
2005, more than offset by lower margins in aerospace programs
due to higher sales on certain contracts which carry lower
profit margins, increased subcontract work which carries lower
margins, lower margins on an environmental contract and
amortization expenses associated with the acquisition of
CollaborX. Segment operating profit was negatively impacted by
$0.7 million of stock option compensation expense in 2006
compared with no stock option compensation expense in 2005.
Segment operating profit also included pension expense under
SFAS No. 87 of $9.5 million in 2006, compared
with $7.7 million of pension expense in 2005. Pension
expense allocated to contracts pursuant to CAS was
$8.6 million in 2006 compared with $8.0 million in
2005.
2005
compared with 2004
Our Systems Engineering Solutions segment sales were
$263.7 million in 2005, compared with sales of
$242.2 million in 2004, an increase of 8.9%. Operating
profit was $27.5 million in 2005, compared with
$27.1 million in 2004, an increase of 1.5%.
Sales for 2005, compared with 2004, reflected revenue growth in
core defense, environmental and aerospace programs. Core defense
revenue grew by $18.8 million, primarily due to increased
Systems Engineering and Technical Assistance (SETA)
work. The higher operating profit in the 2005, compared with
2004, was primarily the result of higher sales, partially offset
by sales mix and rate differences and increased lower profit
margin subcontract work in our SETA contracts. Segment operating
profit in 2005 included $7.7 million of pension expense, of
which $8.0 million was recoverable in accordance with CAS
from certain government contracts, compared with
$0.8 million of pension expense in 2004, of which
$0.5 million was recoverable in accordance with CAS.
Aerospace
Engines and Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in millions)
|
|
|
Sales
|
|
$
|
223.9
|
|
|
$
|
196.6
|
|
|
$
|
181.8
|
|
Operating profit
|
|
$
|
20.5
|
|
|
$
|
13.5
|
|
|
$
|
6.1
|
|
Operating profit % of sales
|
|
|
9.2
|
%
|
|
|
6.9
|
%
|
|
|
3.4
|
%
|
International sales % of sales
|
|
|
13.2
|
%
|
|
|
18.5
|
%
|
|
|
20.2
|
%
|
Governmental sales % of sales
|
|
|
11.1
|
%
|
|
|
16.4
|
%
|
|
|
14.3
|
%
|
Capital expenditures
|
|
$
|
6.5
|
|
|
$
|
5.5
|
|
|
$
|
3.2
|
|
Our Aerospace Engines and Components segment, principally
through Teledyne Continental Motors, Inc., focuses on the
design, development and manufacture of piston engines, turbine
engines, electronic engine controls and aviation batteries.
2006
compared with 2005
Our Aerospace Engines and Components segment sales were
$223.9 million in 2006, compared with sales of
$196.6 million in 2005, an increase of 13.9%. Operating
profit was $20.5 million in 2006, compared with
$13.5 million in 2005, an increase of 51.9%.
The higher sales for 2006, compared with 2005, primarily
resulted from higher OEM piston engine and spare part sales of
$31.8 million, partially offset by $4.7 million in
lower turbine engine sales. Segment operating profit for 2006,
compared with 2005, reflected the impact of higher sales,
improved operating performance, $0.7 million in lower LIFO
expense and $1.8 million in lower warranty costs. Turbine
engine sales and operating profit for 2006 were unfavorable,
compared with 2005, due to lower Harpoon and ITALD engine sales
and lower J69 spare sales, partially offset by higher research
and development sales. Segment operating profit for 2006 and
2005, included the receipt of $2.5 million and
$5.0 million, respectively,
39
pursuant to an agreement with Honda Motor Co., Ltd. related to
the piston engine business. The $2.5 million receipt in the
first quarter of 2006 was the final payment under the agreement.
Segment operating profit was negatively impacted by
$0.5 million of stock option compensation expense in 2006
compared with no stock option compensation expense in 2005.
Segment operating profit also included pension expense, under
SFAS No. 87 of $1.2 million in 2006, compared
with $0.9 million for 2005.
2005
compared with 2004
Our Aerospace Engines and Components segment sales were
$196.6 million in 2005, compared with sales of
$181.8 million in 2004, an increase of 8.1%. Operating
profit was $13.5 million in 2005, compared with
$6.1 million in 2004, an increase of 121.3%.
Sales for 2005, compared with 2004, reflected revenue growth in
OEM piston engine and turbine engine sales of $11.0 million
and $4.8 million respectively. The higher turbine engine
sales for 2005, compared with 2004, reflected higher Harpoon and
JASSM engine sales partially offset by lower spare parts sales.
Segment operating profit for 2005 included receipt of
$5.0 million pursuant to the agreement with Honda Motor
Co., Ltd., compared with receipt of $2.5 million for 2004.
Segment operating profit for 2005, compared with 2004, was
favorably impacted by higher sales, partially offset by higher
warranty expense of $2.6 million and higher LIFO reserve.
Operating profit in 2005 was negatively impacted by a
$1.0 million increase in LIFO reserve in 2005, compared
with a $0.5 increase in LIFO reserve in 2004. Segment operating
profit in 2005 included $0.9 million of pension expense,
compared with $1.5 million of pension expense in 2004.
Energy
Systems
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(Dollars in millions)
|
|
|
Sales
|
|
$
|
26.9
|
|
|
$
|
28.4
|
|
|
$
|
24.7
|
|
Operating profit
|
|
$
|
1.0
|
|
|
$
|
1.6
|
|
|
$
|
1.6
|
|
Operating profit % of sales
|
|
|
3.7
|
%
|
|
|
5.6
|
%
|
|
|
6.5
|
%
|
International sales % of sales
|
|
|
31.2
|
%
|
|
|
20.8
|
%
|
|
|
17
|
%
|
Governmental sales % of sales
|
|
|
61.6
|
%
|
|
|
69.7
|
%
|
|
|
78.5
|
%
|
Capital expenditures
|
|
$
|
0.5
|
|
|
$
|
0.3
|
|
|
$
|
1.1
|
|
Our Energy Systems segment, through Teledyne Energy Systems,
Inc., provides hydrogen gas generators and thermoelectric and
fuel cell-based power sources.
2006
compared with 2005
Our Energy Systems segment sales were $26.9 million in
2006, compared with sales of $28.4 million in 2005, a
decrease of 5.3%. Operating income was $1.0 million in
2006, compared with $1.6 million in 2005, a decrease of
37.5%.
The decrease in sales for 2006, compared with 2005, primarily
resulted from reduced work on the Multi-Mission Radioisotope
Thermoelectric Generator (MMRTG) contract due to moving from the
engineering development phase to the product qualification
phase. Segment operating profit was impacted by the lower
government sales and differences in contract fees. Segment
operating profit also included pension expense, under
SFAS No. 87 of $0.5 million for 2006 compared
with $0.4 million for 2005. Pension expense allocated to
contracts pursuant to CAS was $0.3 for both 2006 and 2005.
2005
compared with 2004
Our Energy Systems segment sales were $28.4 million in
2005, compared with sales of $24.7 million in 2004, an
increase of 15.0%. Operating income was $1.6 million in
both 2005 and 2004.
The increase in sales for 2005, compared with 2004, resulted
from the timing of multi-year government contracts, which were
awarded in 2003 for fuel cell and thermoelectric power generator
work and an increase
40
in commercial hydrogen generator sales. Operating profit for
2005, compared with 2004, was favorably impacted by higher
sales, offset by differences in contract fees, employee
termination costs and pension expense. Pension expense under
SFAS No. 87 was $0.4 million for 2005, compared
with $0.1 million for 2004. Pension expense allocated to
contracts pursuant to CAS was $0.3 million for 2005,
compared with no allocation in 2004.
Financial
Condition, Liquidity and Capital Resources
Principal
Capital Requirements
Our principal capital requirements are to fund working capital
needs, capital expenditures and debt service requirements, as
well as to fund acquisitions. It is anticipated that operating
cash flow, together with available borrowings under the credit
facility described below, will be sufficient to meet these
requirements and could be used to fund some acquisitions in the
year 2007. To support acquisitions, we may need to raise
additional capital. Our liquidity is not dependent upon the use
of off-balance sheet financial arrangements. We have no
off-balance sheet financing arrangements that incorporate the
use of special purpose entities or unconsolidated entities.
Revolving
Credit Agreement
Effective July 14, 2006, the Company amended and restated
its $280.0 million credit facility. The amended and
restated credit facility has lender commitments totaling
$400.0 million and expires on July 14, 2011. Excluding
interest and fees, no payments are due under the amended and
restated credit facility until it matures. The credit agreement
requires the Company to comply with various financial and
operating covenants, including maintaining certain consolidated
leverage and interest coverage ratios, as well as minimum net
worth levels and limits on acquired debt. At December 31,
2006, the Company was in compliance with these covenants.
Available borrowing capacity under the $400.0 million
credit facility, which is reduced by borrowings, outstanding
letters of credit and certain guarantees was $174.7 million
at December 31, 2006. For a description of some terms of
our credit facility, see Financing Activities on
page 46.
Contractual
Obligations
The following table summarizes our expected cash outflows
resulting from financial contracts and commitments at
December 31, 2006. We have not included information on our
normal recurring purchases of materials for use in our
operations. These amounts are generally consistent from year to
year, closely reflect our levels of production, and are not
long-term in nature (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 and
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
beyond
|
|
|
Total
|
|
|
Operating lease obligations
|
|
$
|
14.5
|
|
|
$
|
12.8
|
|
|
$
|
11.4
|
|
|
$
|
9.8
|
|
|
$
|
7.5
|
|
|
$
|
32.9
|
|
|
$
|
88.9
|
|
Long-term debt obligations(a)
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
226.9
|
|
|
|
|
|
|
|
228.1
|
|
Capital lease obligations(b)
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
5.0
|
|
|
|
7.0
|
|
Purchase obligations(c)
|
|
|
31.8
|
|
|
|
2.9
|
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
36.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47.9
|
|
|
$
|
16.1
|
|
|
$
|
12.6
|
|
|
$
|
11.0
|
|
|
$
|
234.8
|
|
|
$
|
37.9
|
|
|
$
|
360.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes short-term portion. |
|
(b) |
|
Includes imputed interest and short-term portion. |
|
(c) |
|
Purchase obligations generally include long-term contractual
obligations for the purchase of goods and services. |
The amounts above exclude our minimum pension plan funding
requirements, including those set forth by ERISA, which are
$6.6 million in 2007 and $9.8 million in 2008. Our
minimum funding requirements after 2006 are dependent on several
factors as discussed under Accounting for Pension
Plans in the Critical
41
Accounting Policy section of this Managements Discussion
and Analysis of Financial Condition and Results of Operation.
Estimates beyond 2008 have not been provided due to the
significant uncertainty of these amounts, which are subject to
change until the Companys SFAS No. 87
assumptions can be updated at the appropriate times. In
addition, certain pension contributions are eligible for future
recovery through the pricing of products and services to the
U.S. government under certain government contracts,
therefore, the amounts noted are not necessarily indicative of
the impact these contributions may have on the Companys
liquidity. We also have payments due under our other
postretirement benefits plans. These plans are not required to
be funded in advance, but are pay as you go. See further
discussion in Note 12 of the Notes to Consolidated
Financial Statements.
Pursuant to agreements in connection with our acquisition of a
majority interest in ODI, the ODI minority stockholders have the
contractual option to sell their shares to Teledyne Instruments
following the end of each quarter through the quarter ended
March 31, 2009, at a formula-determined price based
principally on ODIs EBITDA for the twelve months preceding
each applicable quarter end. All shares not sold to Teledyne
Instruments following the quarter ended March 31, 2009, are
required to be purchased by Teledyne Instruments following the
quarter ended June 30, 2009, at a same formula-determined
price, at which time Teledyne Instruments will own all of the
ODI shares held by the participating stockholders. At
December 31, 2006, total cash paid for Teledynes
interest in ODI, net of cash acquired, was $34.4 million.
Based on the formula-determined purchase price as of the quarter
ended December 31, 2006, the aggregate amount of funds
required to repurchase all the shares held by the remaining
minority ODI stockholders would be approximately
$22.5 million. However, the actual aggregate amount of
funds that we will spend to repurchase the shares held by
minority stockholders through June 30, 2009, could be
significantly higher or lower than this amount, as that amount
will depend on when individual stockholders elect to exercise
their put options and on the financial performance of ODI.
Teledyne Technologies has guaranteed the payment obligation of
its subsidiary, Teledyne Instruments.
Operating
Activities
In 2006, net cash provided from operations was
$78.4 million, compared with $92.3 million in 2005 and
$84.9 million in 2004.
The lower net cash provided for 2006, compared with 2005,
reflected $14.6 million in higher income tax payments and
$3.9 million in higher pension contributions, partially
offset by higher net income, cash flow from companies acquired
since 2005 and $3.1 million in insurance receipts.
Additionally, in accordance with SFAS No. 123(R),
$8.6 million of excess tax benefits in 2006 for stock
option compensation have been classified as a financing cash
flow instead of an operating cash flow as in prior years. In
2005 cash flow from operations included $5.2 million in
excess tax benefits related to stock-based compensation.
The higher net cash provided from operations for 2005, compared
with 2004, reflected higher net income as well as operating cash
flow from acquisitions, partially offset by increased working
capital requirements, $11.8 million in higher pension
contributions and higher compensation payments made in the first
quarter of 2005.
Working
Capital
Working capital was $216.4 million at year-end 2006,
compared with $154.0 million at year-end 2005. The increase
in working capital was primarily due to working capital from
recent acquisitions as well as the impact of organic growth. We
continue to emphasize improvements in working capital management.
42
Balance
Sheet Changes
The changes in the following selected components of Teledyne
balance sheet are discussed below (in millions):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Accounts receivables, net
|
|
$
|
226.1
|
|
|
$
|
167.6
|
|
Inventories, net
|
|
$
|
155.8
|
|
|
$
|
117.3
|
|
Property, plant and equipment, net
|
|
$
|
164.8
|
|
|
$
|
96.7
|
|
Goodwill, net
|
|
$
|
313.6
|
|
|
$
|
197.0
|
|
Acquired intangible assets, net
|
|
$
|
69.4
|
|
|
$
|
33.6
|
|
Accounts payable
|
|
$
|
94.1
|
|
|
$
|
76.2
|
|
Accrued liabilities
short term
|
|
$
|
135.1
|
|
|
$
|
101.1
|
|
Long-term debt and capital lease
obligations, net of current portion
|
|
$
|
230.7
|
|
|
$
|
47.0
|
|
Accrued pension obligation
|
|
$
|
38.4
|
|
|
$
|
68.2
|
|
Other long-term liabilities
|
|
$
|
105.7
|
|
|
$
|
87.0
|
|
The higher balances in accounts receivables, inventory,
property, plant and equipment and accounts payable reflected the
impact of businesses acquired in 2006, as well as organic sales
growth. Goodwill and acquired intangible assets reflect the
impact of acquisitions. The increase in short-term accrued
liabilities reflected the impact of businesses acquired in 2006
and also includes a note payable that is now current. The
increase in long-term debt and capital lease obligations
resulted from debt incurred to acquire businesses in 2006,
offset, in part, by available cash flow. The accrued pension
obligation decreased primarily as a result of the changes to the
companys pension assets and liabilities resulting from the
merger of the Scientific Company pension plan with the Teledyne
Technologies pension plan following the acquisition of
Scientific Company, as well as pension contributions made in
2006. The increase in other long-term liabilities reflected an
increase in the aircraft product liability reserve, higher
compensation reserves including deferred compensation, higher
interest payable on debt, the impact of businesses acquired in
2006, including the minority interest in ODI, partially offset
by notes payable that are now classified as short-term.
Investing
Activities
Net cash used in investing activities included capital
expenditures as presented below:
Capital
Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Electronics and Communications
|
|
$
|
17.9
|
|
|
$
|
12.5
|
|
|
$
|
12.8
|
|
Systems Engineering Solutions
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
1.7
|
|
Aerospace Engines and Components
|
|
|
6.5
|
|
|
|
5.5
|
|
|
|
3.2
|
|
Energy Systems
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
1.1
|
|
Corporate
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26.4
|
|
|
$
|
19.8
|
|
|
$
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2007, we plan to invest approximately $35.0 million
in capital principally to relocate a manufacturing facility,
reduce manufacturing costs, introduce new products and upgrade
capital equipment. Commitments at December 31, 2006 for
capital expenditures were approximately $14.0 million.
Investing activities in 2006 included acquisitions. On
September 15, 2006, Teledyne Technologies through its
subsidiary, Teledyne Brown Engineering, Inc., acquired
Scientific Company for $167.5 million in cash, with the
sellers retaining certain liabilities. At December 31,
2006, total cash paid, including other fees, net of
$9.5 million in cash acquired was $158.6 million. The
Company now operates as Teledyne Scientific & Imaging,
LLC. Headquartered in Thousand Oaks, California, Scientific
Company is a leading provider of
43
research and development services, as well as a leader in
developing and manufacturing infrared and visible light imaging
sensors for surveillance applications. Prior to the acquisition,
Scientific Company was 50 percent owned by each of Rockwell
Automation, Inc. and Rockwell Collins, Inc. For its fiscal year
ended September 30, 2005, Scientific Company had revenue of
$114 million.
As part of the acquisition, Rockwell Automation and Rockwell
Collins have entered into service agreements to continue funding
research performed by Scientific Company. In addition, Teledyne
has agreed to license certain intellectual property of
Scientific Company to Rockwell Automation and Rockwell Collins.
On August 16, 2006, Teledyne Technologies through its
subsidiary, Teledyne Instruments, Inc., acquired a majority
interest (51%) in ODI for approximately $30 million in
cash. ODI, headquartered in Daytona Beach, Florida, is a leading
manufacturer of subsea, wet-mateable electrical and fiber-optic
interconnect systems used in offshore oil and gas production,
oceanographic research, and military applications.
In September 2006, we acquired an additional 9.9% of ownership
in ODI for $5.8 million. At December 31, 2006, total
cash paid, including the initial investment and subsequent share
purchase, net of cash acquired was $34.4 million. The ODI
stockholders will also have the option to sell their shares to
Teledyne Instruments following the end of each quarter through
the quarter ended March 31, 2009, at a formula-determined
price. 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. For its fiscal year ended
December 31, 2005, ODI had revenue of $31.6 million.
On August 16, 2006, Teledyne Technologies, through its
subsidiary, Teledyne Brown Engineering, Inc., acquired CollaborX
for cash consideration of $17.5 million, less certain
transaction-related expenses. At December 31, 2006, total
cash paid, including other fees, net of cash acquired was
$14.9 million. CollaborX, based in Colorado Springs,
Colorado, provides government engineering services primarily to
the U.S. Air Force and select joint military commands, such
as the Missile Defense Agency, the United States Joint Forces
Command and the United States Northern Command. CollaborX had
revenue of $13.6 million for its fiscal year ended
December 31, 2005.
On April 28, 2006, Teledyne Wireless, Inc. completed the
acquisition of certain assets of KW Microwave, a manufacturer of
defense microwave components and subsystems, for
$10.5 million in cash. Total cash paid, including the
receipt of a $0.2 million purchase price adjustment, was
$10.3 million. Principally located in Carlsbad, California,
the business will operate as Teledyne KW Microwave. KW Microwave
designs and manufactures high performance microwave filters and
integrated filter assemblies that are used in military
electronic warfare, communication and navigation systems. KW
Microwave reported revenue of approximately $6.7 million
for its fiscal year ended December 31, 2005.
On January 27, 2006, we acquired all of the outstanding
shares of Benthos for $17.50 per share in cash. The
aggregate consideration for the outstanding Benthos shares was
approximately $40.6 million (including payments for the
settlement of outstanding stock options) or $32.2 million
taking into consideration $8.4 million in cash acquired.
Benthos, located in North Falmouth, Massachusetts, is a provider
of oceanographic products used in port and harbor security
services, military applications, energy exploration and
oceanographic research. Benthos had revenue of
$24.0 million for its fiscal year ended September 30,
2005.
Teledyne funded the acquisitions primarily from borrowings under
its credit facility and cash on hand.
Our net cash used by investing activities for 2006 also included
$0.8 million for the purchase of assets and liabilities of
a cable repair facility and a contingent payment of
$0.8 million in connection with the Cougar acquisition. We
expect to make a final payment of $0.8 million in June 2007
in connection with the Cougar acquisition. We received
$0.7 million from the sale of assets in 2006.
Investing activities in 2005 included acquisitions. In August
2005, we completed the acquisition of RDI for
$36.0 million. Total cash paid, net of $0.4 million of
cash acquired, was $32.0 million. In connection with the
acquisition, we assumed debt obligations of $2.0 million.
In addition, we recorded a $3.6 million liability to be
paid in August 2007. RDI had sales of approximately
$29.0 million for its fiscal year ended
44
December 31, 2004. In the fourth quarter of 2005, we
purchased the minority interest of a subsidiary owned by RDI for
a cash payment of $1.7 million.
In June 2005, we completed the acquisition of the stock of
Cougar for a purchase price of $26.5 million. In the third
quarter we made a $0.6 million purchase price adjustment
payment in connection with the acquisition. Total cash paid,
including other fees and the purchase price adjustment, net of
cash acquired was $22.5 million. In connection with the
acquisition, we assumed debt obligations of $3.8 million
and acquired cash and cash equivalents of $3.3 million. In
addition, we recorded contingent payments of $1.6 million
to be paid in specified increments as certain conditions are
satisfied through June 2007. Cougar had sales of approximately
$18.1 million for its fiscal year ended August 31,
2004. We also purchased certain assets of the microwave
technical solutions business of Avnet, Inc. for
$2.2 million in cash and consolidated these assets with the
operations of Cougar.
Net cash used by investing activities in 2005 included the
receipt of $5.6 million from the sale of the assets of
STIP-Isco, a
German subsidiary and $2.9 million from the sale of
SWIFTtm
assets. An additional $0.4 million is held in escrow in
connection with the
STIP-Isco
asset sale which should be released to Teledyne Technologies in
specified increments as certain conditions are satisfied through
February 2007. The assets of
STIP-Isco
and
SWIFTtm
were acquired as part of the Isco acquisition made in June 2004.
No gain was recorded on the sales and goodwill was reduced by
$5.1 million. Investing activities in 2005 reflected
$1.1 million from the sale of fixed assets.
Investing activities in 2004 included five acquisitions. On
December 31, 2003, we acquired the electronic warfare
business of Filtronic Solid State for $12.0 million in
cash. Solid States electronic warfare business had sales
of approximately $12.5 million for the fiscal year ended
May 2003. In February 2004, we acquired Leemans assets for
$8.1 million in cash which includes a purchase price
adjustment. Leeman had sales of approximately $8.6 million
for the fiscal year ended September 30, 2003. In June 2004,
we completed the acquisition of the stock of Isco for
$16.00 per share in cash or $93.8 million net of cash
acquired. We sold $17.3 million of marketable securities
acquired as part of the Isco acquisition and applied the
proceeds against debt. We assumed $2.9 million in long-term
debt as part of the Isco acquisition. Isco had sales of
approximately $60.8 million for the fiscal year ended
July 25, 2003. On July 2, 2004, we acquired Reynolds
for $41.2 million in cash which includes a purchase price
adjustment and is net of cash acquired. We assumed a
$3.9 million capital lease as part of the Reynolds
acquisition. Reynolds had sales of approximately
$35.0 million for the fiscal year ended April 30,
2004. On October 22, 2004, we acquired the defense
electronics business of Celeritek, Inc. for $32.7 million
in cash, which includes the receipt of a purchase price
adjustment. The defense electronics business of Celeritek, Inc.
had sales of approximately $19.7 million for the fiscal
year ended March 31, 2004.
In all acquisitions, the results are included in the
Companys consolidated financial statements from the date
of each respective acquisition. Each of the companies acquired,
except for CollaborX, is part of the Electronics and
Communications segment. CollaborX is part of the Systems
Engineering and Solutions segment. The Company has completed the
process of specifically identifying the amount to be assigned to
intangible assets for the Benthos and KW Microwave acquisitions.
The amount of goodwill and acquired intangible assets recorded
for the Benthos acquisition was $19.0 million and
$6.5 million, respectively. The amount of goodwill and
acquired intangible assets recorded for the KW Microwave
acquisition was $7.0 million and $2.1 million,
respectively. 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 CollaborX, ODI
and Scientific Company acquisitions made in 2006. The Company
made preliminary estimates as of December 31, 2006, since
there was insufficient time between the acquisition date and the
end of the year to finalize the valuations. The preliminary
amount of goodwill and acquired intangible assets recorded as of
December 31, 2006 for the ODI acquisition was
$15.9 million and $13.8 million, respectively. The
preliminary amount of goodwill and acquired intangible assets
recorded as of December 31, 2006 for the CollaborX
acquisition was $14.2 million and $2.1 million,
respectively. The preliminary amount of goodwill and acquired
intangible assets recorded as of December 31, 2006 for the
Scientific Company acquisition was $60.1 million and
$19.0 million, respectively. These amounts were based on
estimates that are subject to change pending the completion of
the Companys internal review and the receipt of third
party valuations and appraisals. Goodwill
45
resulting from the KW Microwave, CollaborX and Scientific
Company acquisitions will be deductible for tax purposes.
The following is a summary at the acquisition date of the
estimated fair values of the assets acquired and liabilities
assumed for the acquisitions made in 2006 (in millions):
|
|
|
|
|
Current assets, excluding cash
acquired
|
|
$
|
61.2
|
|
Property, plant and equipment
|
|
|
66.0
|
|
Goodwill
|
|
|
116.4
|
|
Intangible assets
|
|
|
43.5
|
|
Other assets
|
|
|
21.5
|
|
|
|
|
|
|
Total assets acquired
|
|
|
308.6
|
|
Current liabilities, including
short-term debt
|
|
|
37.1
|
|
Long-term debt
|
|
|
1.9
|
|
Other long-term liabilities
|
|
|
17.6
|
|
|
|
|
|
|
Total liabilities
assumed
|
|
|
56.6
|
|
|
|
|
|
|
Purchase price, net of cash
acquired
|
|
$
|
252.0
|
|
|
|
|
|
|
Financing
Activities
Cash provided by financing activities for 2006 reflected net
borrowings, primarily under our revolving credit agreement, to
acquire businesses. Cash used in financing activities for 2005
reflected the payment of long-term debt. Cash provided by
financing activities for 2004 reflected net borrowings under the
revolving credit agreement. Fiscal years 2006, 2005 and 2004 all
reflect proceeds from the exercise of stock options. Fiscal year
2006 included $8.6 million in excess tax benefits related
to stock-based compensation. In 2005 and 2004, excess tax
benefits of $5.2 million and $2.5 million,
respectively, related to stock-based compensation were
classified as an operating cash flow.
Effective July 14, 2006, the Company amended and restated
its $280.0 million credit facility. The amended and
restated credit facility has lender commitments of
$400.0 million and expires in July 2011. At year-end 2006,
we had $174.7 million of available committed credit under
the credit facility, which can be utilized, as needed, for daily
operating and periodic cash needs, including acquisitions.
Borrowings under the credit facility bear interest, at our
option, at a rate based on either a defined base rate or the
London Interbank Offered Rate (LIBOR), plus
applicable margins. The credit agreement also provides for
facility fees that vary between 0.10% and 0.25% of the credit
line, depending on our consolidated leverage ratio as calculated
from time to time. 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. We also have two $5.0 million uncommitted
credit lines available. These credit lines are utilized, as
needed, for periodic cash needs. Total debt at year-end 2006
includes $216.9 million outstanding under the
$400.0 million credit facility, $10.0 million
outstanding under the two $5.0 million uncommitted bank
facilities and $1.2 million in other debt. The amounts
outstanding under the two uncommitted bank facilities are
classified as long term on the balance sheet as the Company has
the ability and the intent to repay these using its
$400.0 million credit facility, if necessary. The Company
also has a $3.9 million capital lease, of which
$0.1 million is current. At year-end 2006, Teledyne had
$8.4 million in outstanding letters of credit.
Pension
and Postretirement Plans
In connection with our November 29, 1999 spin-off from
Allegheny Teledyne Incorporated, now known as Allegheny
Technologies Incorporated, a defined benefit pension plan was
established and Teledyne assumed the existing pension
obligations for all of the employees, both active and inactive,
at the operations which perform government contract work and for
active employees at operations which do not perform government
contract work. ATI transferred pension assets to fund the new
defined benefit pension plan. As of January 1,
46
2004, non-union new hires participate in an enhanced defined
contribution plan as opposed to the companys existing
defined benefit plan. Currently, Teledyne anticipates making an
after-tax cash contribution of approximately $4.0 million
to its pension plans in 2007 before recovery from the
U.S. Government. Net after tax pension cash generation,
after taking into consideration recovery of pension costs under
certain government contracts in accordance with CAS from the
U.S. Government is expected to be approximately
$2.1 million in 2007.
Effective for year-end 2006, SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An Amendment of FASB
Statements No. 87, 88, 106, and 132(R), requires
companies to recognize as a component of other comprehensive
income, net of tax, the gains or losses and prior service costs
or credits that arise during the period but are not recognized
as components of net periodic benefit cost pursuant to SFAS
No. 87, or SFAS No. 106, Employers Accounting
for Postretirement Benefits Other Than Pensions. In accordance
with the requirements of SFAS No. 158, the Company has
a $43.4 million non-cash reduction to stockholders
equity and a long-term additional liability of
$71.3 million at year-end 2006. Prior to 2006, SFAS
No. 87, requires that a minimum pension liability be
recorded if the value of pension assets is less than the
accumulated pension benefit obligation. In accordance with the
requirements of SFAS No. 87, the Company had a
$38.9 million non-cash reduction to stockholders
equity, a long-term intangible asset of $5.3 million and a
long-term additional pension liability of $69.0 million at
year-end 2005. The adjustments to equity did not affect net
income and are recorded net of deferred taxes. See Note 12
of the Notes to Consolidated Financial Statements for additional
pension disclosures.
Other
Matters
Income
Taxes
The Companys effective tax rate for 2006 was 34.0%,
compared with 37.6% for 2005 and 38.7% for 2004. The lower
effective tax rate for 2006, compared with 2005, primarily
reflected the impact of the reversal of income tax contingency
reserves of $3.3 million in the third quarter. These
reserves were determined to be no longer needed due to the
expiration of applicable statutes of limitations. The lower
effective tax rate for 2005, compared with 2004, primarily
reflected the revaluation of deferred tax assets in 2004 due to
the impact state income taxes rates. Based on the Companys
history of operating earnings, expectations of future operating
earnings and potential tax planning strategies, it is more
likely than not that the deferred income tax assets at
December 31, 2006 will be realized.
Costs and
Pricing
Inflationary trends in recent years have been moderate. We
primarily use the
last-in,
first-out method of inventory accounting that reflects current
costs in the costs of goods sold. These costs, the increasing
costs of equipment and other costs are considered in
establishing sales pricing polices. The Company emphasizes cost
containment in all aspects of its business.
Hedging
Activities; Market Risk Disclosures
We have not utilized derivative financial instruments such as
futures contracts, options and swaps, forward foreign exchange
contracts or interest rate swaps and futures during 2006 or
2005. We believe that adequate controls are in place to monitor
any hedging activities. Our primary exposure to market risk
relates to changes in interest rates and foreign currency
exchange rates. We periodically evaluate these risks and have
taken measures to mitigate these risks. We own assets and
operate facilities in countries that have been politically
stable. Also, our foreign risk management objectives are geared
towards stabilizing cash flow from the effects of foreign
currency fluctuations. Most of the Companys sales are
denominated in U.S. dollars which mitigates the effect of
exchange rate changes. 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 December 31, 2006, we had
47
$216.9 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 $2.2 million, assuming
the $216.9 million in debt was outstanding for the full
year. Any borrowings under the Companys revolving credit
line are based on a fluctuating market interest rate and,
consequently, the fair value of any outstanding debt should not
be affected materially by changes in market interest rates.
Overall, we believe that our exposure to interest rate risk and
foreign currency exchange rate changes is not material to our
financial condition or results of operations.
Related
Party Transactions
In connection with the spin-off, Teledyne and ATI entered into
several agreements governing the separation of our businesses
and various employee benefits, compensation, tax,
indemnification and transition arrangements. The Companys
principal spin-off requirements, including the requirement to
ensure a favorable tax treatment, have been satisfied. One of
our directors continues to serve on ATIs board.
Our Chairman, President and Chief Executive Officer is a
director of Mellon Financial Corporation, as is one of our other
directors. Another of our directors is a former chief executive
officer and director of Mellon Financial Corporation. All
transactions with Mellon Bank, N.A. and its affiliates are
effected under normal commercial terms, and we believe that our
relationships with Mellon Bank, N.A. and its affiliates are
arms-length. Mellon Bank, N.A. is one of ten lenders under our
$400.0 million credit facility, having committed up to
$45.0 million under the facility. It also provides cash
management services and an uncommitted $5.0 million line of
credit. Mellon Bank, N.A. serves as trustee under our pension
plan and through its affiliates and subsidiaries provides asset
management and transition management services for the plan.
Mellon Investor Services LLC serves as our transfer agent and
registrar, as well as agent under our stockholders rights plan.
Environmental
We are subject to various federal, state, local and
international environmental laws and regulations which require
that we investigate and remediate the effects of the release or
disposal of materials at sites associated with past and present
operations. These include sites at which Teledyne has been
identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability
Act, commonly known as Superfund, and comparable state laws. We
are currently involved in the investigation and remediation of a
number of sites. Reserves for environmental investigation and
remediation totaled approximately $5.1 million at
December 31, 2006 and $3.5 million at January 1,
2006. The increase was primarily due to acquisitions. As
investigation and remediation of these sites proceed and new
information is received, the Company expects that accruals will
be adjusted to reflect new information. Based on current
information, we do not believe that future environmental costs,
in excess of those already accrued, will materially and
adversely affect our financial condition or liquidity. However,
resolution of one or more of these environmental matters or
future accrual adjustments in any one reporting period could
have a material adverse effect on our results of operations for
that period.
For additional discussion of environmental matters, see
Notes 2 and 15 to the Notes to Consolidated Financial
Statements.
Government
Contracts
We perform work on a number of contracts with the Department of
Defense and other agencies and departments of the
U.S. Government including
sub-contracts
with government prime contractors. Sales under these contracts
with the U.S. Government, which included contracts with the
Department of Defense, were approximately 40% of total sales in
2006, 42% of total sales in 2005 and 43% of total sales in 2004.
For a summary of sales to the U.S. Government by segment,
see Note 13 to the Notes to Consolidated Financial
Statements. Sales to the Department of Defense represented
approximately 30%, 32% and 33% of total sales for 2006, 2005 and
2004, respectively.
Performance under government contracts has certain inherent
risks that could have a material adverse effect on the
Companys business, results of operations and financial
condition. Government contracts are
48
conditioned upon the continuing availability of Congressional
appropriations, which usually occurs on a fiscal year basis even
though contract performance may take more than one year. While
U.S. defense spending increased as a result of the
September 11th terrorist attacks and the war in Iraq, it is
currently expected to moderate over the next few years.
Notwithstanding the recent increase in U.S. defense
spending, delays or declines in U.S. military expenditures
in the programs in which we participate could adversely affect
our business, results of operations and financial condition.
For information on accounts receivable from the
U.S. Government, see Note 5 to the Notes to
Consolidated Financial Statements.
Estimates
and Reserves
Our discussion and analysis of financial condition and results
of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent liabilities. On an ongoing basis, we
evaluate our estimates, including those related to product
returns, allowance for doubtful accounts, inventories,
intangible assets, income taxes, warranty obligations, pension
and other postretirement benefits, long-term contracts,
environmental, workers compensation and general liability,
aircraft product liability, employee dental and medical benefits
and other contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances at the time,
the results of which form the basis for making our judgments.
Actual results may differ materially from these estimates under
different assumptions or conditions. In some cases, such
differences may be material. See Other Matters
Critical Accounting Policies.
The following table reflects significant reserves and valuation
accounts, which are estimates and based on judgments as
described above, at December 31, 2006 and January 1,
2006:
Reserves
and Valuation Accounts(a)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Allowance for doubtful accounts
|
|
$
|
2.7
|
|
|
$
|
2.1
|
|
LIFO reserves
|
|
$
|
24.4
|
|
|
$
|
23.7
|
|
Other inventory reserves
|
|
$
|
22.8
|
|
|
$
|
18.7
|
|
Aircraft product liability
reserves(b)
|
|
$
|
46.9
|
|
|
$
|
37.1
|
|
Workers compensation and
general liability reserves(b)
|
|
$
|
10.6
|
|
|
$
|
7.6
|
|
Warranty reserves
|
|
$
|
11.4
|
|
|
$
|
10.3
|
|
Environmental reserves(b)
|
|
$
|
5.1
|
|
|
$
|
3.5
|
|
Other accrued liability reserves(b)
|
|
$
|
3.8
|
|
|
$
|
4.8
|
|
|
|
|
(a) |
|
This table should be read in conjunction with the Notes to
Consolidated Financial Statements. |
|
(b) |
|
Includes both long-term and short-term reserves. |
Some of the Companys products are subject to specified
warranties and the company provides for the estimated cost of
product warranties. We regularly assess the adequacy of our
pre-existing warranty liabilities and adjust amounts 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
49
one year. The product warranty reserve is included in current
accrued liabilities on the balance sheet. Changes in the
Companys product warranty reserve are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance at beginning of year
|
|
$
|
10.3
|
|
|
$
|
6.9
|
|
|
$
|
6.0
|
|
Accruals for product warranties
charged to expense
|
|
|
9.7
|
|
|
|
9.6
|
|
|
|
3.5
|
|
Cost of product warranty claims
|
|
|
(9.1
|
)
|
|
|
(6.8
|
)
|
|
|
(3.4
|
)
|
Acquisitions
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
$
|
11.4
|
|
|
$
|
10.3
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies
The preparation of our consolidated financial statements in
conformity with United States generally accepted accounting
principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and
the notes to the financial statements. Some of those judgments
can be subjective and complex, and therefore, actual results
could differ materially from those estimates under different
assumptions or conditions. Our critical accounting policies are
those that are reflective of significant judgment, complexity
and uncertainty, and may potentially result in materially
different results under different assumptions and conditions. We
have identified the following as critical accounting policies:
contract revenue recognition and contract estimates; aircraft
product liability reserve; accounting for pension plans; and
accounting for business combinations, goodwill and long-lived
assets. For additional discussion of the application of these
and other accounting policies, see Note 2 of the Notes to
Consolidated Financial Statements.
Contract
Revenue Recognition and Contract Estimates
Commercial sales and sales from U.S. Government fixed-price
type contracts are generally recorded as shipments are made or
as services are rendered. Occasionally, for certain
U.S. Government fixed-price type contracts that require
substantial performance over a long time period (one or more
years) before shipments begin, in accordance with the
requirements of American Institute of Certified Public
Accountants Statement of Position
81-1
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, revenues may be
recorded based upon attainment of scheduled performance
milestones which could be time, event or expense driven. In
these few instances, invoices are submitted to the customer
under a contractual agreement and payments are made by the
customer. Sales under cost-reimbursement contracts, usually from
the U.S. Government, are recorded as allowable costs are
incurred and fees are earned.
The development of cost of sales percentages used to record
costs under certain fixed-price type contracts and fees under
certain cost-reimbursement type contracts requires that the
Company make reasonably dependable cost estimates for the
design, manufacture and delivery of products and services,
sometimes over a long time period. Since certain fixed-price and
cost-reimbursement type contracts extend over a long period of
time, the impact of revisions in cost and funding estimates
during the progress of work may adjust the current period
earnings on a cumulative
catch-up
basis. If the current contract estimate indicates a loss, a
provision is made for the total anticipated loss in the period
that it becomes evident. These types of contracts and estimates
are most frequently related to our sales to the
U.S. Government. For our sales to the U.S. Government
in 2006, 2005 and 2004, operating income as a percent of sales
did not vary by more than 0.3%. If operating income as a percent
of sales to the U.S. Government had been higher or lower by
0.3% in 2006, the Companys operating income would have
changed by approximately $1.9 million.
Aircraft
Product Liability Reserve
We are currently involved in certain legal proceedings related
to aircraft product liability claims. We have accrued an
estimate for the probable costs for the resolution of these
claims. This estimate has been developed in consultation with
our insurers, outside counsel handling our defense in these
matters and historical experience, and is based upon an analysis
of potential results, assuming a combination of litigation and
50
settlement strategies. We do not believe these proceedings will
have a material adverse effect on our consolidated financial
position. It is possible, however, that future results of
operations for any particular quarterly or annual period could
be materially affected by specific events occurring in the
period, changes in our assumptions, or the effectiveness of our
strategies, related to these proceedings. The Company has
aircraft and product liability insurance. However, based on a
review of claims experience, changes to the claims management
process and an analysis of available options, in 2004 the
Company increased its annual self-insurance retention for
general aviation aircraft liabilities incurred in connection
with products manufactured by Teledyne Continental Motors to
$25.8 million from $15.0 million, and as a result
lowered its annual insurance premium. The current annual
self-insurance retention is $22.9 million. If a significant
liability claim or combination of claims were identified, even
taking into account insurance coverage, operating profit in a
given period could be reduced significantly. Accruals could be
made in a given period for amounts up to our annual
self-insurance retention. Based on the facts and circumstances
of the claims, we have not always accrued amounts up to our
annual self-insurance retention. Also, we cannot assure that,
for 2007 and in future years, our ability to obtain insurance,
or the premiums for such insurance, or the amount of our
self-insured retention or reserves will not be negatively
impacted by our experience in prior years or other factors. Our
current aircraft product liability insurance policy expires in
May 2007.
Accounting
for Pension Plans
Teledyne has a defined benefit pension plan covering most of its
employees. The Company accounts for its defined benefit pension
plan in accordance with SFAS No. 87,
Employers Accounting for Pensions, and
SFAS No. 158 Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans An Amendment of FASB Statements No. 87,
88, 106, and 132(R), which requires that amounts
recognized in financial statements be determined on an actuarial
basis, rather than as contributions are made to the plan. A
significant element in determining the Companys pension
income or expense in accordance with SFAS No. 87 is
the expected return on plan assets. The Company has assumed,
based upon the types of securities the plan assets are invested
in and the long-term historical returns of these investments,
that the long-term expected return on pension assets will be
8.5% in 2007, compared with 8.5% in 2006, and its assumed
discount rate will be 6.00% in 2007, compared with 6.00% in
2006. The actual rate of return on pension assets was 15.1% in
2006 and 5.1% in 2005. If the actual rate of return on pension
assets is above the projection, the Company may be able to
reduce its contributions to the pension trust. If the actual
rate of return on pension assets is below the projection, the
Company may be required to make additional contributions to the
pension trust. The Company made an after-tax contribution of
$12.7 million to its pension benefit plans in 2006 and
currently anticipates making an after-tax cash contribution of
approximately $4.0 million to its pension benefit plans in
2007, before recovery from the U.S. Government. The assumed
long-term rate of return on assets is applied to the
market-related value of plan assets at the end of the previous
year. This produces the expected return on plan assets that is
included in the annual pension income or expense calculation for
the current year. The cumulative difference between this
expected return and the actual return on plan assets is deferred
and amortized into pension income or expense over future
periods. In accordance with the requirements of
SFAS No. 158, the Company has a $43.4 million
non-cash reduction to stockholders equity and a long-term
additional liability of $71.3 million at year-end 2006.
Prior to 2006, SFAS No. 87, requires that a minimum pension
liability be recorded if the value of pension assets is less
than the accumulated pension benefit obligation. In accordance
with the requirements of SFAS No. 87, the Company had
a $38.9 million non-cash reduction to stockholders
equity, a long-term intangible asset of $5.3 million and a
long-term additional pension liability of $69.0 million at
year-end 2005. The adjustments to equity did not affect net
income and are recorded net of deferred taxes. See Note 12
of the Notes to Consolidated Financial Statements for additional
pension disclosures.
51
Differences in the discount rate and expected long-term rate of
return on assets within the indicated range would have had the
following impact on 2006 results:
|
|
|
|
|
|
|
|
|
|
|
0.25 Percentage
|
|
|
0.25 Percentage
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
|
|
$ in millions
|
|
|
Increase (decrease) to pension
expense resulting from:
|
|
|
|
|
|
|
|
|
Change in discount rate
|
|
$
|
(2.1
|
)
|
|
$
|
1.9
|
|
Change in long-term rate of return
on plan assets
|
|
$
|
(1.1
|
)
|
|
$
|
1.1
|
|
See Note 12 of the Notes to Consolidated Financial
Statements for additional pension disclosures.
Accounting
for Business Combinations, Goodwill and Other Long-Lived
Assets
The Company accounts for goodwill and purchased intangible
assets under SFAS No. 141 Business
Combinations and SFAS No. 142 Goodwill and
Other Intangible Assets. In all acquisitions, the results
are included in the Companys consolidated financial
statements from the date of each respective acquisition.
Business acquisitions are accounted for under the purchase
method by assigning the purchase price to tangible and
intangible assets acquired and liabilities assumed. Assets
acquired and liabilities assumed are recorded at their fair
values and the excess of the purchase price over the amounts
assigned is recorded as goodwill. Purchased intangible assets
with finite lives are amortized over their estimated useful
lives.
Goodwill and acquired intangible assets with indefinite lives
are not amortized. We review goodwill and acquired
indefinite-lived intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable. The Company also
performs an annual impairment test in the fourth quarter of each
year. Based on the annual impairment test completed in the
fourth quarter of 2006, no impairment of goodwill or intangible
assets with indefinite lives was indicated. The Company
estimates the fair value of the reporting units, which are our
four business segments, using a discounted cash flow model based
on our best estimate of amounts and timing of future revenues
and cash flows and our most recent business and strategic plans,
and compares the estimated fair value to the net book value of
the reporting unit, including goodwill. The development of
future revenues and cash flows projections for our business and
strategic plan, and the annual impairment test involve
significant judgments. Changes in these projections could affect
the estimated fair value of certain of the Companys
reporting units and could result in a goodwill impairment charge
in a future period. However, a 10 percent decrease in the
current fair value estimate of each of the Companys
reporting units would not result in a goodwill impairment charge.
We monitor the recoverability of the carrying value of our
long-lived assets. An impairment charge is recognized when
events and circumstances indicate that the undiscounted cash
flows expected to be generated by an asset (including any
proceeds from dispositions) are less than the carrying value of
the asset and the assets carrying value is less than its
fair value. Our cash flow estimates are based on historical
results adjusted to reflect our best estimate of future market
and operating conditions. The net carrying value of assets not
recoverable is reduced to fair value. Our estimates of fair
value represent our best estimate based on industry trends and
reference to market rates and transactions. Our determination of
what constitutes an indication of possible impairment, the
estimation of future cash flows and the determination of
estimated fair value are all significant judgments.
Recent
Accounting Pronouncements
SFAS No. 158
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132(R) (SFAS
No. 158), which provides guidance for recognition of
a net liability or asset to report the funded status of company
defined benefit pension and other postretirement benefit plans
(collectively referred to herein as benefit plans)
on company balance sheets. The pronouncement clarifies
(1) recognition of the funded status of a benefit plan in
its statement of financial position; (2) recognition as a
component of other comprehensive income, net of tax, the gains
or losses and prior service costs or credits that arise during
the
52
period but are not recognized as components of net periodic
benefit cost pursuant to FASB Statement No. 87,
Employers Accounting for Pensions, or
No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions,
(3) measurement of defined benefit plan assets and
obligations as of the date of the employers fiscal
year-end statement of financial position (with limited
exceptions); and (4) disclosure requirements in the notes
to financial statements with additional information about
certain effects on net periodic benefit cost for the next fiscal
year that arise from delayed recognition of the gains or losses,
prior service costs or credits, and transition asset or
obligation. SFAS No. 158 is effective as of the end of the
fiscal year ending after December 15, 2006. The impact of
the adoption of SFAS No. 158 increased the minimum
benefit plan liability component of stockholders equity by
$41.1 million at December 31, 2006. This increase was
mostly offset by the impact of the changes to Teledynes
pension assets and liabilities resulting from the merger of the
Scientific Company pension plan with Teledynes pension
plan following the acquisition of Scientific Company. The total
increase from 2005 in the minimum pension liability component of
stockholders equity was $4.5 million. The adoption of
SFAS No. 158 is not expected to have a material impact to
pension expense over the next 5 years.
FIN 48
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). This interpretation, among other
things, creates a two step approach for evaluating uncertain tax
positions. Recognition (step one) occurs when an enterprise
concludes that a tax position, based solely on its technical
merits, is more-likely-than-not to be sustained upon
examination. Measurement (step two) determines the amount of
benefit that more-likely-than-not will be realized upon
settlement. Derecognition of a tax position that was previously
recognized would occur when a company subsequently determines
that a tax position no longer meets the more-likely-than-not
threshold of being sustained. FIN 48 specifically prohibits
the use of a valuation allowance as a substitute for
derecognition of tax positions, and it has expanded disclosure
requirements. FIN 48 is effective for fiscal years
beginning after December 15, 2006, in which the impact of
adoption should be accounted for as a cumulative-effect
adjustment to the beginning balance of retained earnings. The
Company is currently evaluating FIN 48 and has not yet
determined the impact the adoption may have on the consolidated
financial statements.
SFAS No. 154
On January 2, 2006, we adopted SFAS No. 154,
Accounting Changes and Error Corrections Disclosure,
(SFAS No. 154). SFAS No. 154
replaces APB Opinion No. 20, Accounting Changes
and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154
requires retrospective application to prior periods
financial statements of changes in accounting principle unless
it is impracticable. SFAS No. 154 applies to all
voluntary changes in accounting principle. It also applies to
changes required by a new accounting pronouncement in the
unusual instance that the pronouncement does not include
explicit transition provisions. The adoption of
SFAS No. 154 did not have a material impact on the
consolidated financial statements of the Company.
SFAS No. 123(R)
In December 2004, the FASB issued SFAS No. 123(R) that
requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With
limited exceptions, the amount of compensation costs will be
measured based on the grant date fair value of the equity or
liability instrument issued. Compensation cost will be
recognized over the period that an employee provides service in
exchange for the award. SFAS No. 123(R) replaces
SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. The
Company adopted SFAS No. 123(R) effective
January 2, 2006, using the modified prospective method, and
accordingly did not restate prior year financial statements. No
modifications to outstanding stock options were made prior to
the adoption of SFAS No. 123(R). The valuation
methodologies and assumptions in estimating the fair value of
stock options granted in 2006 were similar to those used in
estimating the fair value of stock options granted in 2005.
Stock option compensation expense is recorded on a straight line
basis over the appropriate vesting
53
period, generally three years. For the fiscal year 2006, the
Company recorded a total of $5.9 million in its
consolidated statements of income for stock option expense
related to stock options awarded after the adoption of
SFAS No. 123(R) and for stock options which were not
vested by the date of adoption of SFAS No. 123(R). No
compensation expense related to stock options was recorded in
the consolidated statements of income for 2005 or in prior years
since it was not required. During the fiscal year 2006, the
total intrinsic value of stock options exercised was
$22.1 million. As of December 31, 2006, there was
$6.1 million of unrecognized compensation cost related to
nonvested stock options, which is expected to be recognized over
a weighted-average period of approximately 1.3 years. The
Company issues shares of common stock upon the exercise of stock
options.
We used a combination of the historical volatility of
Teledynes stock price and the implied volatility based on
the price of traded options on Teledynes stock to
calculate the expected volatility assumption to value stock
options. We used our actual stock trading history since January
2001 in the volatility calculation. 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.
SFAS No. 151
On January 2, 2006, we adopted SFAS No. 151,
Inventory Costs an amendment of ARB
No. 43 Chapter 4
(SFAS No. 151). SFAS No. 151
amends the guidance in ARB No. 43, Chapter 4,
Inventory Pricing, to clarify the accounting for
abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). SFAS No. 151
requires that those items be recognized as current-period
charges. The adoption of SFAS No. 151 did not have a
material impact on the consolidated financial statements of the
Company.
Outlook
Based on its current outlook, the Companys management
believes that first quarter 2007 earnings per share will be in
the range of approximately $0.47 to $0.51. The full year 2007
earnings per share outlook is expected to be in the range of
approximately $2.33 to $2.38. Our estimated effective income tax
rate for 2007 is expected to be 35.6%, and reflects the
anticipated receipt of tax credits ranging from
$2.8 million to $3.8 million (or $0.08 to
$0.10 per diluted share) in the third quarter of 2007.
Excluding the receipt of the tax credits our estimated effective
income tax rate for 2007 would be 37.6%.
Our 2007 outlook reflects anticipated sales growth in our
defense electronics and instrumentation businesses, due
primarily to the contribution of the acquisitions completed in
2006. Our first quarter and full year 2007 earnings per diluted
share outlook reflects an anticipated increase in expenses, such
as intangible asset amortization, as a result of the
acquisitions completed in 2006. In addition, sales of
geophysical sensors are currently expected to decline in 2007,
compared with 2006, especially in the first half of the year.
The full year 2007 earnings outlook includes approximately
$12.2 million in pension expense under
SFAS No. 87 and No. 158, or $2.0 million in
net pension expense after recovery of allowable pension costs
from our CAS covered government contracts. Full year 2006
earnings included $15.4 million in pension expense under
SFAS No. 87 and No. 158, or $4.9 million in
net pension expense after recovery of allowable pension costs
from our CAS covered government contracts. The decrease in full
year 2007 pension expense reflects pension contributions made in
2006, the impact of favorable market returns on plan assets and
changes to the companys pension assets and liabilities
resulting from the merger of the Scientific Company pension plan
with the Teledyne Technologies pension plan following the
acquisition of Scientific Company.
Our 2007 earnings outlook also reflects $6.7 million
($0.12 per diluted share) in stock option compensation
expense based on the fair value of stock options granted after
the adoption of SFAS No. 123(R) and stock options
which were not vested by the date of adoption of
SFAS No. 123(R), as well as current assumptions
regarding the estimated fair value of expected stock option
grants during the year. The companys 2006 earnings
included $5.9 million ($0.10 per diluted share) in
stock option compensation expense.
54
EARNINGS
PER SHARE SUMMARY(a)
(Diluted earnings per common share from continuing
operations)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Full Year Outlook
|
|
|
2006
|
|
|
2005
|
|
|
|
Low
|
|
|
High
|
|
|
Actual
|
|
|
Actual
|
|
|
Earnings per share (excluding net
pension expense, stock option expense and income tax benefit)
|
|
$
|
2.41
|
|
|
$
|
2.44
|
|
|
$
|
2.36
|
|
|
$
|
1.91
|
|
Pension expense SFAS
No. 87 and No. 158
|
|
|
(0.22
|
)
|
|
|
(0.22
|
)
|
|
|
(0.27
|
)
|
|
|
(0.23
|
)
|
Pension expense CAS(b)
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
0.18
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (excluding
stock option expense and income tax benefit)
|
|
|
2.37
|
|
|
|
2.40
|
|
|
|
2.27
|
|
|
|
1.85
|
|
Stock option expense(c)
|
|
|
(0.12
|
)
|
|
|
(0.12
|
)
|
|
|
(0.10
|
)
|
|
|
|
|
Income tax benefit(d)
|
|
|
0.08
|
|
|
|
0.10
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share GAAP
|
|
$
|
2.33
|
|
|
$
|
2.38
|
|
|
$
|
2.26
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The company believes 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, the company adopted the
provisions of SFAS No. 123(R) and began recording
stock option compensation expense. No compensation expense
related to stock options was recorded in 2005 or in prior years. |
|
(d) |
|
Fiscal year 2007 reflects the anticipated receipt of tax credits
ranging from $2.8 million to $3.8 million (or $0.08 to
$0.10 per diluted share) in the third quarter of 2007.
Fiscal year 2006 included the reversal of income tax contingency
reserves of $3.3 million. These reserves were determined to
be no longer needed due to the expiration of applicable statutes
of limitations. |
Safe
Harbor Cautionary Statement Regarding Outlook and Other
Forward-Looking Data
This Managements Discussion and Analysis of Financial
Condition and Results of Operation contains forward-looking
statements, as defined in the Private Securities Litigation
Reform Act of 1995, relating to earnings, growth opportunities,
pension matters, stock option compensation expense and strategic
plans. All statements made in this Managements Discussion
and Analysis of Financial Condition and Results of Operation
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. Recent
changes in the leadership of the U.S. Congress could
result, over time, in reductions in defense spending and further
changes in programs in which the Company participates.
The Company continues 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,
55
there are inherent limitations in all control systems, and
misstatements due to error or fraud may occur and may not be
detected.
While Teledyne Technologies 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 beginning on
page 13 of this
Form 10-K
under the caption Risk Factors; Cautionary Statements as
to Forward-Looking Statements. Forward-looking statements
are generally accompanied by words such as estimate,
project, predict, believes
or expect, that convey the uncertainty of future
events or outcomes. We assume no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information or otherwise.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
The information required by this item is included in this Report
at page 47 under the caption Other
Matters Hedging Activities; Market Risk
Disclosures of Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operation.
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
The information required by this item is included in this Report
at pages 61 through 102. See the Index to
Financial Statements and Related Information at
page 60.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
Disclosure
Controls
Teledynes disclosure controls and procedures are designed
to ensure that information required to be disclosed in reports
that it files or submits, under the Securities Exchange Act of
1934, was recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the
Securities and Exchange Commission. The Companys
management, with the participation of its Chairman, President
and Chief Executive Officer and Senior Vice President and Chief
Financial Officer, have evaluated the effectiveness, as of
December 31, 2006, of the Companys disclosure
controls and procedures, as that term is defined in
Rule 13a-15(e)
under the Securities and Exchange Act of 1934, as amended
(the Exchange Act). Based upon that evaluation, our
Chief Executive Officer and our Chief Financial Officer
concluded that the disclosure controls and procedures as of
December 31, 2006, were effective to provide a reasonable
assurance that information required to be disclosed by the
Company in the reports filed or submitted by it under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and
forms, and to provide reasonable assurance that information
required to be disclosed by us in such reports is accumulated
and communicated to the Companys management, including its
principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.
Internal
Controls
See Management Statement on page 61 for managements
annual report on internal control over financial reporting. See
Report of Independent Registered Public Accounting Firm on
page 62 for Ernst & Young LLPs attestation
report on managements assessment of internal control over
financial reporting.
There was no change in the Companys internal control
over financial reporting (as such term is defined in
Rule 13a-15(f)
under the Exchange Act) that occurred during the quarter ended
December 31, 2006, that
56
has materially affected, or is reasonably likely to materially
effect, the Companys internal control over financial
reporting.
Sarbanes-Oxley
Disclosure Committee
In September 2002, the Company formally constituted the
Sarbanes-Oxley Disclosure Committee. Current members include:
Ivars R. Blukis, Chief Business Risk Assurance Officer (Internal
Audit)
Melanie S. Cibik, Vice President, Associate General Counsel and
Assistant Secretary
Shelley D. Green, Treasurer
John T. Kuelbs, Executive Vice President, General Counsel and
Secretary
Brian A. Levan, Director of External Financial Reporting and
Assistant Controller
Susan L. Main, Vice President and Controller
Robyn E. McGowan, Vice President, Administration and Human
Resources and Assistant Secretary
Dale A. Schnittjer, Senior Vice President and Chief Financial
Officer
Jason VanWees, Vice President, Corporate Development and
Investor Relations
Among its tasks, the Sarbanes-Oxley Disclosure Committee
discusses and reviews disclosure issues to help us fulfill our
disclosure obligations on a timely basis in accordance with SEC
rules and regulations and is intended to be used as an
additional resource for employees to raise questions regarding
accounting, auditing, internal controls and disclosure matters.
Our toll-free Corporate Ethics Help Line
(1-877-666-6968)
continues to be an alternative means to communicate concerns to
the Companys management.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
In addition to the information set forth under the caption
Executive Management beginning at page 11 in
Part I of this Report, the information required by this
item is set forth in the 2007 Proxy Statement under the captions
Item 1 on Proxy Card Election of
Directors, Board Composition and Practices,
Corporate Governance, Committees of Our Board
of Directors Audit Committee and Report
of the Audit Committee and Stock
Ownership Sections 16(a) Beneficial Ownership
Reporting Compliance. Other than the Report of the
Audit Committee, this information is incorporated herein
by reference.
|
|
Item 11.
|
Executive
Compensation.
|
The information required by this item is set forth in the 2007
Proxy Statement under the captions Executive and Director
Compensation Compensation Committee Interlocks and
Insider Participation and 2006 Personnel and
Compensation Committee Report. Other than the 2006
Personnel and Compensation Committee Report, this
information is incorporated herein by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information required by this item is set forth in the 2007
Proxy Statement under the caption Stock
Ownership Information and is incorporated herein by
reference.
57
Equity
Compensation Plans Information
The following table summarizes information with respect to
equity compensation plans as of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Number of Securities
|
|
|
|
|
|
under Equity
|
|
|
|
to be Issued upon
|
|
|
|
|
|
Compensation Plans
|
|
|
|
Exercise of
|
|
|
Weighted-Average
|
|
|
[excluding securities
|
|
|
|
Outstanding Options,
|
|
|
Exercise Price of Options,
|
|
|
reflected in
|
|
|
|
Warrants and Rights
|
|
|
Warrants or Rights
|
|
|
column (a)]
|
|
Plan Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved
by security holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
1999 Incentive Plan (1)
|
|
|
1,001,975
|
(2)
|
|
$
|
16.14
|
|
|
|
748,926
|
(2)
|
2002 Stock Incentive Plan
|
|
|
1,535,584
|
(3)
|
|
|
24.12
|
|
|
|
424,678
|
(3)
|
Non-Employee Director Stock
Compensation Plan
|
|
|
301,186
|
|
|
|
19.32
|
|
|
|
28,409
|
|
Employee Stock Purchase
Plan (4)
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
|
Equity compensation plans not
approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,838,745
|
|
|
$
|
20.80
|
|
|
|
2,202,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The 1999 Incentive Plan, as amended, contains a
capped evergreen provision. It provides that if the
number of issued and outstanding shares of our Common Stock is
increased after January 26, 2000, the total number of
shares available for issuance under this plan will be increased
by 10% of such increase, up to an additional
2,500,000 shares. An additional 662,100 shares have
been registered for issuance under this evergreen provision for
a total of 4,662,100 shares. |
|
(2) |
|
This amount does not include up to 176,744 shares of our
Common Stock estimated at December 31, 2006 to be issued
under our Performance Share Plan for the
2006-2008
performance cycle. |
|
(3) |
|
The amount does not include up to 173,550 shares of our
Common Stock potentially issuable at December 31, 2006
under our Performance Share Plan for the
2003-2005
performance cycle with respect to the remaining two installments
to be issued. |
|
(4) |
|
Teledyne maintains an Employee Stock Purchase Plan (commonly
known as The Stock Advantage Plan) for eligible employees. It
enables employees to invest in our Common Stock through
automatic, after-tax payroll deductions, within specified
limits. Teledyne adds a 25% matching company contribution up to
$1,200 annually. The Companys contribution is currently
paid in cash and the Plan Administrator purchases shares in the
open market. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information required by this item is set forth in the 2007
Proxy Statement under the caption Certain
Transactions and is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
The information required by this item is set forth in the 2007
Proxy Statement under the captions Fees Billed by
Independent Registered Public Accounting Firm and
Audit Committee Pre-Approval Policies under
Item 2 on the Proxy Card Ratification of
Appointment of Independent Registered Public Accounting
Firm and is incorporated herein by reference.
58
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) Exhibits and Financial Statement Schedules:
(1) Financial Statements
See the Index to Financial Statements and Related
Information at page 60 of this Report, which is
incorporated herein by reference.
(2) Financial Statement Schedules
See Schedule II captioned Valuation and Qualifying
Accounts at page 102 of this Report, which is
incorporated herein by reference.
(3) Exhibits
A list of exhibits filed with this
Form 10-K
or incorporated by reference is found in the Exhibit Index
immediately following the certifications of this Report and
incorporated herein by reference.
(b) Exhibits:
See Item 15(a)(3) above.
(c) Financial Schedules:
See Item 15(a)(2) above.
59
MANAGEMENT
STATEMENT
RESPONSIBILITY FOR PREPARATION OF THE FINANCIAL STATEMENTS AND
ESTABLISHING AND MAINTAINING ADEQUATE INTERNAL CONTROL OVER
FINANCIAL REPORTING
We are responsible for the preparation of the financial
statements included in this Annual Report. The financial
statements were prepared in accordance with accounting
principles generally accepted in the United States of America
and include amounts that are based on the best estimates and
judgments of management. The other financial information
contained in this Annual Report is consistent with the financial
statements.
Our internal control system is designed to provide reasonable
assurance concerning the reliability of the financial data used
in the preparation of Teledyne Technologies financial
statements, as well as to safeguard the Companys assets
from unauthorized use or disposition.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement presentation.
REPORT OF MANAGEMENT ON TELEDYNE TECHNOLOGIES
INCORPORATEDS INTERNAL CONTROL OVER FINANCIAL REPORTING
We are also responsible for establishing and maintaining
adequate internal control over financial reporting. We conducted
an evaluation of the effectiveness of the Companys
internal control over financial reporting as of
December 31, 2006. In making this evaluation, we used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control Integrated Framework. Our evaluation
included reviewing the documentation of our controls, evaluating
the design effectiveness of our controls and testing their
operating effectiveness. Our evaluation did not include
assessing the effectiveness of internal control over financial
reporting for the 2006 acquisitions of CollaborX, KW Microwave,
ODI and Scientific Company which are included in the 2006
consolidated financial statements of the Company and
constituted: $243.8 million and $200.3 million of
total and net assets, respectively, as of December 31, 2006
and: $64.8 million and $4.2 million of total revenues
and net income, respectively, for the year then ended. We did
not assess the effectiveness of internal control over financial
reporting at these newly acquired entities due to the
insufficient time between the dates acquired and year-end and
the complexity associated with assessing internal controls
during integration efforts making the process impractical. Based
on this evaluation we believe that, as of December 31,
2006, the Companys internal controls over financial
reporting were effective.
Ernst and Young LLP, an independent registered public accounting
firm, has issued their report on our evaluation of Teledyne
Technologies internal control over financial reporting.
Their report appears on page 62 of this Annual Report.
Date: February 20, 2007
Robert Mehrabian
Chairman, President and Chief Executive Officer
Date: February 20, 2007
Dale A. Schnittjer
Senior Vice President and Chief Financial Officer
61
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board of Directors and Stockholders of
Teledyne Technologies Incorporated
We have audited managements assessment, included in the
accompanying Report of Management on Teledyne Technologies
Incorporateds Internal Control Over Financial Reporting,
that Teledyne Technologies Incorporated maintained effective
internal control over financial reporting as of
December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). Teledyne Technologies Incorporateds
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Report of Management on
Teledyne Technologies Incorporateds Internal Control Over
Financial Reporting, managements assessment of and
conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of the
recent acquisitions of CollaborX, KW Microwave, ODI and
Scientific Company which are included in the 2006 consolidated
financial statements of Teledyne Technologies Incorporated and
constituted: $243.8 million and $200.3 million of
total and net assets, respectively, as of December 31, 2006
and: $64.8 million and $4.3 million of revenues and
net income, respectively, for the year then ended. Our audit of
internal control over financial reporting of Teledyne
Technologies Incorporated also did not include an evaluation of
the internal control over financial reporting of CollaborX, KW
Microwave, ODI and Scientific Company.
In our opinion, managements assessment that Teledyne
Technologies Incorporated maintained effective internal control
over financial reporting as of December 31, 2006, is fairly
stated, in all material respects,
62
based on the COSO criteria. Also, in our opinion, Teledyne
Technologies Incorporated maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2006, based on the COSO criteria.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Teledyne Technologies
Incorporated as of December 31, 2006 and January 1,
2006, and the related consolidated statements of income,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2006 of Teledyne
Technologies Incorporated and our report dated February 20,
2007 expressed an unqualified opinion thereon. Our audits also
included the financial statement schedule listed in the index at
Item 15(a) and our report dated February 20, 2007
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
February 20, 2007
63
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Stockholders and Board of Directors
Teledyne Technologies Incorporated
We have audited the accompanying consolidated balance sheets of
Teledyne Technologies Incorporated as of December 31, 2006
and January 1, 2006, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the three years in the period ended
December 31, 2006. Our audits also included the financial
statement schedule listed in the index at Item 15(a). These
financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Teledyne Technologies Incorporated at
December 31, 2006 and January 1, 2006, and the
consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31,
2006, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, the Company changed its method of accounting for
Share-Based Payments in accordance with Statement of Financial
Accounting Standards No. 123 (revised 2004) on
January 2, 2006. As discussed in Note 2 to the
consolidated financial statements, the Company changed its
method of accounting for its defined-benefit pension and other
postretirement plans in accordance with Statement of Financial
Accounting Standards No. 158 on December 31, 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Teledyne Technologies Incorporateds
internal control over financial reporting as of
December 31, 2006, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
and our report dated February 20, 2007 expressed an
unqualified opinion thereon.
/s/ Ernst & Young LLP
Los Angeles, California
February 20, 2007
64
TELEDYNE
TECHNOLOGIES INCORPORATED
(In millions, except per-share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Sales
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
$
|
1,016.6
|
|
Costs and
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
1,020.2
|
|
|
|
869.6
|
|
|
|
746.3
|
|
Selling, general and
administrative expenses
|
|
|
287.9
|
|
|
|
236.2
|
|
|
|
203.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,308.1
|
|
|
|
1,105.8
|
|
|
|
949.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before other income and
expense and income taxes
|
|
|
125.1
|
|
|
|
100.7
|
|
|
|
66.9
|
|
Interest and debt expense, net
|
|
|
(7.4
|
)
|
|
|
(3.5
|
)
|
|
|
(1.9
|
)
|
Other income (expense), net
|
|
|
4.0
|
|
|
|
5.8
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
|
|
121.7
|
|
|
|
103.0
|
|
|
|
68.0
|
|
Provision for income taxes
|
|
|
41.4
|
|
|
|
38.8
|
|
|
|
26.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common
share
|
|
$
|
2.34
|
|
|
$
|
1.93
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common
share
|
|
$
|
2.26
|
|
|
$
|
1.85
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
65
TELEDYNE
TECHNOLOGIES INCORPORATED
(In millions, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13.0
|
|
|
$
|
9.3
|
|
Accounts receivables, net
|
|
|
226.1
|
|
|
|
167.6
|
|
Inventories, net
|
|
|
155.8
|
|
|
|
117.3
|
|
Deferred income taxes, net
|
|
|
34.4
|
|
|
|
25.4
|
|
Prepaid expenses and other current
assets
|
|
|
17.5
|
|
|
|
11.9
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
446.8
|
|
|
|
331.5
|
|
Property, plant and equipment, net
|
|
|
164.8
|
|
|
|
96.7
|
|
Deferred income taxes, net
|
|
|
38.6
|
|
|
|
42.9
|
|
Goodwill, net
|
|
|
313.6
|
|
|
|
197.0
|
|
Acquired intangibles, net
|
|
|
69.4
|
|
|
|
33.6
|
|
Other assets, net
|
|
|
28.2
|
|
|
|
26.5
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,061.4
|
|
|
$
|
728.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Stockholders Equity
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
94.1
|
|
|
$
|
76.2
|
|
Accrued liabilities
|
|
|
135.1
|
|
|
|
101.1
|
|
Current portion of long-term debt
and capital lease
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
230.4
|
|
|
|
177.5
|
|
Long-term debt and capital lease
obligations
|
|
|
230.7
|
|
|
|
47.0
|
|
Accrued pension obligation
|
|
|
38.4
|
|
|
|
68.2
|
|
Accrued postretirement benefits
|
|
|
24.4
|
|
|
|
22.5
|
|
Other long-term liabilities
|
|
|
105.7
|
|
|
|
87.0
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
629.6
|
|
|
|
402.2
|
|
Commitments and
Contingencies
|
|
|
|
|
|
|
|
|
Stockholders
equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par
value; outstanding shares none
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par
value; authorized 125 million shares; Outstanding shares:
2006 34,719,700 and 2005 33,683,671
|
|
|
0.3
|
|
|
|
0.3
|
|
Additional paid-in capital
|
|
|
188.0
|
|
|
|
159.4
|
|
Retained earnings
|
|
|
285.8
|
|
|
|
205.5
|
|
Accumulated other comprehensive
loss
|
|
|
(42.3
|
)
|
|
|
(39.2
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders
Equity
|
|
|
431.8
|
|
|
|
326.0
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity
|
|
$
|
1,061.4
|
|
|
$
|
728.2
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
66
TELEDYNE
TECHNOLOGIES INCORPORATED
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
Total
|
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
|
|
|
Stockholders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Equity
|
|
|
Balance, December 29,
2003
|
|
$
|
0.3
|
|
|
|
132.4
|
|
|
|
99.6
|
|
|
|
(11.3
|
)
|
|
|
221.0
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
41.7
|
|
|
|
|
|
|
|
41.7
|
|
Other comprehensive loss, net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Minimum pension liability
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.9
|
)
|
|
|
(10.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
41.7
|
|
|
|
(11.0
|
)
|
|
|
30.7
|
|
Exercise of stock options and
other, net
|
|
|
|
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 2,
2005
|
|
|
0.3
|
|
|
|
142.8
|
|
|
|
141.3
|
|
|
|
(22.3
|
)
|
|
|
262.1
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
64.2
|
|
|
|
|
|
|
|
64.2
|
|
Other comprehensive loss, net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
Minimum pension liability
adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16.2
|
)
|
|
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
64.2
|
|
|
|
(16.9
|
)
|
|
|
47.3
|
|
Exercise of stock options and
other, net
|
|
|
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
16.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2006
|
|
|
0.3
|
|
|
|
159.4
|
|
|
|
205.5
|
|
|
|
(39.2
|
)
|
|
|
326.0
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
80.3
|
|
|
|
|
|
|
|
80.3
|
|
Other comprehensive loss, net of
tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
1.4
|
|
Minimum benefit plan liability
adjustment, including the impact of SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.5
|
)
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
80.3
|
|
|
|
(3.1
|
)
|
|
|
77.2
|
|
Exercise of stock options and
other, net
|
|
|
|
|
|
|
28.6
|
|
|
|
|
|
|
|
|
|
|
|
28.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2006
|
|
|
0.3
|
|
|
$
|
188.0
|
|
|
$
|
285.8
|
|
|
$
|
(42.3
|
)
|
|
$
|
431.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
67
TELEDYNE
TECHNOLOGIES INCORPORATED
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of
assets
|
|
|
32.0
|
|
|
|
25.6
|
|
|
|
24.8
|
|
Deferred income taxes
|
|
|
(12.1
|
)
|
|
|
(10.2
|
)
|
|
|
(10.2
|
)
|
(Gains) loss on sale of property,
plant and equipment
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
0.9
|
|
Stock option expense
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
Excess income tax benefits from
stock options
|
|
|
(8.6
|
)
|
|
|
(5.2
|
)
|
|
|
(2.5
|
)
|
Changes in operating assets and
liabilities, excluding the effect of businesses acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivables
|
|
|
(17.5
|
)
|
|
|
(17.1
|
)
|
|
|
(1.2
|
)
|
Increase in inventories
|
|
|
(23.2
|
)
|
|
|
(11.6
|
)
|
|
|
(11.9
|
)
|
Decrease (increase) in prepaid
expenses and other assets
|
|
|
1.7
|
|
|
|
(3.4
|
)
|
|
|
(1.8
|
)
|
Increase in long-term assets
|
|
|
(3.2
|
)
|
|
|
(2.8
|
)
|
|
|
(3.5
|
)
|
Increase in accounts payable
|
|
|
8.7
|
|
|
|
11.0
|
|
|
|
8.6
|
|
Increase in accrued liabilities
|
|
|
8.3
|
|
|
|
0.6
|
|
|
|
10.0
|
|
Increase in current income taxes
payable, net
|
|
|
3.8
|
|
|
|
10.0
|
|
|
|
3.5
|
|
Increase in other long-term
liabilities
|
|
|
7.4
|
|
|
|
26.9
|
|
|
|
16.4
|
|
Decrease in accrued postretirement
benefits
|
|
|
(3.7
|
)
|
|
|
(1.7
|
)
|
|
|
(1.4
|
)
|
Increase (decrease) in accrued
pension obligation
|
|
|
(1.6
|
)
|
|
|
6.4
|
|
|
|
11.4
|
|
Other operating, net
|
|
|
0.2
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities
|
|
|
78.4
|
|
|
|
92.3
|
|
|
|
84.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and
equipment
|
|
|
(26.4
|
)
|
|
|
(19.8
|
)
|
|
|
(18.8
|
)
|
Purchase of businesses and other
investments, net of cash acquired
|
|
|
(252.0
|
)
|
|
|
(58.4
|
)
|
|
|
(187.8
|
)
|
Proceeds from sale of businesses
and other assets
|
|
|
0.7
|
|
|
|
9.6
|
|
|
|
|
|
Proceeds from sale of marketable
securities
|
|
|
|
|
|
|
|
|
|
|
17.3
|
|
Other investing, net
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing
activities
|
|
|
(277.7
|
)
|
|
|
(68.6
|
)
|
|
|
(189.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from (repayments of)
long-term debt
|
|
|
182.1
|
|
|
|
(35.8
|
)
|
|
|
70.5
|
|
Tax benefit from stock options
exercised
|
|
|
8.6
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock
options and other, net
|
|
|
12.3
|
|
|
|
10.0
|
|
|
|
7.3
|
|
Net cash provided (used) by
financing activities
|
|
|
203.0
|
|
|
|
(25.8
|
)
|
|
|
77.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
3.7
|
|
|
|
(2.1
|
)
|
|
|
(26.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents beginning of year
|
|
|
9.3
|
|
|
|
11.4
|
|
|
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents end of year
|
|
$
|
13.0
|
|
|
$
|
9.3
|
|
|
$
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
68
TELEDYNE
TECHNOLOGIES INCORPORATED
|
|
Note 1.
|
Description
of Business
|
Effective November 29, 1999 (the Distribution
Date), Teledyne Technologies Incorporated
(Teledyne or the Company), became an
independent, public company as a result of the distribution by
Allegheny Teledyne Incorporated, now known as Allegheny
Technologies Incorporated (ATI), of the
Companys Common Stock, $.01 par value per share, to
holders of ATI Common Stock at a distribution ratio of one for
seven (the spin-off). The spin-off has been treated
as a tax-free distribution for federal income tax purposes. The
spin-off included the transfer of certain of the businesses of
ATIs Aerospace and Electronics segment to the new
corporation, immediately prior to the Distribution Date. ATI no
longer has a financial investment in Teledyne.
Teledyne is a leading provider of sophisticated electronic
components, instruments and communications products, including
defense electronics, monitoring and control instrumentation for
marine, environmental and industrial applications, data
acquisition and communications equipment for airlines and
business aircraft and components, and subsystems for wireless
and satellite communications. We also provide systems
engineering solutions and information technology services for
defense, space and environmental applications, and manufacture
general aviation and missile engines and components, as well as
on-site gas
and power generation systems.
Teledyne serves niche market segments where performance,
precision and reliability are critical. Teledynes
customers include government agencies, aerospace prime
contractors, major industrial and communications companies and
general aviation companies.
Teledyne consists of the operations of the Electronics and
Communications segment with operations in the United States,
United Kingdom, Mexico, Canada, France and China; the Systems
Engineering Solutions segment with operations in the United
States; the Aerospace Engines and Components segment with
operations in the United States; and the Energy Systems segment
with operations in the United States.
Note 2. Summary
of Significant Accounting Policies
|
|
|
Principles
of Consolidation
|
The consolidated financial statements include the accounts of
Teledyne and all wholly-owned and majority-owned domestic and
foreign subsidiaries. Intercompany accounts and transactions
have been eliminated. Certain financial statements, notes and
supplementary data for prior years have been revised to conform
to the 2006 presentation. The changes did not affect our
reported results of operations or stockholders equity.
The Company operates on a 52 or
53-week
fiscal year convention ending on the Sunday nearest to
December 31. Fiscal year 2006 was a
52-week
fiscal year and ended on December 31, 2006. Fiscal year
2005 was a
52-week
fiscal year and ended on January 1, 2006. Fiscal year 2004
was a
53-week
fiscal year and ended on January 2, 2005. References to the
years 2006, 2005 and 2004 are intended to refer to the
respective fiscal year unless otherwise noted.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect reported amounts of
assets, liabilities, revenues and expenses, and related
disclosure of contingent liabilities. On an ongoing basis, the
Company evaluates its estimates, including those related to
product returns, allowance for doubtful accounts, inventories,
intangible assets, income taxes, warranty obligations, pension
and other postretirement benefits, long-term contracts,
environmental, workers compensation and general liability,
aircraft product liability, employee
69
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
dental and medical benefits and other contingencies, and
litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances at the time, the results
of which form the basis for making its judgments. Actual results
may differ materially from these estimates under different
assumptions or conditions. Management believes that the
estimates are reasonable.
Revenue
Recognition
Commercial sales and revenue from U.S. Government
fixed-price-type contracts generally are recorded as shipments
are made or as services are rendered. Occasionally, for certain
fixed-price type contracts that require substantial performance
over a long time period (one or more years) before shipments
begin, in accordance with the requirements of Statement of
Position
81-1
Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, revenues may be
recorded based upon attainment of scheduled performance
milestones which could be time, event or expense driven. In
these few instances, invoices are submitted to the customer
under a contractual agreement and payments are made by the
customer. Since certain contracts extend over a long period of
time, all revisions in cost and funding estimates during the
progress of work have the effect of adjusting the current period
earnings on a cumulative
catch-up
basis. Sales under cost-reimbursement contracts are recorded as
costs are incurred and fees are earned. If the current contract
estimate indicates a loss, provision is made for the total
anticipated loss.
The Company follows the requirements of Securities and Exchange
Commission Staff Accounting Bulletin No. 104 on
revenue recognition.
Shipping
and Handling
Shipping and handling fees charged to customers are classified
as revenue while shipping and handling costs retained by
Teledyne are classified as cost of sales in the accompanying
consolidated statements of income.
Warranty
Costs
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 pre-existing 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 are as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Balance at beginning of year
|
|
$
|
10.3
|
|
|
$
|
6.9
|
|
|
$
|
6.0
|
|
Accruals for product warranties
charged to expense
|
|
|
9.7
|
|
|
|
9.6
|
|
|
|
3.5
|
|
Cost of product warranty claims
|
|
|
(9.1
|
)
|
|
|
(6.8
|
)
|
|
|
(3.4
|
)
|
Acquisitions
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
$
|
11.4
|
|
|
$
|
10.3
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development
Selling, general and administrative expenses include
company-funded research and development and bid and proposal
costs which are expensed as incurred and were $52.5 million
in 2006, $44.9 million in 2005, and $32.6 million in
2004. Costs related to customer-funded research and development
contracts were $254.5 million in 2006, $246.6 million
in 2005, and $230.7 million in 2004 and are charged to
costs and
70
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
expenses as the related sales are recorded. A portion of the
costs incurred for company-funded research and development is
recoverable through overhead cost allocations on government
contracts.
Income
Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Under
this method, deferred income tax assets and liabilities are
determined on the estimated future tax effects of differences
between the financial reporting and tax basis of assets and
liabilities given the application of enacted tax laws. Deferred
income tax provisions and benefits are based on changes to the
asset or liability from year to year.
Net
Income Per Common 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.
The following table sets forth the computations of basic and
diluted earnings per share (amounts in millions, except per
share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Basic earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
34.3
|
|
|
|
33.2
|
|
|
|
32.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
2.34
|
|
|
$
|
1.93
|
|
|
$
|
1.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80.3
|
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding
|
|
|
34.3
|
|
|
|
33.2
|
|
|
|
32.4
|
|
Dilutive effect of contingently
issuable shares
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common
shares outstanding
|
|
|
35.5
|
|
|
|
34.7
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share
|
|
$
|
2.26
|
|
|
$
|
1.85
|
|
|
$
|
1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For 2006 and 2005, no stock options were excluded in the
computation of diluted EPS. Stock options to purchase
38,917 shares of common stock at fiscal year end 2004 did
not affect the computation of diluted EPS since the exercise
prices for these options were greater than the average market
price of the Companys common stock during the year.
Stock options to purchase 2.8 million, 3.3 million and
3.4 million shares of common stock at fiscal year end 2006,
2005, and 2004, respectively, had exercise prices that were less
than the average market price of the Companys common stock
during the respective periods and are included in the
computation of diluted EPS.
In addition 85,608, 46,999 and 55,937 contingent shares of the
Companys common stock under two compensation plans were
excluded from fully diluted shares outstanding for 2006, 2005
and 2004, respectively, since performance and other conditions
for issuance have not yet been met.
71
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock
Incentive Plan
ATI sponsored an incentive plan that provided for ATI stock
option awards to officers and key employees. In connection with
the spin-off, outstanding stock options held by Teledynes
employees that participated in the plan prior to the spin-off
were converted into options to purchase Teledynes Common
Stock.
The following disclosures are based on stock options held by
Teledynes employees and include the stock options that
have been converted from ATI options to Teledynes options
as noted above. The Company adopted SFAS No. 123(R)
effective January 2, 2006, using the modified prospective
method, and accordingly did not restate prior year financial
statements. No modifications to outstanding stock options were
made prior to the adoption of SFAS No. 123(R). The
valuation methodologies and assumptions in estimating the fair
value of stock options granted in 2006 were similar to those
used in estimating the fair value of stock options granted in
2005. Stock option compensation expense is recorded on a
straight line basis over the appropriate vesting period,
generally three years. For the fiscal year 2006, the Company
recorded a total of $5.9 million ($3.7 million after
tax) in its consolidated statements of income for stock option
expense related to stock options awarded after the adoption of
SFAS No. 123(R) and for stock options which were not
vested by the date of adoption of SFAS No. 123(R). No
compensation expense related to stock options was recorded in
the consolidated statements of income for 2005 or in prior years
since it was not required.
As noted in the preceding paragraph, Teledyne Technologies
accounts for its stock options under SFAS No. 123(R).
If compensation cost for these options had been determined under
the SFAS No. 123
fair-value
method using the Black-Scholes option-pricing model for stock
options granted prior to 2005 and the lattice based binomial
model for stock options granted in 2005, the impact on net
income and earnings per share is presented in the following
table (amounts in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2005
|
|
|
2004
|
|
|
Net income as
reported
|
|
$
|
64.2
|
|
|
$
|
41.7
|
|
Stock-based compensation under
SFAS No. 123 fair-value method, net of tax
|
|
|
(3.4
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted net income
|
|
$
|
60.8
|
|
|
$
|
38.0
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.93
|
|
|
$
|
1.29
|
|
As adjusted
|
|
$
|
1.83
|
|
|
$
|
1.17
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
1.85
|
|
|
$
|
1.24
|
|
As adjusted
|
|
$
|
1.75
|
|
|
$
|
1.13
|
|
72
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Prior to 2005, the Company used its entire stock trading history
since its November 29, 1999 spin-off to compute the
expected volatility assumption to value stock options. During
2000, Teledyne Technologies stock price was extremely
volatile while the subsequent years had only moderate
volatility. In accordance with SFAS No. 123, if an
entitys stock was extraordinarily volatile for reasons
which expected future volatility may differ from the past, the
identifiable period may be disregarded in computing historical
average volatility. Beginning with stock options issued in 2005,
the Company excluded the year 2000 from the expected volatility
calculation resulting in a volatility that is more indicative of
expected future volatility. The following assumptions were used
in the valuation of stock options granted in 2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected dividend yield
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
36.0
|
%
|
|
|
33.0
|
%
|
|
|
60.7
|
%
|
Risk-free interest rate
|
|
|
4.7
|
%
|
|
|
3.9
|
%
|
|
|
4.0
|
%
|
Expected lives
|
|
|
5.5
|
|
|
|
6.3
|
|
|
|
8.0
|
|
Weighted-average fair value of
options granted during the year
|
|
$
|
13.30
|
|
|
$
|
10.24
|
|
|
$
|
12.89
|
|
Accounts
Receivable
Receivables are presented net of a reserve for doubtful accounts
of $2.7 million at December 31, 2006 and
$2.1 million at January 1, 2006. Expense recorded for
the reserve for doubtful accounts was $1.3 million,
$0.4 million, and $0.6 million for 2006, 2005, and
2004, respectively. An allowance for doubtful accounts is
established for losses expected to be incurred on accounts
receivable balances. Judgment is required in the estimation of
the allowance and is based upon specific identification,
collection history and creditworthiness of the debtor. The
Company markets its products and services principally throughout
the United States, Europe, Japan and Canada to commercial
customers and agencies of, and prime contractors to, the
U.S. Government. Trade credit is extended based upon
evaluations of each customers ability to perform its
obligations, which are updated periodically.
Cash
Equivalents
Cash equivalents consist of highly liquid money-market mutual
funds and bank deposits with initial maturities of three months
or less. Cash equivalents totaled $6.0 million at
December 31, 2006. There were no cash equivalents at
January 1, 2006.
Inventories
Inventories are stated at the lower of cost
(last-in,
first-out and
first-in,
first-out methods) or market, less progress payments. Costs
include direct material, direct labor, applicable manufacturing
and engineering overhead, and other direct costs.
Property,
Plant and Equipment
Property, plant and equipment is capitalized at cost. Property,
plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
determined using a combination of accelerated and straight-line
methods over the estimated useful lives of the various asset
classes. Buildings are depreciated over periods not exceeding
45 years, equipment over 5 to 18 years, computer
hardware and software over 3 to 5 years and leasehold
improvements over the shorter of their estimated remaining lives
or lease terms. Significant improvements are capitalized while
maintenance and repairs are charged to operations as incurred.
Depreciation expense on property, plant and equipment, including
assets under capital leases, was $24.3 million in 2006,
$22.1 million in 2005 and $23.4 million in 2004.
73
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill
and Acquired Intangible Assets
The Company accounts for goodwill and purchased intangible
assets under SFAS No. 141 Business
Combinations and SFAS No. 142 Goodwill and
Other Intangible Assets. Using the two-step goodwill
impairment model approach outlined in SFAS No. 142,
the Company performs an annual impairment test in the fourth
quarter of each year, or more often as circumstances require.
The two-step impairment test is used to first identify potential
goodwill impairment and then measure the amount of goodwill
impairment loss, if any. When it is determined that an
impairment has occurred, an appropriate charge to operations is
recorded. Based on the annual impairment test completed in the
fourth quarter of 2006, no impairment of goodwill or intangible
assets was indicated.
Business acquisitions are accounted for under the purchase
method by assigning the purchase price to tangible and
intangible assets acquired and liabilities assumed. Assets
acquired and liabilities assumed are recorded at their fair
values and the excess of the purchase price over the amounts
assigned is recorded as goodwill. Purchased intangible assets
with finite lives are amortized over their estimated useful
lives. Goodwill and intangible assets with indefinite lives are
not amortized, but tested at least annually for impairment.
Teledynes goodwill was $313.6 million at
December 31, 2006 and $197.0 million at
January 1, 2006. Teledynes acquired intangible assets
were $69.4 million at December 31, 2006 and
$33.6 million at January 1, 2006. The increase in both
goodwill and acquired intangibles in 2006 resulted from
acquisitions. In all acquisitions, the results are included in
the Companys consolidated financial statements from the
date of each respective acquisition. Each of the companies
acquired, except for CollaborX, Inc., is part of the Electronics
and Communications segment. CollaborX, Inc. is part of the
Systems Engineering and Solutions segment. The Company has
completed the process of specifically identifying the amount to
be assigned to intangible assets for the Benthos, Inc. and KW
Microwave Corporation acquisitions. The amount of goodwill and
acquired intangible assets recorded for the Benthos, Inc.
acquisition was $19.0 million and $6.5 million,
respectively. The amount of goodwill and acquired intangible
assets recorded for the KW Microwave Corporation acquisition was
$7.0 million and $2.1 million, respectively. 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 CollaborX, Inc., Ocean Design, Inc. and
Rockwell Scientific acquisitions made in 2006. The Company made
preliminary estimates as of December 31, 2006, since there
was insufficient time between the acquisition date and the end
of the year to finalize the valuations. The preliminary amount
of goodwill and acquired intangible assets recorded as of
December 31, 2006 for the Ocean Design, Inc. acquisition
was $15.9 million and $13.8 million, respectively. The
preliminary amount of goodwill and acquired intangible assets
recorded as of December 31, 2006 for the CollaborX, Inc.
acquisition was $14.2 million and $2.1 million,
respectively. The preliminary amount of goodwill and acquired
intangible assets recorded as of December 31, 2006 for the
Rockwell Scientific acquisition was $60.1 million and
$19.0 million, respectively. These amounts were based on
estimates that are subject to change pending the completion of
the Companys internal review and the receipt of third
party valuations and appraisals. Goodwill resulting from the
KW Microwave Corporation, CollaborX, Inc. and Rockwell
Scientific acquisitions will be deductible for tax purposes.
74
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarized the changes in the carrying value
of goodwill (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems
|
|
|
Aerospace
|
|
|
|
|
|
|
|
|
|
Electronics and
|
|
|
Engineering
|
|
|
Engines and
|
|
|
Energy
|
|
|
|
|
|
|
Communications
|
|
|
Solutions
|
|
|
Components
|
|
|
Systems
|
|
|
Total
|
|
|
Balance at January 2, 2005
|
|
$
|
163.7
|
|
|
$
|
1.6
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
166.0
|
|
Current year acquisitions
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38.5
|
|
Adjustment for gains on sales of
assets
sold(a)
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5.1
|
)
|
Adjustment to prior year
acquisitions(b)
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
|
194.7
|
|
|
|
1.6
|
|
|
|
0.7
|
|
|
|
|
|
|
|
197.0
|
|
Current year acquisitions
|
|
|
102.2
|
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
116.4
|
|
Adjustment to prior year
acquisitions(c)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
297.1
|
|
|
$
|
15.8
|
|
|
$
|
0.7
|
|
|
$
|
|
|
|
$
|
313.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
This amount relates to the gain on the sale of assets acquired
as part of the Isco acquisition in 2004. |
|
(b) |
|
The adjustments to prior year acquisitions primarily related to
final estimates of fair value for assets acquired and
liabilities assumed in connection with business acquisitions
completed prior to 2005. |
|
(c) |
|
The adjustments to prior year acquisitions primarily related to
final estimates of fair value for assets acquired and
liabilities assumed in connection with business acquisitions
completed prior to 2006. |
The following table summarizes the carrying value of other
acquired intangible assets (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
carrying
|
|
|
Accumulated
|
|
|
Net carrying
|
|
|
carrying
|
|
|
Accumulated
|
|
|
Net carrying
|
|
|
|
amount
|
|
|
Amortization
|
|
|
amount
|
|
|
amount
|
|
|
Amortization
|
|
|
amount
|
|
|
Other acquired intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary technology
|
|
$
|
41.2
|
|
|
$
|
5.5
|
|
|
$
|
35.7
|
|
|
$
|
17.2
|
|
|
$
|
2.3
|
|
|
$
|
14.9
|
|
Customer list/relationships
|
|
|
20.5
|
|
|
|
2.9
|
|
|
|
17.6
|
|
|
|
7.0
|
|
|
|
1.4
|
|
|
|
5.6
|
|
Patents
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
0.1
|
|
|
|
0.2
|
|
Non-compete agreements
|
|
|
0.8
|
|
|
|
0.1
|
|
|
|
0.7
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
0.1
|
|
Trademarks
|
|
|
3.1
|
|
|
|
0.1
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Backlog
|
|
|
5.0
|
|
|
|
4.1
|
|
|
|
0.9
|
|
|
|
2.7
|
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other acquired intangibles assets
subject to amortization
|
|
$
|
70.9
|
|
|
$
|
12.8
|
|
|
$
|
58.1
|
|
|
$
|
27.4
|
|
|
$
|
5.1
|
|
|
$
|
22.3
|
|
Other intangible assets not
subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
11.3
|
|
|
|
|
|
|
|
11.3
|
|
|
|
11.3
|
|
|
|
|
|
|
|
11.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other acquired intangible
assets
|
|
$
|
82.2
|
|
|
$
|
12.8
|
|
|
$
|
69.4
|
|
|
$
|
38.7
|
|
|
$
|
5.1
|
|
|
$
|
33.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortizable other intangible assets are amortized on a
straight-line basis over their estimated useful lives ranging
from one to 20 years. The Company recorded
$7.7 million and $3.5 million in amortization expense
in 2006 and 2005, respectively, for other acquired intangible
assets. The expected future amortization expense for the next
five years is as follows (in millions): 2007-$9.0; 2008-$7.8;
2009-$7.6; 2010-$6.9; 2011-$6.0.
The estimated remaining useful lives by asset category are as
follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
average
|
|
|
|
remaining
|
|
|
|
useful
|
|
|
|
life in
|
|
|
|
years
|
|
|
Intangibles subject to
amortization:
|
|
|
|
|
Proprietary technology
|
|
|
7.7
|
|
Customer list/relationships
|
|
|
6.8
|
|
Patents
|
|
|
11.3
|
|
Non-compete agreements
|
|
|
4.0
|
|
Trademarks
|
|
|
15.1
|
|
Backlog
|
|
|
0.4
|
|
|
|
|
|
|
Total intangibles subject to
amortization
|
|
|
5.8
|
|
|
|
|
|
|
The following is a summary at the acquisition date of the
estimated fair values of the assets acquired and liabilities
assumed for the acquisitions made in 2006 (in millions):
|
|
|
|
|
Current assets, excluding cash
acquired
|
|
$
|
61.2
|
|
Property, plant and equipment
|
|
|
66.0
|
|
Goodwill
|
|
|
116.4
|
|
Intangible assets
|
|
|
43.5
|
|
Other assets
|
|
|
21.5
|
|
|
|
|
|
|
Total assets acquired
|
|
|
308.6
|
|
Current liabilities, including
short-term debt
|
|
|
37.1
|
|
Long-term debt
|
|
|
1.9
|
|
Other long-term liabilities
|
|
|
17.6
|
|
|
|
|
|
|
Total liabilities
assumed
|
|
|
56.6
|
|
|
|
|
|
|
Purchase price, net of cash
acquired
|
|
$
|
252.0
|
|
|
|
|
|
|
76
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the intangible assets acquired as
part of the acquisitions made in 2006 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
|
|
|
useful
|
|
|
|
|
|
|
life in
|
|
|
|
|
|
|
years
|
|
|
Intangibles not subject to
amortization:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
116.4
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
Intangibles subject to
amortization:
|
|
|
|
|
|
|
|
|
Proprietary Technology
|
|
$
|
24.0
|
|
|
|
8.4
|
|
Customer List/Relationships
|
|
|
13.5
|
|
|
|
7.1
|
|
Backlog
|
|
|
2.3
|
|
|
|
0.5
|
|
Trademarks
|
|
|
3.1
|
|
|
|
15.1
|
|
Non-compete agreements
|
|
|
0.6
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
Total subject to
amortization
|
|
$
|
43.5
|
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
Other
Long-Lived Assets
The carrying value of long-lived assets is periodically
evaluated in relation to the operating performance and sum of
undiscounted future cash flows of the underlying businesses. An
impairment loss is recognized when the sum of expected
undiscounted future net cash flows is less than book value.
Environmental
Costs that mitigate or prevent future environmental
contamination or extend the life, increase the capacity or
improve the safety or efficiency of property utilized in current
operations are capitalized. Other costs that relate to current
operations or an existing condition caused by past operations
are expensed. Environmental liabilities are recorded when the
Companys liability is probable and the costs are
reasonably estimable, but generally not later than the
completion of the feasibility study or the Companys
recommendation of a remedy or commitment to an appropriate plan
of action. The accruals are reviewed periodically and, as
investigations and remediations proceed, adjustments are made as
necessary. Accruals for losses from environmental remediation
obligations do not consider the effects of inflation, and
anticipated expenditures are not discounted to their present
value. The accruals are not reduced by possible recoveries from
insurance carriers or other third parties, but do reflect
anticipated allocations among potentially responsible parties at
federal Superfund sites or similar state-managed sites and an
assessment of the likelihood that such parties will fulfill
their obligations at such sites. The measurement of
environmental liabilities by the Company is based on currently
available facts, present laws and regulations, and current
technology. Such estimates take into consideration the
Companys prior experience in site investigation and
remediation, the data concerning cleanup costs available from
other companies and regulatory authorities, and the professional
judgment of the Companys environmental personnel in
consultation with outside environmental specialists, when
necessary.
Foreign
Currency Translation
The Companys foreign entities accounts are measured
using local currency as the functional currency. Assets and
liabilities of these entities are translated at the exchange
rate in effect at year-end. Revenues and expenses are translated
at average month end rates of exchange prevailing during the
year. Unrealized translation gains and losses arising from
differences in exchange rates from period to period are included
as a
77
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
component of accumulated other comprehensive income in
stockholders equity. Most of the Companys sales are
denominated in U.S. dollars which mitigates the effect of
exchange rate changes.
Recent
Accounting Pronouncements
SFAS No. 158
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements
No. 87, 88, 106 and 132(R) (SFAS
No. 158), which provides guidance for recognition of
a net liability or asset to report the funded status of company
defined benefit pension and other postretirement benefit plans
(collectively referred to herein as benefit plans)
on company balance sheets. The pronouncement clarifies
(1) recognition of the funded status of a benefit plan in
its statement of financial position; (2) recognition as a
component of other comprehensive income, net of tax, the gains
or losses and prior service costs or credits that arise during
the period but are not recognized as components of net periodic
benefit cost pursuant to FASB Statement No. 87,
Employers Accounting for Pensions, or
No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions,
(3) measurement of defined benefit plan assets and
obligations as of the date of the employers fiscal
year-end statement of financial position (with limited
exceptions); and (4) disclosure requirements in the notes
to financial statements with additional information about
certain effects on net periodic benefit cost for the next fiscal
year that arise from delayed recognition of the gains or losses,
prior service costs or credits, and transition asset or
obligation. SFAS No. 158 is effective as of the end of the
fiscal year ending after December 15, 2006. The impact of
the adoption of SFAS No. 158 increased the minimum
benefit plan liability component of stockholders equity by
$41.1 million at December 31, 2006. This increase was
mostly offset by the impact of the changes to Teledynes
pension assets and liabilities resulting from the merger of the
Scientific Company pension plan with Teledynes pension
plan following the acquisition of Scientific Company. The total
increase from 2005 in the minimum benefit plan liability
component of stockholders equity was $4.5 million.
The adoption of SFAS No. 158 is not expected to have a
material impact to pension expense over the next 5 years.
FIN 48
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). This interpretation, among other things, creates
a two step approach for evaluating uncertain tax positions.
Recognition (step one) occurs when an enterprise concludes that
a tax position, based solely on its technical merits, is
more-likely-than-not to be sustained upon examination.
Measurement (step two) determines the amount of benefit that
more-likely-than-not will be realized upon settlement.
Derecognition of a tax position that was previously recognized
would occur when a company subsequently determines that a tax
position no longer meets the more-likely-than-not threshold of
being sustained. FIN 48 specifically prohibits the use of a
valuation allowance as a substitute for derecognition of tax
positions, and it has expanded disclosure requirements.
FIN 48 is effective for fiscal years beginning after
December 15, 2006, in which the impact of adoption should
be accounted for as a cumulative-effect adjustment to the
beginning balance of retained earnings. The Company is currently
evaluating FIN 48 and has not yet determined the impact the
adoption may have on the consolidated financial statements.
SFAS No. 154
On January 2, 2006, we adopted SFAS No. 154,
Accounting Changes and Error Corrections Disclosure,
(SFAS No. 154). SFAS No. 154 replaces APB
Opinion No. 20, Accounting Changes and
SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements. SFAS No. 154
requires retrospective application to prior periods
financial statements of changes in accounting principle unless
it is impracticable.
78
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SFAS No. 154 applies to all voluntary changes in
accounting principle. It also applies to changes required by a
new accounting pronouncement in the unusual instance that the
pronouncement does not include explicit transition provisions.
The adoption of SFAS No. 154 did not have a material
impact on the consolidated financial statements of the Company.
SFAS No. 123(R)
In December 2004, the FASB issued SFAS No. 123(R) that
requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With
limited exceptions, the amount of compensation costs will be
measured based on the grant date fair value of the equity
instrument issued. Compensation cost will be recognized over the
period that an employee provides service in exchange for the
award. SFAS No. 123(R) replaces
SFAS No. 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. The
Company adopted SFAS No. 123(R) effective
January 2, 2006, using the modified prospective method, and
accordingly did not restate prior year financial statements. No
modifications to outstanding stock options were made prior to
the adoption of SFAS No. 123(R). The valuation
methodologies and assumptions in estimating the fair value of
stock options granted in 2006 were similar to those used in
estimating the fair value of stock options granted in 2005.
Stock option compensation expense is recorded on a straight line
basis over the appropriate vesting period, generally three
years. For the fiscal year 2006, the Company recorded a total of
$5.9 million ($3.7 million after tax) in its
consolidated statements of income for stock option expense
related to stock options awarded after the adoption of
SFAS No. 123(R) and for stock options which were not
vested by the date of adoption of SFAS No. 123(R). No
compensation expense related to stock options was recorded in
the consolidated statements of income for 2005 or in prior years
since it was not required. During the fiscal year 2006, the
total intrinsic value of stock options exercised was
$22.1 million. As of December 31, 2006, there was
$6.1 million of unrecognized compensation cost related to
nonvested stock options, which is expected to be recognized over
a weighted-average period of approximately 1.3 years. At
December 31, 2006, the intrinsic value of stock options
outstanding was $54.9 million and the intrinsic value of
stock options exercisable was $44.2 million. The Company
received $12.3 million, $10.0 million and
$7.3 million from the exercise of stock options in 2006,
2005 and 2004, respectively. The Company issues shares of common
stock upon the exercise of stock options.
We used a combination of the historical volatility of
Teledynes stock price and the implied volatility based on
the price of traded options on Teledynes stock to
calculate the expected volatility assumption to value stock
options. We used our actual stock trading history since January
2001 in the volatility calculation. 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.
SFAS No. 151
On January 2, 2006, we adopted SFAS No. 151,
Inventory Costs an amendment of ARB
No. 43 Chapter 4 (SFAS No. 151).
SFAS No. 151 amends the guidance in ARB No. 43,
Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense,
freight, handling costs, and wasted material (spoilage).
SFAS No. 151 requires that those items be recognized
as current-period charges. The adoption of
SFAS No. 151 did not have a material impact on the
consolidated financial statements of the Company.
79
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Hedging
Activities
Teledyne has not utilized derivative financial instruments such
as futures contracts, options and swaps, forward exchange
contracts or interest rate swaps and futures during 2006 or 2005.
Supplemental
Cash Flow Information
Teledynes cash payments for federal, foreign and state
income taxes were $49.5 million for 2006 which is net of
refunds of $0.1 million. Teledynes cash payments for
federal, foreign and state income taxes were $34.9 million
for 2005 which is net of refunds of $0.1 million.
Teledynes cash payments for federal, foreign and state
income taxes were $30.2 million for 2004 which is net of
refunds of $40 thousand. Cash payments for interest and credit
facility fees by Teledyne totaled approximately
$6.2 million, $2.9 million and $1.2 million for
2006, 2005 and 2004, respectively.
Comprehensive
Income
Teledynes comprehensive income consists of net income, the
minimum pension liability adjustment, changes in the value of
marketable equity securities and foreign currency translation
adjustments. See Note 12 for a further discussion of the
pension adjustment. Teledynes comprehensive income was
$77.2 million, $47.3 million, and $30.7 million
for the years 2006, 2005 and 2004, respectively.
The year-end components of accumulated other comprehensive
income (loss) are shown in the following table (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Foreign currency translation gains
(losses)
|
|
$
|
1.1
|
|
|
$
|
(0.3
|
)
|
|
$
|
0.4
|
|
Minimum pension liability
adjustment(a)
|
|
|
(43.4
|
)
|
|
|
(38.9
|
)
|
|
|
(22.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive
loss
|
|
$
|
(42.3
|
)
|
|
$
|
(39.2
|
)
|
|
$
|
(22.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net of deferred taxes of $27.9 million in 2006,
$24.8 million in 2005 and $14.4 million in 2004. |
Note 3.
Business Combinations
On September 15, 2006, Teledyne Technologies through its
subsidiary, Teledyne Brown Engineering, Inc. acquired Rockwell
Scientific for $167.5 million in cash, with the sellers
retaining certain liabilities. At December 31, 2006, total
cash paid, including other fees, net of $9.5 million in
cash acquired was $158.6 million. The Company now operates
as Teledyne Scientific & Imaging, LLC (Scientific
Company). Headquartered in Thousand Oaks, California,
Scientific Company is a leading provider of research and
development services, as well as a leader in developing and
manufacturing infrared and visible light imaging sensors for
surveillance applications. Prior to the acquisition, Scientific
Company was 50 percent owned by each of Rockwell
Automation, Inc. and Rockwell Collins, Inc.
As part of the acquisition, Rockwell Automation and Rockwell
Collins have entered into service agreements to continue funding
research performed by Scientific Company. In addition, Teledyne
has agreed to license certain intellectual property of
Scientific Company to Rockwell Automation and Rockwell Collins.
Scientific Companys results have been included since the
date of the acquisition. The unaudited pro forma information
below assumes that Teledyne Scientific Company had been acquired
at the beginning of each fiscal year and includes the effect of
estimated amortization of acquired identifiable intangible
assets, increased depreciation expense for fixed assets, as well
as increased interest expense on acquisition debt. This
80
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the results
of operations that actually would have resulted had the
acquisition been in effect at the beginning of the respective
periods. In addition, the pro forma results are not intended to
be a projection of future results and do not reflect any
operating efficiencies or cost savings that might be achievable.
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(Unaudited in millions, except per share amounts)
|
|
|
Sales
|
|
$
|
1,519.2
|
|
|
$
|
1,322.6
|
|
Net income
|
|
$
|
77.1
|
|
|
$
|
59.8
|
|
Basic earnings per common share
|
|
$
|
2.23
|
|
|
$
|
1.80
|
|
Diluted earnings per common share
|
|
$
|
2.17
|
|
|
$
|
1.72
|
|
On August 16, 2006, Teledyne Technologies through its
subsidiary, Teledyne Instruments, Inc., acquired a majority
interest (51%) in Ocean Design, Inc. (ODI) for
approximately $30 million in cash. ODI, headquartered in
Daytona Beach, Florida, is a leading manufacturer of subsea,
wet-mateable electrical and fiber-optic interconnect systems
used in offshore oil and gas production, oceanographic research,
and military applications.
In September 2006, Teledyne Instruments acquired an additional
9.9% of ownership in ODI for $5.8 million. At
December 31, 2006, total cash paid, including the initial
investment and subsequent share purchase, net of cash acquired
was $34.4 million. The ODI stockholders will also have the
option to sell their shares to Teledyne Instruments following
the end of each quarter through the quarter ended March 31,
2009, at a formula-determined price. 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. At December
31, 2006, the minority interest in ODI of $5.0 million is
included in other long term liabilities on the balance sheet.
On August 16, 2006, Teledyne Technologies, through its
subsidiary, Teledyne Brown Engineering, Inc., acquired
CollaborX, Inc. (CollaborX) for cash consideration
of $17.5 million, less certain transaction-related
expenses. At December 31, 2006, total cash paid, including
other fees, net of cash acquired was $14.9 million.
CollaborX, based in Colorado Springs, Colorado, provides
government engineering services primarily to the U.S. Air
Force and select joint military commands, such as the Missile
Defense Agency, the United States Joint Forces Command and the
United States Northern Command.
On April 28, 2006, Teledyne Wireless, Inc. completed the
acquisition of certain assets of KW Microwave, a manufacturer of
defense microwave components and subsystems, for
$10.5 million in cash. Total cash paid, including the
receipt of a $0.2 million purchase price adjustment, was
$10.3 million. Principally located in Carlsbad, California,
the business operates as Teledyne KW Microwave.
KW Microwave designs and manufactures high performance
microwave filters and integrated filter assemblies that are used
in military electronic warfare, communication and navigation
systems.
On January 27, 2006, we acquired all of the outstanding
shares of Benthos for $17.50 per share in cash. The
aggregate consideration for the outstanding Benthos shares was
approximately $40.6 million (including payments for the
settlement of outstanding stock options) or $32.2 million
taking into consideration $8.4 million in cash acquired.
Benthos, located in North Falmouth, Massachusetts, is a provider
of oceanographic products used in port and harbor security
services, military applications, energy exploration and
oceanographic research.
Teledyne funded the acquisitions primarily from borrowings under
its credit facility and cash on hand.
81
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In October 2005, Teledyne Technologies purchased certain assets
of the microwave technical solutions business of Avnet, Inc. for
$2.2 million in cash and consolidated these assets with
Teledyne Cougar Inc.
In August 2005, Teledyne Technologies through its wholly-owned
subsidiary, Teledyne Investment, Inc., completed the acquisition
of all of the stock of RD Instruments, Inc. (RDI).
The total purchase price was $36.0 million. Total cash
paid, net of $0.4 million of cash acquired, was
$32.0 million. In connection with the acquisition Teledyne
Technologies assumed debt obligations of $2.0 million. In
addition, Teledyne Technologies recorded a $3.6 million
liability to be paid to the seller in August 2007. RDI designs
and manufactures acoustic Doppler instrumentation. The business
operates as Teledyne RD Instruments, Inc. and is based in Poway,
California. Teledyne Technologies funded the acquisition with
cash on hand and borrowings under its credit facilities. In the
fourth quarter of 2005, Teledyne Technologies purchased the
minority interest of a subsidiary owned by RDI for a cash
payment of $1.7 million.
In August 2005, Teledyne Technologies completed the sale of its
SWIFTtm
assets for net proceeds of $2.9 million. These assets were
acquired as part of the Isco acquisition made in June 2004. No
gain was recorded on the sale and goodwill was reduced by
$2.7 million.
In June 2005, Teledyne Technologies through its wholly-owned
subsidiary, Teledyne Investment, Inc., completed the acquisition
of all of the stock of Cougar Components Corporation
(Cougar) for a purchase price of $26.5 million.
In the third quarter Teledyne Technologies also paid a
$0.6 million purchase price adjustment. In connection with
the acquisition, Teledyne Technologies assumed debt obligations
of $3.8 million and acquired cash and cash equivalents of
$3.3 million. In addition, Teledyne Technologies recorded
contingent payments totaling $1.6 million to be paid to the
seller by Teledyne Technologies in specified increments as
certain conditions are satisfied through June 2007. Total cash
paid, net of $3.3 million of cash acquired, was
$22.5 million. Cougar designs and manufactures RF and
microwave cascadable amplifiers and subsystems for signal
processing equipment. Principally located in Sunnyvale,
California, the business operates as Teledyne Cougar, Inc., a
business unit of Teledyne Microwave. Teledyne Technologies
funded the acquisition primarily from borrowings under its
$280.0 million credit facility.
In March 2005, Teledyne Technologies sold the assets of
STIP-Isco, a
German subsidiary. Teledyne Technologies received
$5.6 million in connection with the sale. An additional
$0.4 million is held in escrow which should be released to
Teledyne Technologies in specified increments as certain
conditions are satisfied through February 2007. This business
was acquired as part of the Isco acquisition made in June 2004.
No gain was recorded on the sale and goodwill was reduced by
$2.4 million accordingly.
In October 2004, Teledyne, through its wholly-owned subsidiary
Teledyne Wireless, Inc., acquired the defense electronics
business of Celeritek, Inc. (Celeritek) for
$32.7 million in cash, which includes the receipt of a
$0.3 million purchase price adjustment. Celeriteks
defense electronics business designs and manufactures gallium
arsenide-based radio frequency and microwave components and
subassemblies for electronic warfare, radar and other military
applications. Teledyne relocated the business from
Santa Clara, California and consolidated it with
Teledynes operations in Mountain View, California.
In July 2004, Teledyne Investment, Inc., completed the
acquisition of Reynolds Industries, Incorporated
(Reynolds), headquartered in Los Angeles,
California, for total consideration of $41.2 million which
includes the payment of a purchase price adjustment and is net
of cash acquired. Reynolds is a supplier of specialized high
voltage connectors and subassemblies for defense, aerospace and
industrial applications, as well as unique pilot helmet mounted
display components and subsystems.
In June 2004, Teledyne completed the acquisition of the stock of
Isco, Inc. (Isco) for $16.00 per share in cash
or $93.8 million net of cash acquired. Teledyne sold
$17.3 million of marketable securities acquired as part of
the Isco acquisition and applied the proceeds against debt.
Isco, located in Lincoln, Nebraska, is a producer of water
quality monitoring products such as wastewater samplers and open
channel flow meters.
82
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Iscos liquid chromatography customers include
pharmaceutical laboratories involved in drug discovery and
development. Isco also manufactures chemical separation
instruments for industrial and research use.
In February 2004, Teledyne Tekmar Company acquired assets of
Leeman Labs, Inc. (Leeman), located in Hudson, New
Hampshire, for $8.1 million in cash, which includes a
payment of a $0.1 million purchase price adjustment.
Leemans product lines augment Teledynes existing
laboratory and continuous monitoring instruments used in
environmental applications.
On December 31, 2003, which is part of Teledynes 2004
fiscal year, Teledyne, through its wholly-owned subsidiary,
Teledyne Wireless, Inc., acquired certain assets of the
Filtronic Solid State (Solid State) business from
Filtronic plc for $12.0 million in cash. Solid State
designs and manufactures customized microwave subassemblies for
electronic warfare, radar and other military applications. The
business, which operates as Teledyne Microwave, was relocated
from Santa Clara, California to Teledynes operations
in Mountain View, California.
In June 2003, Teledyne acquired from Spirent plc its Aviation
Information Solutions businesses (collectively AIS),
which include Spirent Systems Wichita, Inc., Spirent
Systems Aerospace Solutions (Ottawa) Limited and
assets of United Kingdom-based The Flight Data Company Limited,
for $6.4 million in cash, which is net of a purchase price
adjustment. AIS designs and manufactures aerospace data
acquisition devices, networking products and flight deck and
cabin displays. The acquisition of AIS provided Teledyne with
advanced airborne file servers, data analysis software and
information displays that are highly synergistic with Teledyne
Controls data acquisition and communication systems that
enhance flight reliability and maintenance efficiency for
airline and airfreight customers.
In May 2003, Teledyne acquired Tekmar Company, a wholly-owned
subsidiary of Emerson Electric Co., for $13.5 million in
cash. Tekmar Company, also known as Tekmar-Dohrmann, is a
manufacturer of gas chromatography introduction systems and
automated total organic carbon analyzers. Tekmar Company,
located in Mason, Ohio, became a business unit of Teledyne
Instruments, a group of electronic instrumentation businesses
within Teledynes Electronics and Communications business
segment. Tekmar Company manufactures instruments that automate
the preparation and concentration of drinking water and
wastewater samples for the analysis of volatile organic
compounds in gas chromatographs. It also provides laboratory
analytical systems for the detection of total organic carbon.
In September 2002, Teledyne acquired Monitor Labs, Incorporated
from Spirent plc for $24.0 million in cash. Monitor Labs is
a supplier of environmental monitoring instrumentation for the
detection, measurement and reporting of air pollutants with
locations in Englewood, Colorado and Gibsonia, Pennsylvania.
Each of the above acquisitions are part of the Electronics and
Communications segment and are included in the consolidated
financial statements since the date of each respective
acquisition.
Note 4. Financial
Instruments
Teledyne values financial instruments as required by
SFAS No. 107 Disclosures about Fair
Value of Financial Instruments, as amended. The carrying
amounts of cash and cash equivalents approximate fair value
because of the short maturity of those instruments. Teledyne
estimates the fair value of its long-term debt based on the
quoted market prices for debt of similar rating and similar
maturity and at comparable interest rates. The estimated fair
value of Teledynes long-term debt at December 31,
2006 approximated the carrying value of $226.9 million. The
estimated fair value of Teledynes long-term debt at
January 1, 2006 approximated the carrying value of
$43.6 million. The estimated fair value of Teledynes
long-term debt at January 2, 2005 approximated the carrying
value of $70.6 million.
83
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying value of other on-balance-sheet financial
instruments approximates fair value, and the cost, if any, to
terminate off-balance sheet financial instruments (primarily
letters of credit) is not significant.
Note 5. Accounts
Receivable
Accounts receivable are summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
|
|
2006
|
|
|
2005
|
|
|
U.S. Government and prime
contractors contract receivables:
|
|
|
|
|
|
|
|
|
Billed receivables
|
|
$
|
42.4
|
|
|
$
|
30.5
|
|
Unbilled receivables
|
|
|
32.4
|
|
|
|
21.8
|
|
Commercial and other receivables
|
|
|
154.0
|
|
|
|
117.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228.8
|
|
|
|
169.7
|
|
Reserve for doubtful accounts
|
|
|
(2.7
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
Total accounts receivable,
net
|
|
$
|
226.1
|
|
|
$
|
167.6
|
|
|
|
|
|
|
|
|
|
|
The billed contract receivables from the U.S. Government
and prime contractors contain $24.3 million and
$17.3 million at December 31, 2006 and January 1,
2006, respectively, due to long-term contracts. The unbilled
contract receivables from the U.S. Government and prime
contractors contain $22.1 million and $20.4 million at
December 31, 2006 and January 1, 2006, respectively,
due to long-term contracts.
Unbilled contract receivables represent accumulated costs and
profits earned but not yet billed to customers. The Company
believes that substantially all such amounts will be billed and
collected within one year.
Note 6. Inventories
Inventories consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
|
|
2006
|
|
|
2005
|
|
|
Raw materials and supplies
|
|
$
|
59.3
|
|
|
$
|
44.7
|
|
Work in process
|
|
|
106.2
|
|
|
|
92.1
|
|
Finished goods
|
|
|
15.9
|
|
|
|
12.2
|
|
|
|
|
|
|
|
|
|
|
Total inventories at cost, net
|
|
|
181.4
|
|
|
|
149.0
|
|
LIFO reserve
|
|
|
(24.4
|
)
|
|
|
(23.7
|
)
|
Progress payments
|
|
|
(1.2
|
)
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories,
net
|
|
$
|
155.8
|
|
|
$
|
117.3
|
|
|
|
|
|
|
|
|
|
|
Inventories at cost, determined on the
last-in,
first-out method were $110.9 million at December 31,
2006 and $97.7 million at January 1, 2006. The
remainder of the inventories valued at cost, using the
first-in,
first-out method, were $70.5 million at December 31,
2006 and $51.3 million at January 1, 2006.
In 2006, the Company recorded LIFO expense of $0.7 million
which resulted from higher inventory levels. In 2005, the
Company recorded LIFO expense of $2.1 million which
resulted from higher inventory levels and the effect of the
current year LIFO index. In 2004, the Company recorded LIFO
expense of $0.5 million which resulted from higher
inventory levels.
84
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total inventories at current cost were net of reserves for
excess, slow moving and obsolete inventory of $22.8 million
and $18.7 million at December 31, 2006 and
January 1, 2006, respectively. The reserve for excess, slow
moving and obsolete inventory at December 31, 2006
reflected reserves of $2.7 million acquired as part of
acquisitions made in 2006.
Inventories, before progress payments, related to long-term
contracts were $14.8 million and $11.7 million at
December 31, 2006 and January 1, 2006, respectively.
Progress payments related to long-term contracts were
$7.6 million and $4.9 million at December 31,
2006 and January 1, 2006, respectively.
Under the contractual arrangements by which progress payments
are received, the customer has an ownership right in the
inventories associated with specific contracts.
Note 7. Supplemental
Balance Sheet Information
Property, plant and equipment were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Balance at year-end
|
|
|
|
2006
|
|
|
2005
|
|
|
Land
|
|
$
|
19.4
|
|
|
$
|
9.3
|
|
Buildings
|
|
|
80.7
|
|
|
|
58.7
|
|
Equipment and software
|
|
|
267.8
|
|
|
|
210.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
367.9
|
|
|
|
278.1
|
|
Accumulated depreciation and
amortization
|
|
|
(203.1
|
)
|
|
|
(181.4
|
)
|
|
|
|
|
|
|
|
|
|
Total property, plant and
equipment, net
|
|
$
|
164.8
|
|
|
$
|
96.7
|
|
|
|
|
|
|
|
|
|
|
Other long-term assets included amounts related to deferred
compensation of $19.5 million and $15.4 million at
December 31, 2006 and January 1, 2006, respectively.
Accrued liabilities included salaries and wages and other
related compensation reserves of $60.1 million and
$48.1 million at December 31, 2006 and January 1,
2006, respectively. Accrued liabilities also included customer
related deposits and credits of $19.7 million and
$14.4 million at December 31, 2006 and January 1,
2006, respectively. Other long-term liabilities included
aircraft product liability reserves of $44.4 million and
$33.9 million at December 31, 2006 and January 1,
2006, respectively and deferred compensation liabilities of
$19.3 million and $15.3 million at December 31,
2006 and January 1, 2006, respectively. Other long-term
liabilities also included reserves for self-insurance,
environmental liabilities and the long-term portion of
compensation reserves.
Note 8. Stockholders
Equity
The following is an analysis of Teledynes common stock
share activity:
|
|
|
|
|
Balance, December 29,
2003
|
|
|
32,266,578
|
|
Stock options exercised and other
|
|
|
645,784
|
|
|
|
|
|
|
Balance, January 2,
2005
|
|
|
32,912,362
|
|
Stock options exercised and other
|
|
|
771,309
|
|
|
|
|
|
|
Balance, January 1,
2006
|
|
|
33,683,671
|
|
Stock options exercised and other
|
|
|
1,036,029
|
|
|
|
|
|
|
Balance, December 31,
2006
|
|
|
34,719,700
|
|
|
|
|
|
|
85
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Shares issued in all three fiscal years include stock options
exercised as well as shares issued under certain compensation
plans.
Preferred
Stock
Authorized preferred stock may be issued with designations,
powers and preferences designated by the Board of Directors.
There were no shares of preferred stock issued or outstanding in
2006, 2005 or 2004.
Stockholder
Rights Plan
On November 12, 1999, the Companys Board of Directors
unanimously adopted a stockholder rights plan under which
preferred share purchase rights were distributed as a dividend
on each share of Teledynes Common Stock distributed to
ATIs stockholders in connection with the spin-off and each
share to become outstanding between the effective date of the
spin-off and the earliest of the distribution date, redemption
date and final expiration date. The rights will be exercisable
only if a person or group acquires 15 percent or more of
the Companys Common Stock or announces a tender offer, the
consummation of which would result in ownership by a person or
group of 15 percent or more of the Common Stock. Each right
will entitle stockholders to then buy one-hundredth of a share
of a new series of junior participating preferred stock at an
exercise price of $60 per share. There are
1,250,000 shares of Series A Junior Participating
Preferred Stock authorized for issuance under the plan. The
record date for the distribution was the close of business of
November 22, 1999. The rights will expire on
November 12, 2009, subject to earlier redemption or
exchange by Teledyne as described in the plan. The rights
distribution is not taxable to stockholders.
Stock
Incentive Plan
ATI sponsored an incentive plan that provided for ATI stock
option awards to officers and key employees. Teledyne had
officers and key employees that participated in this plan prior
to the spin-off. In connection with the spin-off, outstanding
stock options held by Teledynes employees were converted
into options to purchase Teledynes Common Stock. The
number of shares and the exercise price of each ATI option that
was converted to a Teledyne option was based upon a formula
designed to preserve the inherent economic value, vesting and
term provisions of such ATI options as of the Distribution Date.
The exchange ratio and fair market value of the Teledynes
Common Stock, upon active trading, also impacted the number of
options issued to Teledynes employees.
Teledyne has established its own long-term incentive plans which
provide its Board of Directors the flexibility to grant
restricted stock, performance shares, non-qualified stock
options, incentive stock options and stock appreciation rights
to officers and employees of Teledyne. Stock options become
exercisable in one-third increments on the first, second and
third anniversary of the grant and have a maximum 10 year
life.
86
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock option transactions for Teledynes employee stock
option plans are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Beginning balance
|
|
|
3,039,311
|
|
|
$
|
16.82
|
|
|
|
3,254,454
|
|
|
$
|
14.92
|
|
|
|
3,364,237
|
|
|
$
|
14.12
|
|
Granted
|
|
|
466,063
|
|
|
$
|
32.36
|
|
|
|
451,313
|
|
|
$
|
26.99
|
|
|
|
462,859
|
|
|
$
|
19.28
|
|
Exercised
|
|
|
(942,196
|
)
|
|
$
|
13.02
|
|
|
|
(659,906
|
)
|
|
$
|
14.46
|
|
|
|
(538,552
|
)
|
|
$
|
13.35
|
|
Canceled or expired
|
|
|
(25,619
|
)
|
|
$
|
27.76
|
|
|
|
(6,550
|
)
|
|
$
|
20.73
|
|
|
|
(34,090
|
)
|
|
$
|
18.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
2,537,559
|
|
|
$
|
20.97
|
|
|
|
3,039,311
|
|
|
$
|
16.82
|
|
|
|
3,254,454
|
|
|
$
|
14.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
year-end
|
|
|
1,649,681
|
|
|
$
|
16.92
|
|
|
|
2,048,864
|
|
|
$
|
14.61
|
|
|
|
2,331,729
|
|
|
$
|
14.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides certain information with respect to
stock options outstanding and stock options exercisable at
December 31, 2006 under the employee stock option plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Shares
|
|
|
Price
|
|
|
$ 8.42 −
$ 9.99
|
|
|
105,000
|
|
|
$
|
9.67
|
|
|
|
3.2
|
|
|
|
105,000
|
|
|
$
|
9.67
|
|
$10.00 − $19.99
|
|
|
1,537,942
|
|
|
$
|
16.64
|
|
|
|
5.1
|
|
|
|
1,392,757
|
|
|
$
|
16.37
|
|
$20.00 − $29.99
|
|
|
432,452
|
|
|
$
|
26.90
|
|
|
|
8.1
|
|
|
|
146,207
|
|
|
$
|
26.71
|
|
$30.00 − $36.10
|
|
|
462,165
|
|
|
$
|
32.28
|
|
|
|
9.1
|
|
|
|
5,717
|
|
|
$
|
33.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,537,559
|
|
|
$
|
20.97
|
|
|
|
6.3
|
|
|
|
1,649,681
|
|
|
$
|
16.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Employee
Director Stock Compensation Plan
Teledyne also sponsors a stock plan for non-employee directors
pursuant to which non-employee directors receive annual stock
options and may receive stock or stock options in lieu of their
respective retainer and meeting fees. The options become
exercisable one year after issuance and have a maximum
10 year life.
Stock option transactions for Teledynes non-employee
director stock option plan are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Beginning balance
|
|
|
246,412
|
|
|
$
|
16.33
|
|
|
|
228,012
|
|
|
$
|
14.01
|
|
|
|
189,348
|
|
|
$
|
13.11
|
|
Granted
|
|
|
55,464
|
|
|
$
|
32.52
|
|
|
|
48,400
|
|
|
$
|
26.48
|
|
|
|
47,503
|
|
|
$
|
17.42
|
|
Exercised
|
|
|
(690
|
)
|
|
$
|
10.86
|
|
|
|
(30,000
|
)
|
|
$
|
15.07
|
|
|
|
(8,839
|
)
|
|
$
|
12.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
|
301,186
|
|
|
$
|
19.32
|
|
|
|
246,412
|
|
|
$
|
16.33
|
|
|
|
228,012
|
|
|
$
|
14.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at
year-end
|
|
|
247,474
|
|
|
$
|
16.38
|
|
|
|
198,012
|
|
|
$
|
13.85
|
|
|
|
180,509
|
|
|
$
|
13.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides certain information with respect to
stock options outstanding and stock options exercisable at
December 31, 2006 under the non-employee director stock
option plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding
|
|
|
Stock Options Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Shares
|
|
|
Price
|
|
|
Life
|
|
|
Shares
|
|
|
Price
|
|
|
$ 6.31 −
$ 9.99
|
|
|
32,776
|
|
|
$
|
8.90
|
|
|
|
4.6
|
|
|
|
32,776
|
|
|
$
|
8.90
|
|
$10.00 − $19.99
|
|
|
175,944
|
|
|
$
|
14.92
|
|
|
|
6.0
|
|
|
|
169,124
|
|
|
$
|
14.92
|
|
$20.00 − $29.99
|
|
|
51,570
|
|
|
$
|
26.90
|
|
|
|
8.4
|
|
|
|
45,574
|
|
|
$
|
27.14
|
|
$30.00 − $39.99
|
|
|
38,896
|
|
|
$
|
35.99
|
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
$40.00 − $42.10
|
|
|
2,000
|
|
|
$
|
42.10
|
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
301,186
|
|
|
$
|
19.32
|
|
|
|
6.7
|
|
|
|
247,474
|
|
|
$
|
16.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Share Plan
Teledynes Performance Share Plan (PSP)
provides grants of performance share units, which key officers
and executives may earn if Teledyne meets specified performance
objectives over a three-year period. Awards are payable in cash
and shares. Awards are generally paid to the participants in
three annual installments after the end of the performance cycle
so long as they remain employed by Teledyne (with exceptions for
retirement, disability and death).
In January 2006, the performance cycle for the three-year period
ending December 28, 2008 was set. Based on target
performance over the three-year period, an aggregate of
87,416 shares are expected to be issued in three equal
installments during 2009, 2010 and 2011.
In December 2002, the performance cycle for the three-year
period ending January 1, 2006 was set. Based on actual
performance over the three-year period, an aggregate of
173,550 shares are expected to be issued in two equal
installments during 2007 and 2008.
Prior to 2006, the calculated expense for each plan year was
based on the expected cash payout and the expected shares to be
issued valued at the share price at the inception of the plan
performance cycle. Under SFAS No. 123(R), the calculated
expense for each plan year is also based on the expected cash
payout and expected shares to be issued, except for the shares
that can be issued based on a market based comparison. The
expense was calculated using the requirements of SFAS
No. 123(R). The expected expense for these shares was
calculated using a Monte-Carlo type simulation which takes into
consideration several factors including volatility, risk free
interest rates and correlation of Teledynes stock price
with the comparator, the Russell 2000 Index. No adjustment
to the calculated expense for the shares issued based on a
market based comparison will be made regardless of actual
performance.
Restricted
Stock Award Program
Under Teledynes restricted stock award program selected
officers and key executives receive a grant of stock equal to
30% of the participants annual base salary at the date of
grant. The Restricted Stock is subject to transfer and
forfeiture restrictions during an applicable restricted
period. The restrictions have both time-based and
performance-based components. The restricted period expires (and
the restrictions lapse) on the third anniversary of the date of
grant, subject to the achievement of stated performance
objectives over a specified three-year performance period. If
employment is terminated (other than via death, retirement or
disability) during the restricted period, stock is forfeited.
Under the 2004 to 2006 and 2005 to 2007 and 2006 to 2008
performance periods an aggregate of 130,450 shares of
restricted stock were issued and outstanding at year-end 2006.
88
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes Teledynes restricted stock
activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
average price
|
|
|
Balance, December 29,
2003
|
|
|
116,816
|
|
|
$
|
14.55
|
|
Granted
|
|
|
52,368
|
|
|
$
|
19.18
|
|
|
|
|
|
|
|
|
|
|
Balance, January 2,
2005
|
|
|
169,184
|
|
|
$
|
15.99
|
|
Granted
|
|
|
39,270
|
|
|
$
|
28.54
|
|
Issued
|
|
|
(51,290
|
)
|
|
$
|
16.41
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2006
|
|
|
157,164
|
|
|
$
|
18.98
|
|
Granted
|
|
|
38,812
|
|
|
$
|
30.78
|
|
Issued
|
|
|
(65,526
|
)
|
|
$
|
13.10
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2006
|
|
|
130,450
|
|
|
$
|
25.45
|
|
|
|
|
|
|
|
|
|
|
Prior to 2006, the calculated expense for each plan year was
based on the expected number of shares to be issued valued at
the share price at the grant inception date. This calculated
expense was adjusted downward if performance conditions were not
expected to be met. Under SFAS No. 123(R), the calculated
expense for each plan year is based on a Monte-Carlo type
simulation which takes into consideration several factors
including volatility, risk free interest rates and the
correlation of Teledynes stock price with the comparator,
the Russell 2000 Index. No adjustment to the calculated expense
will be made regardless of actual performance.
Note 9. Related
Party Transactions
Prior to and in connection with the spin-off, Teledyne and ATI
entered into agreements providing for the separation of the
companies and governing various relationships for separating
employee benefits and tax obligations, indemnification and
transition services. The Companys principal spin-off
requirements, including the requirement to ensure a favorable
tax treatment, have been satisfied. One of Teledynes
directors continues to serve on ATIs board.
The Companys Chairman, President and Chief Executive
Officer is a director of Mellon Financial Corporation, as is one
of the Companys other directors. Another of its directors
is a former chief executive officer and director of Mellon
Financial Corporation. Mellon Bank, N.A. is one of ten lenders
under the Companys $400.0 million credit facility,
having committed up to $45.0 million under the facility.
Mellon Bank, N.A. also provides cash management services and an
uncommitted $5.0 million line of credit. Mellon Bank, N.A.
serves as trustee under the Companys pension plan and
through its affiliates and subsidiaries provides asset
management and transition services for the plan. Mellon Investor
Services LLC serves as our transfer agent and registrar, as well
as agent under the Companys stockholders rights plan.
Note 10. Long-Term
Debt
At December 31, 2006, Teledyne had $226.9 million in
long-term debt outstanding. At January 1, 2006, Teledyne
had $43.6 million in long-term debt outstanding.
Effective July 14, 2006, the Company amended and restated
its $280.0 million credit facility. The amended and
restated credit facility has lender commitments of
$400.0 million and expires in July 2011. Excluding interest
and fees, no payments are due under the amended and restated
credit facility until it
89
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
matures. At year-end 2006, we had $174.7 million of
available committed credit under the credit facility, which can
be utilized, as needed, for daily operating and periodic cash
needs, including acquisitions. Borrowings under the credit
facility bear interest, at our option, at a rate based on either
a defined base rate or the London Interbank Offered Rate
(LIBOR), plus applicable margins. The credit
agreement also provides for facility fees that vary between
0.10% and 0.25% of the credit line, depending on our
consolidated leverage ratio as calculated from time to time. 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. We also
have two $5.0 million uncommitted credit lines available.
These credit lines are utilized, as needed, for periodic cash
needs. Total debt at year-end 2006 includes $216.9 million
outstanding under the $400.0 million credit facility,
$10.0 million outstanding under the two $5.0 million
uncommitted bank facilities and $1.2 million in other debt.
The amounts outstanding under the two uncommitted bank
facilities are classified as long term on the balance sheet as
the Company has the ability and the intent to repay these using
its $400.0 million credit facility, if necessary. The
Company also has a $3.9 million capital lease, of which
$0.1 million is current. At year-end 2006, Teledyne had
$8.4 million in outstanding letters of credit.
Total interest expense including credit facility fees and other
bank charges was $7.7 million in 2006, $3.8 million in
2005 and $2.2 million in 2004.
At December 31, 2006 and January 1, 2006, long-term
debt consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Revolving credit and bank
facilities, weighted average 6.02% at
December 31, 2006
|
|
$
|
226.9
|
|
|
$
|
43.5
|
|
Other unsecured debt due through
2008 at varying rates
|
|
|
1.2
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
228.1
|
|
|
|
43.7
|
|
Less:
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
(1.2
|
)
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
226.9
|
|
|
$
|
43.6
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, future minimum principal payments on
long-term debt subsequent to December 31, 2006 were as
follows: $1.2 million in 2007 and $226.9 million in
2011.
90
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 11. Income
Taxes
Provision for income taxes from continuing operations was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
42.8
|
|
|
$
|
35.2
|
|
|
$
|
26.7
|
|
State
|
|
|
8.7
|
|
|
|
6.8
|
|
|
|
4.6
|
|
Foreign
|
|
|
1.6
|
|
|
|
1.4
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
53.1
|
|
|
|
43.4
|
|
|
|
31.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(9.3
|
)
|
|
|
(4.0
|
)
|
|
|
(6.1
|
)
|
State
|
|
|
(2.4
|
)
|
|
|
(0.6
|
)
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(11.7
|
)
|
|
|
(4.6
|
)
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
|
$
|
41.4
|
|
|
$
|
38.8
|
|
|
$
|
26.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes included income from domestic
operations of $115.4 million for 2006, $99.5 million
for 2005 and $66.5 million for 2004. In 2006, Teledyne
reversed income tax contingency reserves of $3.3 million.
These reserves were determined to be no longer needed due to the
expiration of applicable statutes of limitations. The following
is a reconciliation of the statutory federal income tax rate to
the actual effective income tax rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
U.S. federal statutory tax
rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local taxes, net of
federal benefit
|
|
|
3.9
|
|
|
|
3.7
|
|
|
|
3.8
|
|
Reserve reversal, net
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
(0.3
|
)
|
Extraterritorial income exclusion
|
|
|
(1.4
|
)
|
|
|
(1.2
|
)
|
|
|
(2.1
|
)
|
Other
|
|
|
(0.8
|
)
|
|
|
0.1
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
34.0
|
%
|
|
|
37.6
|
%
|
|
|
38.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes result from temporary differences in the
recognition of income and expense for financial and income tax
reporting purposes, and differences between the fair value of
assets acquired in business combinations accounted for as
purchases for financial reporting purposes and their
corresponding tax bases. Deferred income taxes represent future
tax benefits or costs to be recognized when those temporary
differences reverse. A valuation allowance of $0.7 million
exists against deferred tax assets for 2006. The reduction in
the valuation allowance from 2005 was due to the utilization of
net operating loss carryforward amounts. A valuation allowance
of $1.4 million exists against deferred tax assets for
2005. Of this amount, $0.6 million relates to acquisitions
and if not used would result in an adjustment of goodwill. The
reduction in the valuation allowance from 2004 was due to the
utilization of net operating loss carryforward amounts. A
valuation allowance of $3.3 million exists against deferred
tax assets for 2004. Of this amount, $2.1 million relates
to acquisitions and if not used would result in an adjustment of
goodwill.
91
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The categories of assets and liabilities that have resulted in
differences in the timing of the recognition of income and
expense were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Reserves
|
|
$
|
17.7
|
|
|
$
|
12.5
|
|
Inventory valuation
|
|
|
8.4
|
|
|
|
7.6
|
|
Accrued vacation
|
|
|
8.6
|
|
|
|
6.7
|
|
Long-term
|
|
|
|
|
|
|
|
|
Postretirement benefits other than
pensions
|
|
|
10.4
|
|
|
|
8.8
|
|
Reserves
|
|
|
23.8
|
|
|
|
18.3
|
|
Deferred compensation and other
benefit plans
|
|
|
20.8
|
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
89.7
|
|
|
|
81.0
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Other items
|
|
|
0.3
|
|
|
|
1.4
|
|
Long-term
|
|
|
|
|
|
|
|
|
Property, plant and equipment
differences
|
|
|
6.6
|
|
|
|
8.6
|
|
Other items
|
|
|
9.8
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax
liabilities
|
|
|
16.7
|
|
|
|
12.7
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
73.0
|
|
|
$
|
68.3
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense includes tax amounts related to reserves of
$4.8 million, $4.4 million and $4.8 million for
2006, 2005 and 2004, respectively. Additional paid in capital
was credited $8.4 million in 2006, $5.2 million in
2005 and $2.4 million in 2004 for the tax benefit resulting
from the exercise of stock options.
Note 12. Pension
Plans and Postretirement Benefits
Prior to the spin-off, certain Teledynes employees
participated in the defined benefit plan sponsored by ATI.
Benefits under the defined benefit plan are generally based on
years of service
and/or final
average pay. ATI funded the pension plan in accordance with the
requirements of the Employee Retirement Income Security Act of
1974, as amended, and the Internal Revenue Code.
As of the spin-off date, Teledyne assumed the existing defined
benefit plan obligations for all of Teledynes employees,
both active and inactive, at its companies that perform
government contract work and for Teledynes active
employees at its companies that do not perform government
contract work. ATI transferred pension assets to fund the new
Teledynes defined benefit pension plan.
Teledynes FAS 87 pension expense was
$15.4 million in 2006 of which $10.5 million was
recoverable in accordance with U.S. Government Cost
Accounting Standards (CAS) from certain government
contracts compared with FAS 87 pension expense of
$12.7 million in 2005 of which $9.3 million was
recoverable in accordance with CAS and FAS 87 pension
expense of $8.7 million in 2004 of which $0.5 million
was recoverable in accordance with CAS. Teledyne made pretax
contributions to its pension plans of $20.9 million in 2006
and $15.5 million in 2005 prior to any recovery from the
U.S. Government. The Company anticipates
92
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
making total contributions, before any recovery from the
U.S. Government, of approximately $6.6 million to its
pension plans in 2007.
As of the spin-off date, Teledyne also participated in a 401(k)
plan that was open to all full time U.S. employees and was
sponsored by ATI. Teledyne established its own 401(k) plan
effective April 1, 2000. As of January 1, 2004,
non-union new hires participate in an enhanced defined
contribution plan as opposed to the Companys existing
defined benefit plan. The Companys contribution associated
with these 401(k) plans were $5.1 million,
$4.2 million and $3.2 million, for 2006, 2005 and
2004, respectively.
The Company sponsors several postretirement defined benefit
plans covering certain salaried and hourly employees. The plans
provide health care and life insurance benefits for certain
eligible retirees.
The following table sets forth the components of net period
pension benefit (income) expense for Teledynes defined
benefit pension plans and postretirement benefit plans for 2006,
2005 and 2004 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Service cost benefits
earned during the period
|
|
$
|
14.9
|
|
|
$
|
13.9
|
|
|
$
|
12.8
|
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
0.1
|
|
Interest cost on benefit obligation
|
|
|
32.2
|
|
|
|
29.7
|
|
|
|
28.7
|
|
|
|
1.3
|
|
|
|
1.1
|
|
|
|
1.1
|
|
Expected return on plan assets
|
|
|
(38.2
|
)
|
|
|
(34.6
|
)
|
|
|
(35.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost
|
|
|
2.0
|
|
|
|
2.0
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial (gain) loss
|
|
|
4.5
|
|
|
|
1.7
|
|
|
|
0.1
|
|
|
|
(0.6
|
)
|
|
|
(0.8
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit (income)
expense
|
|
$
|
15.4
|
|
|
$
|
12.7
|
|
|
$
|
8.7
|
|
|
$
|
0.8
|
|
|
$
|
0.3
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the reconciliation of the
beginning and ending balances of the benefit obligation of the
defined benefit pension and postretirement benefit plans (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Changes in benefit
obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation
beginning of year
|
|
$
|
524.5
|
|
|
$
|
488.8
|
|
|
$
|
19.5
|
|
|
$
|
18.0
|
|
Service cost benefits
earned during the period
|
|
|
14.9
|
|
|
|
13.9
|
|
|
|
0.1
|
|
|
|
|
|
Interest cost on projected benefit
obligation
|
|
|
32.2
|
|
|
|
29.7
|
|
|
|
1.3
|
|
|
|
1.1
|
|
Actuarial (gain) loss
|
|
|
(0.6
|
)
|
|
|
14.9
|
|
|
|
(1.7
|
)
|
|
|
2.4
|
|
Benefits paid
|
|
|
(25.8
|
)
|
|
|
(22.8
|
)
|
|
|
(2.0
|
)
|
|
|
(2.0
|
)
|
Termination benefits
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Business combination
|
|
|
85.1
|
|
|
|
|
|
|
|
13.6
|
|
|
|
|
|
Plan amendments
|
|
|
0.2
|
|
|
|
|
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation end
of year
|
|
$
|
629.2
|
|
|
$
|
524.5
|
|
|
$
|
26.8
|
|
|
$
|
19.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit
obligation end of year
|
|
$
|
573.1
|
|
|
$
|
479.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The measurement date for the Companys pension and
postretirement plans is December 31.
93
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents the estimated future benefit
payments for the Companys pension and postretirement plans
(in millions):
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Plan
|
|
|
Benefit Plan
|
|
|
2007
|
|
$
|
31.5
|
|
|
$
|
2.4
|
|
2008
|
|
|
33.3
|
|
|
|
2.5
|
|
2009
|
|
|
35.1
|
|
|
|
2.5
|
|
2010
|
|
|
37.2
|
|
|
|
2.4
|
|
2011
|
|
|
39.0
|
|
|
|
2.4
|
|
2012 2016
|
|
|
226.4
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
402.5
|
|
|
$
|
23.3
|
|
|
|
|
|
|
|
|
|
|
The following tables set forth the reconciliation of the
beginning and ending balances of the fair value of plan assets
for Teledynes defined benefit pension plans and the
percentage of year-end market value by asset class (in millions):
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
2006
|
|
|
2005
|
|
|
Changes in plan
assets:
|
|
|
|
|
|
|
|
|
Fair value of plan
assets beginning of year
|
|
$
|
409.3
|
|
|
$
|
398.4
|
|
Actual return on plan assets
|
|
|
65.8
|
|
|
|
18.2
|
|
Employer contribution
defined benefit plan
|
|
|
18.8
|
|
|
|
14.8
|
|
Employer contribution
other benefit plans
|
|
|
2.1
|
|
|
|
0.7
|
|
Business combination
|
|
|
118.4
|
|
|
|
|
|
Benefits paid
|
|
|
(27.1
|
)
|
|
|
(22.8
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets end of year
|
|
$
|
587.3
|
|
|
$
|
409.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets
|
|
|
|
% to Total
|
|
|
|
2006
|
|
|
2005
|
|
|
Equity instruments
|
|
$
|
70.8
|
%
|
|
$
|
67.5
|
%
|
Domestic fixed income instruments
|
|
|
28.4
|
%
|
|
|
31.5
|
%
|
Cash
|
|
|
0.8
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
100.0
|
%
|
|
$
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
The Company has an active management policy for a portion of its
pension assets. The investment policy includes a target
allocation percentage of 70% in equity instruments and 30% in
domestic fixed income instruments. The balance in equity
instruments can range from 65% to 75% before rebalancing is
required under the Companys policy. The expected long-term
rate of return on plan assets is reviewed annually, taking into
consideration the Companys asset allocation, historical
returns on the types of assets held, and the current economic
environment.
94
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following assumptions were used to determine the benefit
obligation and the net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Weighted average discount rate
|
|
|
6.00
|
%
|
|
|
6.25
|
%
|
|
|
6.5
|
%
|
Weighted average increase in
future compensation levels
|
|
|
3.25
|
%
|
|
|
3.25
|
%
|
|
|
3.5
|
%
|
Expected weighted-average
long-term rate of return
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
|
|
8.5
|
%
|
The Company is projecting a long-term rate of return on plan
assets of 8.5% in 2007. The discount rate used in determining
the benefit obligations is expected to be 6.00% in 2007 and the
expected weighted average increase in future compensation levels
is 3.25%.
The following table sets forth the funded status and amounts
recognized in Teledynes consolidated balance sheets for
the pension and postretirement plans at year-end 2006 and 2005
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
Funded status
|
|
$
|
(41.9
|
)
|
|
$
|
(115.2
|
)
|
|
$
|
(26.8
|
)
|
|
$
|
(19.5
|
)
|
Unrecognized prior service cost
|
|
|
3.6
|
|
|
|
5.3
|
|
|
|
(3.9
|
)
|
|
|
|
|
Unrecognized net (gain) loss
|
|
|
75.7
|
|
|
|
108.5
|
|
|
|
(4.1
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid (accrued) benefit cost
|
|
$
|
37.4
|
|
|
$
|
(1.4
|
)
|
|
$
|
(34.8
|
)
|
|
$
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued pension obligation
(long-term)
|
|
$
|
(38.4
|
)
|
|
$
|
(68.2
|
)
|
|
$
|
|
|
|
$
|
|
|
Accrued pension obligation
(short-term)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued postretirement benefits
(long-term)
|
|
|
|
|
|
|
|
|
|
|
(24.4
|
)
|
|
|
(22.5
|
)
|
Accrued postretirement benefits
(short-term)
|
|
|
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
|
|
Accumulated other comprehensive
income
|
|
|
79.3
|
|
|
|
63.7
|
|
|
|
(8.0
|
)
|
|
|
|
|
Intangible pension asset
|
|
|
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
(2.7
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
37.4
|
|
|
$
|
(1.4
|
)
|
|
$
|
(34.8
|
)
|
|
$
|
(22.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective for year end 2006, SFAS No. 158
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An Amendment of FASB
Statements No. 87, 88, 106, and 132(R), requires
companies to recognize as a component of other comprehensive
income, net of tax, the gains or losses and prior service costs
or credits that arise during the period but are not recognized
as components of net periodic benefit cost pursuant to FASB
Statement No. 87, Employers Accounting for
Pensions, or No. 106, Employers
Accounting for Postretirement Benefits Other Than
Pensions. In accordance with the requirements of
SFAS No. 158, the Company has a $43.4 million
non-cash reduction to stockholders equity and a long-term
additional liability of $71.3 million at year-end 2006.
Prior to 2006, SFAS No. 87, Employers
Accounting for Pensions, requires that a minimum benefit
plan liability be recorded if the value of pension assets is
less than the accumulated pension benefit obligation. In
accordance with the requirements of SFAS No. 87, the
Company had a $38.9 million non-cash reduction to
stockholders equity, a long-term intangible asset of
$5.3 million and a long-term additional pension liability
of $69.0 million at year-end 2005. The adjustments to
equity did not affect net income and are recorded net of
deferred taxes.
At December 31, 2006, the amounts in the minimum pension
liability adjustment that have not yet been recognized as
components of net periodic benefit cost for the pension plans
are: net loss $75.7 million and net prior service cost
$3.6 million. At December 31, 2006, the amounts in the
minimum pension liability
95
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
adjustment that have not yet been recognized as components of
net periodic benefit income for the retiree medical plans are:
net gain $4.1 million and net prior service cost
$3.9 million.
At December 31, 2006, the estimated amounts of the minimum
pension liability adjustment that are expected to be recognized
as components of net periodic benefit cost during 2007 for the
pension plans are: net loss $3.8 million and net prior
service cost $1.7 million. At December 31, 2006, the
estimated amounts in the minimum pension liability expected to
be recognized as components of net periodic benefit income
during 2007 for the retiree medical plans are: net gain
$0.7 million and net prior service cost $0.5 million.
The annual assumed rate of increase in the per capita cost of
covered benefits (the health care cost trend rate) for health
care plans was 10% in 2006 and was assumed to decrease to 5% by
the year 2013 and remain at that level thereafter. Assumed
health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percentage
point increase in the assumed health care cost trend rates would
result in an increase in the annual service and interest costs
by $0.2 million for 2006 and would result in an increase in
the postretirement benefit obligation by $1.9 million at
December 31, 2006. A one percentage point decrease in the
assumed health care cost trend rates would result in a decrease
in the annual service and interest costs by $0.1 million
for 2006 and would result in a decrease in the postretirement
benefit obligation by $1.7 million at December 31,
2006.
The Company sponsors retiree medical programs for certain of its
locations. In May 2004, the FASB issued FASB Staff Position
No. 106-2,
Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003 (FSP
106-2).
FSP
No. 106-2
provides guidance on the accounting for the effects of the
Medicare Prescription Drug, Improvement and Modernization Act of
2003 (The Act). The Act provides several
options for Medicare eligible participants and employers,
including a federal subsidy payable to companies that elect to
provide a retiree prescription drug benefit which is at least
actuarially equivalent to Medicare Part D. Based on FSP
106-2, the
Companys benefit obligation at December 31, 2006 was
reduced by $0.9 million and interest cost was reduced by
less than $0.1 million and the recognized actuarial net
gain was increased by $0.2 million for the fiscal year
ended December 31, 2006 due to The Act.
Note 13. Business
Segments
Teledyne is a leading provider of sophisticated electronic
components, instruments and communications products, systems
engineering solutions and information technology services, and
aerospace engines and components, as well as
on-site gas
and power generation systems. Its customers include aerospace
prime contractors, general aviation companies, government
agencies and major communications and other commercial companies.
Teledyne operates in four business segments: Electronics and
Communications, Systems Engineering Solutions, Aerospace Engines
and Components and Energy Systems. 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. The Electronics and Communications segment,
sometimes referred to as Teledyne Electronic Technologies,
provides a wide range of specialized electronic systems,
instruments, components and services that address niche market
applications in defense, commercial aerospace, communications,
industrial, scientific and medical markets. The Systems
Engineering Solutions segment, principally through Teledyne
Brown Engineering, Inc., applies the skills of its extensive
staff of engineers and scientists to provide innovative systems
engineering, advanced technology, software development and
manufacturing solutions to defense, space, environmental, and
homeland security requirements. The Aerospace Engines and
Components segment, principally through Teledyne Continental
Motors, Inc., focuses on the design, development and manufacture
of piston engines, turbine engines, electronic engine controls
and aviation batteries. The Energy Systems segment, through
majority-owned
96
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Teledyne Energy Systems, Inc., provides hydrogen gas generators
and thermoelectric and fuel cell-based power sources.
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.
Identifiable assets are those assets used in the operations of
the segments. Corporate assets primarily consist of cash and
cash equivalents, deferred tax assets, net pension
assets/liabilities and other assets.
Information on the Companys business segments was as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
899.4
|
|
|
$
|
717.8
|
|
|
$
|
567.9
|
|
Systems Engineering Solutions
|
|
|
283.0
|
|
|
|
263.7
|
|
|
|
242.2
|
|
Aerospace Engines and Components
|
|
|
223.9
|
|
|
|
196.6
|
|
|
|
181.8
|
|
Energy Systems
|
|
|
26.9
|
|
|
|
28.4
|
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
1,433.2
|
|
|
$
|
1,206.5
|
|
|
$
|
1,016.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006(a)
|
|
|
2005(a)
|
|
|
2004(a)
|
|
|
Income before taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
109.3
|
|
|
$
|
84.0
|
|
|
$
|
54.4
|
|
Systems Engineering Solutions
|
|
|
24.5
|
|
|
|
27.5
|
|
|
|
27.1
|
|
Aerospace Engines and Components
|
|
|
20.5
|
|
|
|
13.5
|
|
|
|
6.1
|
|
Energy Systems
|
|
|
1.0
|
|
|
|
1.6
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income
|
|
|
155.3
|
|
|
|
126.6
|
|
|
|
89.2
|
|
Corporate expense
|
|
|
(27.7
|
)
|
|
|
(20.9
|
)
|
|
|
(19.8
|
)
|
Interest and debt expense, net
|
|
|
(7.4
|
)
|
|
|
(3.5
|
)
|
|
|
(1.9
|
)
|
Other income (expense), net
|
|
|
1.5
|
|
|
|
0.8
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
$
|
121.7
|
|
|
$
|
103.0
|
|
|
$
|
68.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
Total year 2006, 2005 and 2004 segment operating profit includes
receipts of $2.5 million, $5.0 and $2.5 million,
respectively, pursuant to an agreement with Honda Motor Co.,
Ltd., related to the piston engine business. This amount is
included as part of other income on the income statement table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Depreciation and
amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
25.9
|
|
|
$
|
19.3
|
|
|
$
|
17.5
|
|
Systems Engineering Solutions
|
|
|
1.8
|
|
|
|
1.5
|
|
|
|
1.7
|
|
Aerospace Engines and Components
|
|
|
3.8
|
|
|
|
4.2
|
|
|
|
5.1
|
|
Energy Systems
|
|
|
0.5
|
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
32.0
|
|
|
$
|
25.6
|
|
|
$
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
17.9
|
|
|
$
|
12.5
|
|
|
$
|
12.8
|
|
Systems Engineering Solutions
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
1.7
|
|
Aerospace Engines and Components
|
|
|
6.5
|
|
|
|
5.5
|
|
|
|
3.2
|
|
Energy Systems
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
1.1
|
|
Corporate
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
26.4
|
|
|
$
|
19.8
|
|
|
$
|
18.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Identifiable assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications
|
|
$
|
804.4
|
|
|
$
|
522.5
|
|
|
$
|
439.2
|
|
Systems Engineering Solutions
|
|
|
70.8
|
|
|
|
50.1
|
|
|
|
37.1
|
|
Aerospace Engines and Components
|
|
|
80.0
|
|
|
|
56.9
|
|
|
|
49.8
|
|
Energy Systems
|
|
|
11.8
|
|
|
|
11.4
|
|
|
|
9.5
|
|
Corporate
|
|
|
94.4
|
|
|
|
87.3
|
|
|
|
89.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets
|
|
$
|
1,061.4
|
|
|
$
|
728.2
|
|
|
$
|
624.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information on the Companys sales to the
U.S. Government, including direct sales as a prime
contractor and indirect sales as a subcontractor, were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Electronics and Communications
|
|
$
|
249.1
|
|
|
$
|
198.5
|
|
|
$
|
147.3
|
|
Systems Engineering Solutions
|
|
|
278.9
|
|
|
|
260.0
|
|
|
|
240.4
|
|
Aerospace Engines and Components
|
|
|
24.9
|
|
|
|
32.3
|
|
|
|
26.0
|
|
Energy Systems
|
|
|
16.5
|
|
|
|
19.8
|
|
|
|
19.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government sales
|
|
$
|
569.4
|
|
|
$
|
510.6
|
|
|
$
|
433.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to the U.S. Government included sales to the
Department of Defense of $431.4 million in 2006,
$391.7 million in 2005, and $335.4 million in 2004.
Total international sales were $300.1 million in 2006,
$222.3 million in 2005, and $198.0 million in 2004. Of
these amounts, sales by operations in the United States to
customers in other countries were $219.8 million in 2006,
$196.9 million in 2005, and $190.3 million in 2004.
There were no sales to individual countries outside of the
United States in excess of 10 percent of the Companys
sales. Sales between business segments, which were not material,
generally were priced at prevailing market prices.
Note 14. Lease
Commitments
The Company leases buildings and equipment under capital and
operating leases. The present value of the minimum capital lease
payments, net of the current portion, totaled $3.4 million
at December 31, 2006. Operating lease agreements, which
include leases for manufacturing facilities and office space
frequently include renewal options and require the Company to
pay for utilities, taxes, insurance and maintenance expense.
98
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2006, future minimum lease payments for
capital leases and for operating leases with non-cancelable
terms of more than one year were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
2007
|
|
$
|
0.4
|
|
|
$
|
14.5
|
|
2008
|
|
|
0.4
|
|
|
|
12.8
|
|
2009
|
|
|
0.4
|
|
|
|
11.4
|
|
2010
|
|
|
0.4
|
|
|
|
9.8
|
|
2011
|
|
|
0.4
|
|
|
|
7.5
|
|
Thereafter
|
|
|
5.0
|
|
|
|
32.9
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
7.0
|
|
|
$
|
88.9
|
|
|
|
|
|
|
|
|
|
|
Less:
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
(3.0
|
)
|
|
|
|
|
Current portion
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum capital
lease payment, net of current portion
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2006 property, plant and equipment accounts included
$3.7 million of property leased under a capital lease and
$0.6 million of related accumulated depreciation. The 2005
property, plant and equipment accounts included
$3.2 million of property leased under a capital lease and
$0.2 million of related accumulated depreciation. Rental
expense under operating leases, net of sublease income, was
$13.2 million in 2006, $11.6 million in 2005, and
$12.2 million in 2004.
Note 15. Commitments
and Contingencies
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, 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 further
subject to uncertainties regarding the nature and extent of site
contamination, the range of remediation alternatives available,
evolving remediation standards, imprecise engineering
evaluations and estimates of appropriate cleanup technology,
methodology and cost, the extent of corrective actions that may
be required, and the number and financial condition of other
potentially responsible parties, as well as the extent of their
responsibility for the remediation. Accordingly, 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, however, management does not believe that
future environmental costs in excess of those 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 or liquidity. However, there can be no
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.
99
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 31, 2006, the Companys reserves for
environmental remediation obligations totaled approximately
$5.1 million, of which approximately $0.1 million was
included in other current liabilities. The Company is evaluating
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 thirty 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.
However, 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 or liquidity, although 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.
A number of other lawsuits, claims and proceedings have been or
may be asserted against the Company relating to the conduct of
its business, including those pertaining to product liability,
patent infringement, commercial, 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 or liquidity, although
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
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 $22.9 million. The Companys
current aircraft product liability insurance policy expires in
May 2007.
100
TELEDYNE
TECHNOLOGIES INCORPORATED
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 16. Quarterly
Financial Data (Unaudited)
The following is Teledynes quarterly information (in
millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Fiscal year 2006(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
330.2
|
|
|
$
|
348.1
|
|
|
$
|
363.6
|
|
|
$
|
391.3
|
|
Gross profit
|
|
$
|
93.4
|
|
|
$
|
102.7
|
|
|
$
|
102.3
|
|
|
$
|
114.6
|
|
Net income
|
|
$
|
17.9
|
|
|
$
|
20.9
|
|
|
$
|
22.6
|
|
|
$
|
18.9
|
|
Basic earnings per
share
|
|
$
|
0.53
|
|
|
$
|
0.61
|
|
|
$
|
0.65
|
|
|
$
|
0.54
|
|
Diluted earnings per
share
|
|
$
|
0.51
|
|
|
$
|
0.59
|
|
|
$
|
0.63
|
|
|
$
|
0.53
|
|
|
|
|
(a) |
|
Fiscal year 2006 was a
52-week
year, each quarter contained 13 weeks. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Fiscal year 2005(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
297.5
|
|
|
$
|
303.3
|
|
|
$
|
295.3
|
|
|
$
|
310.4
|
|
Gross profit
|
|
$
|
83.0
|
|
|
$
|
83.3
|
|
|
$
|
82.8
|
|
|
$
|
87.8
|
|
Net income
|
|
$
|
15.8
|
|
|
$
|
16.1
|
|
|
$
|
15.7
|
|
|
$
|
16.6
|
|
Basic earnings per share
|
|
$
|
0.48
|
|
|
$
|
0.49
|
|
|
$
|
0.47
|
|
|
$
|
0.50
|
|
Diluted earnings per share
|
|
$
|
0.46
|
|
|
$
|
0.47
|
|
|
$
|
0.45
|
|
|
$
|
0.48
|
|
|
|
|
(a) |
|
Fiscal year 2005 was a
52-week
year, each quarter contained 13 weeks. |
101
Schedule II
VALUATION
AND QUALIFYING ACCOUNTS
For the
Fiscal Years Ended December 31, 2006, January 1, 2006
and January 2, 2005
(In
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
beginning
|
|
|
costs and
|
|
|
|
|
|
|
|
|
end of
|
|
Description
|
|
of period
|
|
|
expenses
|
|
|
Acquisitions
|
|
|
Deductions(a)
|
|
|
period
|
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful
accounts
|
|
$
|
2.1
|
|
|
|
1.3
|
|
|
|
|
|
|
|
(0.7
|
)
|
|
$
|
2.7
|
|
Aircraft product liability
reserve
|
|
$
|
37.1
|
|
|
|
16.3
|
|
|
|
|
|
|
|
(6.5
|
)
|
|
$
|
46.9
|
|
Environmental
reserves
|
|
$
|
3.5
|
|
|
|
0.3
|
|
|
|
1.4
|
|
|
|
(0.1
|
)
|
|
$
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful accounts
|
|
$
|
2.6
|
|
|
|
0.4
|
|
|
|
|
|
|
|
(0.9
|
)
|
|
$
|
2.1
|
|
Aircraft product liability reserve
|
|
$
|
27.4
|
|
|
|
17.2
|
|
|
|
|
|
|
|
(7.5
|
)
|
|
$
|
37.1
|
|
Environmental reserves
|
|
$
|
3.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for doubtful accounts
|
|
$
|
2.4
|
|
|
|
0.6
|
|
|
|
0.5
|
|
|
|
(0.9
|
)
|
|
$
|
2.6
|
|
Aircraft product liability reserve
|
|
$
|
13.0
|
|
|
|
15.9
|
|
|
|
|
|
|
|
(1.5
|
)
|
|
$
|
27.4
|
|
Environmental reserves
|
|
$
|
2.0
|
|
|
|
1.8
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
$
|
3.5
|
|
|
|
|
(a) |
|
Represents payments except the amounts for allowance for
doubtful accounts primarily represents uncollectible accounts
written off, net of recoveries. |
102
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 as of February 27, 2007.
Teledyne Technologies Incorporated (Registrant)
Robert Mehrabian
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
/s/ Robert
Mehrabian
Robert
Mehrabian
|
|
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
and Director
|
|
February 27, 2007
|
|
|
|
|
|
/s/ Dale
A.
Schnittjer
Dale
A. Schnittjer
|
|
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
|
|
February 27, 2007
|
|
|
|
|
|
/s/ Susan
L. Main
Susan
L. Main
|
|
Vice President and Controller
(Principal Accounting Officer)
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
Director
|
|
February 27, 2007
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Melanie
S. Cibik
Melanie
S. Cibik
Pursuant to Powers of Attorney
filed as Exhibit 24.1 and 24.2
|
|
|
|
|
103
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Separation and Distribution
Agreement dated as of November 29, 1999 by and among
Allegheny Teledyne Incorporated, TDY Holdings, LLC, Teledyne
Industries, Inc. and Teledyne Technologies Incorporated
(incorporated by reference to Exhibit 2.1 to the
Companys Current Report on
Form 8-K
dated as of November 29, 1999 (File
No. 1-15295))
|
|
2
|
.2
|
|
Purchase Agreement dated as of
July 26, 2006, by and among Rockwell Automation, Inc.,
Rockwell Collins, Inc. and Teledyne Brown Engineering, Inc.
(incorporated by reference to Exhibit 10.1 of Teledyne
Technologies Incorporated Current Report on
Form 8-K
dated July 25, 2006)
|
|
2
|
.3
|
|
Guarantee of Teledyne Technologies
Incorporated relating to the Purchase Agreement (incorporated by
reference to Exhibit 10.2 of Teledyne Technologies
Incorporated Current Report on
Form 8-K
dated July 25, 2006)
|
|
3
|
.1
|
|
Restated Certificate of
Incorporation of Teledyne Technologies Incorporated (including
Certificate of Designation of Series A Junior Participating
Preferred Stock) (incorporated by reference to Exhibit 3.1
to the Companys Annual Report on
Form 10-K
for the year ended January 2, 2000 (File
No. 1-15295))
|
|
3
|
.2
|
|
Amended and Restated Bylaws of
Teledyne Technologies Incorporated (incorporated by reference to
Exhibit 3.2 to the Companys Annual Report on
Form 10-K
for the year ended January 2, 2000
(File No. 1-15295))
|
|
4
|
.1
|
|
Rights Agreement dated as of
November 29, 1999 between Teledyne Technologies
Incorporated and ChaseMellon Shareholder Services, L.L.C.
(incorporated by reference to Exhibit 4.1 to the
Companys Current Report on
Form 8-K
dated as of November 29, 1999 (File
No. 1-15295))
|
|
10
|
.1
|
|
Tax Sharing and Indemnification
Agreement between Allegheny Teledyne Incorporated and Teledyne
Technologies Incorporated (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on
Form 8-K
dated as of November 29, 1999 (File
No. 1-15295))
|
|
10
|
.2
|
|
Employee Benefits Agreement
between Allegheny Teledyne Incorporated and Teledyne
Technologies Incorporated (incorporated by reference to
Exhibit 10.3 to the Companys Current Report on
Form 8-K/A
(Amendment No. 1) dated as of November 29, 1999
(File
No. 1-15295))
|
|
10
|
.3
|
|
Teledyne Technologies Incorporated
1999 Incentive Plan (incorporated by reference to
Exhibit 10.5 to the Companys Annual Report on
Form 10-K
for the year ended January 2, 2000 (File
No. 1-15295))
|
|
10
|
.4
|
|
Teledyne Technologies Incorporated
1999 Non-Employee Director Stock Compensation Plan (incorporated
by reference to Exhibit 10.6 to the Companys Annual
Report on
Form 10-K
for the year ended January 2, 2000 (File
No. 1-15295))
|
|
10
|
.5
|
|
Amendment No. 1 to Teledyne
Technologies Incorporated 1999 Non-Employee Director Stock
Compensation Plan (incorporated by reference to
Exhibit 10.7 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2000 (File
No. 1-15295)
|
|
10
|
.6
|
|
Amendment No. 2 to Teledyne
Technologies Incorporated 1999 Non-Employee Director Stock
Compensation Plan (incorporated by reference to
Exhibit 10.8 to the Companys Annual Report on
Form 10-K
for the year ended December 31, 2000 (File
No. 1-15295)
|
|
10
|
.7
|
|
Amendment No. 3 to Teledyne
Technologies Incorporated 1999 Non-Employee Director Stock
Compensation Plan (incorporated by reference to
Exhibit 10.8 to the Companys Annual Report on
Form 10-K
for the year ended December 29, 2002 (File
No. 1-15295)
|
|
10
|
.8
|
|
Amendment No. 4 to Teledyne
Technologies Incorporated 1999 Non-Employee Director Stock
Compensation Plan (incorporated by reference to
Exhibit 10.2 to the Companys
Form 10-Q
for the period ended September 28, 2003) (File
No. 1-15295)
|
|
10
|
.9
|
|
Second Amended and Restated
Employment Agreement between Robert Mehrabian and Teledyne
Technologies Incorporated (incorporated by reference to
Exhibit 10.1 of the Companys Current Report on
Form 8-K
dated January 26, 2006 (File
No. 1-15295))
|
104
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.11
|
|
Form of Change of Control
Severance Agreement (incorporated by reference to
Exhibit 10.9 to the Companys Annual Report on
Form 10-K
for the year ended January 2, 2000 (File
No. 1-15295)
with regard to Dale A. Schnittjer (incorporated by reference to
Exhibit 10 to the Companys Quarterly Report on
Form 10-Q
for the period ended June 29, 2003 (File
No. 1-15295))
and with regard to Susan L. Main (incorporated by reference to
Exhibit 99.2 to the Companys Current Report on
Form 8-K
dated March 29, 2004 (File
No. 1-15295))
|
|
10
|
.12
|
|
Teledyne Technologies Incorporated
Executive Deferred Compensation Plan (incorporated by reference
to Exhibit 10.10 to the Companys Annual Report on
Form 10-K
for the year ended January 2, 2000 (File
No. 1-15295))
|
|
10
|
.13
|
|
Amendment No. 1 to Teledyne
Technologies Incorporated Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10.12 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2000 (File
No. 1-15295)
|
|
10
|
.14
|
|
Amendment No. 2 to Teledyne
Technologies Incorporated Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10.13 to the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2000 (File
No. 1-15295)
|
|
10
|
.15
|
|
Amendment No. 3 to Teledyne
Technologies Incorporated Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10.2 to the
Companys
Form 10-Q
for the period ended September 28, 2003) (File
No. 1-15295)
|
|
10
|
.16
|
|
Teledyne Technologies Incorporated
Pension Equalization/Benefit Restoration Plan, as amended and
restated (incorporated by reference to the Companys Annual
Report on
Form 10-K
for the year ended January 1, 2006 (File
No. 1-15295))
|
|
10
|
.17
|
|
Teledyne Technologies Incorporated
2002 Stock Incentive Plan (incorporated by reference to
Exhibit 10.14 to the Companys Annual Report on
Form 10-K
for the year ended December 30, 2001 (File
No. 1-15295))
|
|
10
|
.18
|
|
Administrative Rules of the 2002
Stock Incentive Plan Related to Non-Employee Director Stock
Compensation (incorporated by reference to Exhibit 99.2 to
the Companys Current Report on
Form 8-K
dated January 23, 2007)
|
|
10
|
.19
|
|
Form of Restricted Stock Award
Agreement January 25, 2005 Award (incorporated
by reference to Exhibit 10.22 to the Companys Annual
Report on
Form 10-K
for the year ended January 2, 2005 (File
No. 1-15295))
|
|
10
|
.20
|
|
Form of Restricted Stock Award
Agreement January 24, 2006 Award (incorporated
by reference to Exhibit 10.23 to the Companys Annual
Report on
Form 10-K
for the year ended January 1, 2006 (File
No. 1-15295))
|
|
10
|
.21
|
|
Form of Restricted Stock Award
Agreement January 23, 2007 Award*
|
|
10
|
.22
|
|
Amended and Restated Credit
Agreement, dated as of July 14, 2006, among Teledyne
Technologies Incorporated, Bank of America, N.A., as
Administrative Agent, Swing Line Lender and L/C Issuer, certain
lenders thereunder and certain subsidiaries of Teledyne
Technologies Incorporated as guarantors (incorporated by
reference to Exhibit 10.1 of the Companys Current
Report on
Form 8-K
dated July 14, 2006)
|
|
10
|
.23
|
|
Description of the 2007 Annual
Incentive Plan (contained in and incorporated by reference to
the Companys Current Report on
Form 8-K
dated January 23, 2007).
|
|
14
|
.1
|
|
Teledyne Technologies Incorporated
Corporate Objectives and Guidelines for Employee
Conduct this code of ethics may be accessed via the
Companys website at
www.teledyne.com/aboutus/ethics.asp
|
|
14
|
.2
|
|
Code of Ethics for Financial
Executives this code of ethics may be accessed via
the Companys website at
www.teledyne.com/aboutus/ethics.asp
|
|
21
|
|
|
Subsidiaries of Teledyne
Technologies Incorporated*
|
|
23
|
|
|
Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm*
|
|
24
|
.1
|
|
Power of Attorney
Directors*
|
|
24
|
.2
|
|
Power of Attorney
Charles Crocker*
|
|
31
|
.1
|
|
Certification of Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002*
|
105
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
31
|
.2
|
|
Certification of Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002*
|
|
32
|
.1
|
|
Certification of Chief Executive
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002*
|
|
32
|
.2
|
|
Certification of Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002*
|
|
|
|
* |
|
Submitted electronically herewith. |
|
|
|
|
|
Denotes management contract or compensatory plan or arrangement
required to be filed as an Exhibit to this
Form 10-K. |
106