e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-15295
TELEDYNE TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware
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25-1843385 |
(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 |
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Thousand Oaks, California
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91360-2362 |
(Address of principal executive offices)
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(Zip Code) |
(805) 373-4545
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer
in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
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Class
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Outstanding at October 31, 2007 |
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Common Stock, $.01 par value per share
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35,098,892 shares |
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share amounts)
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September 30, |
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December 31, |
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2007 |
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2006 |
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(Unaudited) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
16.1 |
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$ |
13.0 |
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Receivables, net |
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236.5 |
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226.1 |
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Inventories, net |
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182.7 |
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155.8 |
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Deferred income taxes, net |
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36.0 |
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34.4 |
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Prepaid expenses and other |
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13.5 |
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17.5 |
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Total current assets |
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484.8 |
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446.8 |
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Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $211.0
at September 30, 2007 and $203.1 at December 31, 2006 |
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175.1 |
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164.8 |
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Deferred income taxes, net |
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44.6 |
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38.6 |
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Goodwill, net |
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350.6 |
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313.6 |
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Acquired intangibles, net |
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61.2 |
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69.4 |
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Other assets |
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34.2 |
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28.2 |
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Total Assets |
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$ |
1,150.5 |
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$ |
1,061.4 |
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Liabilities and Stockholders Equity |
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Current Liabilities |
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Accounts payable |
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$ |
101.5 |
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$ |
94.1 |
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Accrued liabilities |
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170.5 |
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135.1 |
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Current portion of long-term debt and capital lease obligation |
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1.1 |
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1.2 |
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Total current liabilities |
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273.1 |
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230.4 |
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Long-term debt and capital lease obligation |
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180.1 |
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230.7 |
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Accrued pension obligation |
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39.7 |
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38.4 |
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Accrued postretirement benefits |
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23.3 |
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24.4 |
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Minority interest |
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8.2 |
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5.7 |
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Other long-term liabilities |
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107.7 |
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100.0 |
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Total Liabilities |
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632.1 |
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629.6 |
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Stockholders Equity |
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Common stock, $0.01 par value; outstanding shares 35,061,424
at September 30, 2007 and 34,719,700 at December 31, 2006 |
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0.4 |
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0.3 |
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Additional paid-in capital |
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202.4 |
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188.0 |
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Retained earnings |
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357.5 |
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285.8 |
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Accumulated other comprehensive loss |
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(41.9 |
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(42.3 |
) |
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Total stockholders equity |
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518.4 |
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431.8 |
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Total Liabilities and Stockholders Equity |
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$ |
1,150.5 |
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$ |
1,061.4 |
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The accompanying notes are an integral part of these financial statements.
2
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND OCTOBER 1, 2006
(Unaudited Amounts in millions, except per-share amounts)
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Third Quarter |
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Nine Months |
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2007 |
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2006 |
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2007 |
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2006 |
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Net Sales |
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$ |
408.9 |
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$ |
363.6 |
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$ |
1,194.8 |
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$ |
1,041.9 |
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Costs and expenses |
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Cost of sales |
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284.9 |
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261.3 |
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831.8 |
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743.5 |
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Selling, general and administrative expenses |
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84.0 |
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70.2 |
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242.5 |
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206.5 |
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Total costs and expenses |
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368.9 |
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331.5 |
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1,074.3 |
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950.0 |
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Income before other income and expense and income taxes |
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40.0 |
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32.1 |
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120.5 |
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91.9 |
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Other income |
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0.9 |
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0.6 |
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1.4 |
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4.6 |
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Interest and debt expense, net |
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(3.0 |
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(1.4 |
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(10.1 |
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(3.6 |
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Minority interest |
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(0.9 |
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(0.3 |
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(2.5 |
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(0.3 |
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Income before income taxes |
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37.0 |
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31.0 |
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109.3 |
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92.6 |
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Provision for income taxes |
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9.9 |
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8.4 |
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37.4 |
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31.2 |
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Net income |
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$ |
27.1 |
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$ |
22.6 |
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$ |
71.9 |
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$ |
61.4 |
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Basic earnings per common share |
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$ |
0.77 |
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$ |
0.65 |
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$ |
2.06 |
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$ |
1.79 |
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Weighted average common shares outstanding |
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35.0 |
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34.6 |
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34.9 |
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34.3 |
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Diluted earnings per common share |
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$ |
0.75 |
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$ |
0.63 |
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$ |
1.99 |
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$ |
1.73 |
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Weighted average diluted common shares outstanding |
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36.2 |
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35.7 |
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36.1 |
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35.4 |
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The accompanying notes are an integral part of these financial statements.
3
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND OCTOBER 1, 2006
(Unaudited Amounts in millions)
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Nine Months |
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2007 |
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2006 |
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Cash flow from operating activities |
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Net income |
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$ |
71.9 |
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$ |
61.4 |
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Adjustments to reconcile net income to net cash from operating activities: |
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Depreciation and amortization |
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25.6 |
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20.9 |
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Disposal of fixed assets |
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(0.1 |
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Deferred income taxes |
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(7.6 |
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(3.0 |
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Stock option compensation expense |
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5.1 |
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4.4 |
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Excess income tax benefits from stock options |
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(2.4 |
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(7.8 |
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Minority interest in net income of consolidated subsidiaries |
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2.5 |
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0.3 |
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Changes in operating assets and liabilities, excluding the effect of acquisitions: |
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Increase in accounts receivable |
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(4.1 |
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(23.9 |
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Increase in inventories |
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(18.6 |
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(26.2 |
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(Increase) decrease in prepaid expenses and other assets |
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0.1 |
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(1.0 |
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Increase in accounts payable |
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5.1 |
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14.1 |
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Increase in accrued liabilities |
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33.7 |
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16.1 |
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Increase in income taxes payable, net |
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5.5 |
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11.6 |
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Increase in long-term assets |
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(1.2 |
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Increase in other long-term liabilities |
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7.0 |
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1.0 |
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Increase (decrease) in accrued pension obligation |
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1.9 |
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(4.3 |
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Decrease in accrued postretirement benefits |
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(1.1 |
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(1.0 |
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Other operating, net |
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0.1 |
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(0.1 |
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Net cash provided by operating activities |
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123.4 |
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62.5 |
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Cash flow from investing activities |
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Purchases of property, plant and equipment |
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(30.7 |
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(16.3 |
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Purchase of businesses, net of cash acquired |
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(47.5 |
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(255.4 |
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Proceeds from sale of assets |
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1.3 |
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0.3 |
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Net cash used by investing activities |
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(76.9 |
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(271.4 |
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Cash flow from financing activities |
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Net proceeds from (repayments of) debt, net |
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(50.8 |
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208.1 |
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Proceeds from exercise of stock options |
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5.0 |
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11.1 |
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Excess income tax benefits from stock options |
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2.4 |
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7.8 |
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Net cash provided (used) by financing activities |
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(43.4 |
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227.0 |
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Increase in cash and cash equivalents |
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3.1 |
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18.1 |
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Cash and cash equivalentsbeginning of period |
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13.0 |
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9.3 |
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Cash and cash equivalentsend of period |
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$ |
16.1 |
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$ |
27.4 |
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The accompanying notes are an integral part of these financial statements.
4
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
Note 1. General
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by
Teledyne Technologies Incorporated (Teledyne Technologies or the Company) pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information and disclosures
normally included in notes to consolidated financial statements have been condensed or omitted
pursuant to such rules and regulations, but resultant disclosures are in accordance with
accounting principles generally accepted in the United States as they apply to interim
reporting. The condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto in Teledyne Technologies Annual
Report on Form 10-K for the fiscal year ended December 31, 2006 (2006 Form 10-K).
In the opinion of Teledyne Technologies management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly, in all material respects, Teledyne Technologies
consolidated financial position as of September 30, 2007, and the consolidated results of
operations for the three and nine months then ended and cash flows for the nine months then
ended. The results of operations and cash flows for the periods ended September 30, 2007, are
not necessarily indicative of the results of operations or cash flows to be expected for any
subsequent quarter or the full fiscal year.
Certain reclassifications have been made to the financial statements and notes for the prior
year to conform to the 2007 presentation.
Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities Including an Amendment of FASB Statement No. 115. SFAS No. 159
permits entities to choose to measure eligible items at fair value at specified election dates
and report unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007 and is not expected to have an effect on the
Companys consolidated results of operations or financial position.
On January 1, 2007, Teledyne Technologies adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN No. 48). As a result of the implementation the Company
recognized a $0.2 million increase in the liability for unrecognized tax benefits, which was
accounted for as a cumulative-effect adjustment (decrease) to the beginning balance of retained
earnings. As of the date of adoption and after the impact of recognizing the increase in the
liability noted above, the Companys total gross unrecognized tax benefits totaled $5.5
million. Due to offsetting related deferred tax assets, $3.9 million represents the amount of
unrecognized tax benefits that, if recognized, would favorably affect the effective income tax
rate in any future periods. See Note 9 for additional disclosures regarding the adoption of
FIN No. 48.
Note 2. Business Combinations
On June 20, 2007 Teledyne Technologies through its subsidiary, Teledyne Cougar, Inc., completed
the acquisition of Tindall Technologies, Inc., (Tindall) a designer and supplier of microwave
subsystems for defense applications for consideration of $6.6 million. At September 30, 2007
total cash paid, net of cash acquired was $5.6 million. Teledyne Technologies also recorded
$1.0 million in contingent payments, in connection with the acquisition, payable from 2008
through 2010 in three installments. Tindall designs and manufactures high performance
Instantaneous Frequency Measurement (IFM) based systems and
5
subsystems, including integrated frequency locked sources and set-on receiver-jammers used for
U.S. Navy and Air Force training. Tindalls operations, based in Pleasanton, California, have
been consolidated with the operations of Teledyne Cougar in Sunnyvale, California. Tindalls
results of operations and cash flows have been included in Teledyne Technologies results
beginning July 2, 2007. Tindall had revenue of $2.7 million for its fiscal year ended December
2006.
On March 30, 2007, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc.,
completed the acquisition of assets of D.G. OBrien, Inc. (DGO) for consideration of $37.1
million, which includes a $1.0 million purchase price adjustment. DGO, headquartered in
Seabrook, New Hampshire, is a leading manufacturer of highly reliable electrical and
fiber-optic interconnect systems, primarily for subsea military and offshore oil and gas
applications. At September 30, 2007, total cash paid including other fees, was $37.1 million.
DGOs results of operations and cash flows have been included in Teledyne Technologies results
beginning April 2, 2007. DGO had sales of $26.2 million for its fiscal year ended September
2006. Teledyne Technologies operates this business under the name Teledyne D.G. OBrien.
On September 15, 2006, Teledyne Technologies through its subsidiary, Teledyne Brown
Engineering, Inc. acquired Rockwell Scientific Company LLC for $167.5 million in cash, with the
sellers retaining certain liabilities. 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. Scientific Companys results have been included since the date of the
acquisition.
The unaudited pro forma financial information below combines Teledyne Technologies historical
income statement information with Scientific Companys historical income statement information
and assumes that Scientific Company had been acquired at the beginning of the 2006 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 unaudited 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 period.
In addition, the unaudited 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.
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Third |
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Nine |
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Quarter |
|
Months |
(amounts in millions, except per-share amounts) |
|
2006 |
|
2006 |
Net sales |
|
$ |
388.6 |
|
|
$ |
1,127.9 |
|
Net income |
|
$ |
21.6 |
|
|
$ |
59.2 |
|
Basic earnings per common share |
|
$ |
0.65 |
|
|
$ |
1.79 |
|
Diluted earnings per common share |
|
$ |
0.63 |
|
|
$ |
1.73 |
|
|
|
|
(a) |
|
The above unaudited proforma information is presented for the Scientific
Company acquisition as it is considered a material acquisition in accordance with
Statement of Financial Accounting Standards No. 141, Business Combinations. |
On August 16, 2006, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc.,
acquired a majority interest 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.
The ODI minority stockholders have the option to sell their shares of ODI to Teledyne Instruments
following the end of each quarter through the quarter ended March 31, 2009, at a
formula-determined price. In September 2006, Teledyne Instruments acquired an additional 9.9%
of ownership in ODI for $5.8 million. In 2007, Teledyne Instruments acquired an additional
0.4% of ownership in ODI for $0.2 million. Total cash paid to date, including the initial
investment and subsequent share purchases, net of cash acquired was $34.6 million. At
September 30, 2007, Teledyne Instruments owns 61.3% of ODI. All shares not sold to Teledyne
6
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.
On August 16, 2006, Teledyne Technologies, through its subsidiary, Teledyne Brown Engineering,
Inc., acquired CollaborX, Inc. (CollaborX) for consideration of $17.5 million, less certain
transaction-related expenses. Teledyne Technologies recorded $2.9 million in notes payable
related to the transaction, payable through 2009. At September 30, 2007, 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.
On April 28, 2006, Teledyne Wireless, Inc. completed the acquisition of certain assets of KW
Microwave Corporation (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 Poway,
California, the business operates as Teledyne KW Microwave.
On January 27, 2006, we acquired all of the outstanding shares of Benthos, Inc. (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 Technologies funded the acquisitions primarily from borrowings under its credit
facility and cash on hand.
The following is a summary at the acquisition date of the estimated fair values allocated to
the assets acquired and liabilities assumed for the DGO and Tindall acquisitions made in 2007
(in millions):
|
|
|
|
|
Current assets |
|
$ |
14.7 |
|
Property, plant and equipment |
|
|
1.5 |
|
Goodwill |
|
|
23.7 |
|
Acquired intangible assets |
|
|
7.1 |
|
Other assets |
|
|
0.2 |
|
Current liabilities |
|
|
(3.8 |
) |
Long-term liabilities |
|
|
(0.7 |
) |
|
|
|
|
Total net assets acquired |
|
$ |
42.7 |
|
|
|
|
|
Teledyne Technologies goodwill was $350.6 million at September 30, 2007 and $313.6 million at
December 31, 2006. Teledyne Technologies net acquired intangible assets were $61.2 million at
September 30, 2007 and $69.4 million at December 31, 2006. The change in the balance of
goodwill in 2007 primarily resulted from the acquisitions made in 2007 and adjustments for the
Scientific Company acquisition. The change in the balance of acquired intangible assets in
2007 resulted from the acquisitions made in 2007, an adjustment for the Scientific Company
acquisition and amortization of acquired intangible assets. In all acquisitions, the results
of operations and cash flows are included in the Companys consolidated financial statements
from the date of each respective acquisition, except as noted for DGO and Tindall. Each of the
companies acquired, except for CollaborX, is part of the Electronics and Communications
segment. CollaborX is part of the Systems Engineering Solutions segment. The Company
completed the process of specifically identifying the amount to be assigned to intangible
assets, as well as certain assets and liabilities for the CollaborX, ODI and Scientific Company
acquisitions made in 2006. The amount of goodwill and acquired intangible assets recorded as
of September 30, 2007 for the ODI acquisition was $16.8 million and $13.8 million,
respectively. 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 change in goodwill from December 31, 2006 reflects additional share purchases and changes
to the
estimated income tax balances. The amount of goodwill and acquired intangible assets recorded
as of September 30, 2007 for the CollaborX acquisition
7
was $14.2 million and $2.1 million,
respectively, and did not change from December 31, 2006. The amount of goodwill and gross
acquired intangible assets recorded as of September 30, 2007 for the Scientific Company
acquisition was $73.2 million and $8.3 million, respectively. The preliminary amount of
goodwill and gross acquired intangible assets recorded as of December 31, 2006 for the
Scientific Company acquisition was $60.1 million and $19.0 million, respectively. The change
was due to a $10.7 million reduction to acquired intangible assets and a corresponding increase
to goodwill to reflect changes in the estimated amount of acquired intangible assets based on
the completed appraisal report for the valuation of acquired intangible assets and for the
final allocation for certain assets and liabilities. 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 DGO and Tindall acquisitions made in 2007. The Company made
preliminary estimates as of September 30, 2007, since there was insufficient time between the
acquisition dates and the end of the period to finalize the valuations. The preliminary amount
of goodwill and acquired intangible assets recorded as of September 30, 2007 for the DGO
acquisition was $19.7 million and $6.0 million, respectively. The preliminary amount of
goodwill and acquired intangible assets recorded as of September 30, 2007 for the Tindall
acquisition was $4.1 million and $1.1 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 certain third party valuation reports. Goodwill resulting from the
CollaborX, Scientific Company and DGO acquisitions will be deductible for tax purposes.
Note 3. Comprehensive Income and Retained Earnings
Teledyne Technologies comprehensive income is comprised of net income and foreign currency
translation adjustments. Teledyne Technologies total comprehensive income for the third
quarter and nine months of 2007 and 2006 consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Nine Months |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
27.1 |
|
|
$ |
22.6 |
|
|
$ |
71.9 |
|
|
$ |
61.4 |
|
Other comprehensive gain, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains |
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive gain |
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.4 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
27.3 |
|
|
$ |
23.2 |
|
|
$ |
72.3 |
|
|
$ |
62.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a rollforward of the balance of retained earnings (in millions):
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
2007 |
|
|
2006 |
|
Balance at beginning of year |
|
$ |
285.8 |
|
|
$ |
205.5 |
|
Net income |
|
|
71.9 |
|
|
|
61.4 |
|
Cumulative effect of the adoption of
FIN No. 48 (a) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
357.5 |
|
|
$ |
266.9 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects impact of the adoption of FIN No. 48 effective January 1, 2007. |
8
Note 4. Earnings Per Share
Basic and diluted earnings per share were computed based on net earnings. The weighted average
number of common shares outstanding during the period was used in the calculation of basic
earnings per share. This number of shares was increased by contingent shares that could be
issued under various compensation plans as well as by the dilutive effect of stock options
based on the treasury stock method in the calculation of diluted earnings per share.
The following table sets forth the computations of basic and diluted earnings per share
(amounts in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Nine Months |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
27.1 |
|
|
$ |
22.6 |
|
|
$ |
71.9 |
|
|
$ |
61.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
35.0 |
|
|
|
34.6 |
|
|
|
34.9 |
|
|
|
34.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.77 |
|
|
$ |
0.65 |
|
|
$ |
2.06 |
|
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
27.1 |
|
|
$ |
22.6 |
|
|
$ |
71.9 |
|
|
$ |
61.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
35.0 |
|
|
|
34.6 |
|
|
|
34.9 |
|
|
|
34.3 |
|
Dilutive effect of exercise of options outstanding |
|
|
1.2 |
|
|
|
1.1 |
|
|
|
1.2 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding |
|
|
36.2 |
|
|
|
35.7 |
|
|
|
36.1 |
|
|
|
35.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.75 |
|
|
$ |
0.63 |
|
|
$ |
1.99 |
|
|
$ |
1.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5. Stock-Based Compensation Plans
Teledyne Technologies has long-term incentive plans pursuant to which it has granted
non-qualified stock options, restricted stock and performance shares to certain employees. The
Company also has non-employee director stock compensation plans, pursuant to which
non-qualified stock options and common stock have been issued to its directors.
The following disclosures are based on stock options granted to Teledyne Technologies
employees and directors. Effective January 2, 2006, the Company adopted the provisions of 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. For the third quarter and first nine months of 2007, the Company recorded a total
of $1.8 million and $5.1 million, respectively in stock option expense. For the third quarter
and first nine months of 2006, the Company recorded a total of $1.5 million and $4.4 million,
respectively in stock option expense. In 2007, the Company expects approximately $6.8 million
in stock option compensation expense based on current assumptions regarding the estimated fair
value of expected stock option grants during the remainder of the year. However, our
assessment of the estimated compensation expense is affected by our stock price and actual
stock option grants during the year as well as assumptions regarding a number of complex and
subjective variables and the related tax impact. These variables include, but are not limited
to, the volatility of our stock price and employee stock option exercise behaviors. The
Company issues shares of common stock upon the exercise of stock options.
The Company used a combination of the historical volatility of Teledyne Technologies stock
price and the implied volatility based on the price of traded options on Teledyne Technologies
stock to calculate the expected volatility assumption to value stock options. The Company used
the actual stock trading history since January 2001 in its volatility calculation. The
expected dividend yield is based on Teledyne Technologies practice of not paying dividends.
The risk-free rate of return is based on the yield of U.S.
9
Treasury Strips with terms equal to the expected life of the option as of the grant date. The
expected life in years is based on historical actual stock option exercise experience. The
following assumptions were used in the valuation of stock options granted in 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Expected dividend yield |
|
|
|
|
|
|
|
|
Expected volatility |
|
|
33.0 |
% |
|
|
36.0 |
% |
Risk-free interest rate |
|
|
4.9 |
% |
|
|
4.7 |
% |
Expected life in years |
|
|
5.6 |
|
|
|
5.5 |
|
Based on the assumptions in the table above, the grant date fair value of stock options granted
in 2007 and 2006 was $15.54 and $13.30, respectively.
Stock option transactions for Teledynes employees for the third quarter and first nine months
ended September 30, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Third Quarter |
|
|
Nine Months |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Beginning balance |
|
|
2,838,138 |
|
|
$ |
24.46 |
|
|
|
2,537,559 |
|
|
$ |
20.97 |
|
Granted |
|
|
500 |
|
|
$ |
45.87 |
|
|
|
533,153 |
|
|
$ |
39.48 |
|
Exercised |
|
|
(35,939 |
) |
|
$ |
19.32 |
|
|
|
(256,794 |
) |
|
$ |
19.23 |
|
Cancelled or expired |
|
|
(2,499 |
) |
|
$ |
33.49 |
|
|
|
(13,718 |
) |
|
$ |
25.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
2,800,200 |
|
|
$ |
24.52 |
|
|
|
2,800,200 |
|
|
$ |
24.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at end of period |
|
|
1,842,134 |
|
|
$ |
18.84 |
|
|
|
1,842,134 |
|
|
$ |
18.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option transactions for Teledynes non-employee directors for the third quarter and first
nine months ended September 30, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
Third Quarter |
|
|
Nine Months |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Beginning balance |
|
|
343,134 |
|
|
$ |
22.30 |
|
|
|
301,186 |
|
|
$ |
19.32 |
|
Granted |
|
|
4,147 |
|
|
$ |
30.61 |
|
|
|
47,286 |
|
|
$ |
41.70 |
|
Exercised |
|
|
|
|
|
$ |
|
|
|
|
(1,191 |
) |
|
$ |
10.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
347,281 |
|
|
$ |
22.40 |
|
|
|
347,281 |
|
|
$ |
22.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at end of period |
|
|
295,948 |
|
|
$ |
19.15 |
|
|
|
295,948 |
|
|
$ |
19.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6. Cash Equivalents
Cash equivalents consist of highly liquid money-market mutual funds and bank deposits with
maturities of three months or less when purchased. Cash equivalents totaled $5.1 million at
September 30, 2007 and $6.0 million at December 31, 2006.
10
Note 7. Inventories
Inventories are primarily valued under the LIFO method. Since an actual valuation of inventory
under the LIFO method can be made only at the end of each year based on the inventory levels
and costs at that time, interim LIFO calculations must necessarily be based on the Companys
estimates of expected year-end inventory levels and costs. Because these are subject to many
factors beyond the Companys control, interim results are subject to the final year-end LIFO
inventory valuation. Inventories consist of the following (in millions):
|
|
|
|
|
|
|
|
|
Balance at |
|
September 30, 2007 |
|
|
December 31, 2006 |
|
Raw materials and supplies |
|
$ |
72.4 |
|
|
$ |
59.3 |
|
Work in process |
|
|
121.0 |
|
|
|
106.2 |
|
Finished goods |
|
|
19.6 |
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
|
213.0 |
|
|
|
181.4 |
|
Progress payments |
|
|
(4.4 |
) |
|
|
(1.2 |
) |
LIFO reserve |
|
|
(25.9 |
) |
|
|
(24.4 |
) |
|
|
|
|
|
|
|
Total inventories, net |
|
$ |
182.7 |
|
|
$ |
155.8 |
|
|
|
|
|
|
|
|
Note 8. Supplemental Balance Sheet Information
Other long-term assets included amounts related to deferred compensation of $22.9 million and
$19.5 million at September 30, 2007 and December 31, 2006, respectively. Accrued liabilities
included salaries and wages and other related compensation liabilities of $71.2 million and
$60.1 million at September 30, 2007 and December 31, 2006, respectively. Other long-term
liabilities included aircraft product liability reserves of $49.2 million and $44.4 million at
September 30, 2007 and December 31, 2006, respectively and deferred compensation liabilities of
$22.5 million and $19.3 million at September 30, 2007 and December 31, 2006, respectively.
Other long-term liabilities also included reserves for workers compensation, environmental
liabilities and the long-term portion of compensation liabilities.
Some of the Companys products are subject to specified warranties. The Company maintains a
warranty reserve for the estimated future costs of repair, replacement or customer
accommodation and periodically reviews this reserve for adequacy. Such review would generally
include 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. Changes in the Companys
product warranty reserve during the period are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Nine Months |
|
|
|
2007 |
|
|
2006 |
|
Balance at beginning of year |
|
$ |
11.4 |
|
|
$ |
10.3 |
|
Accruals for
product warranties charged to expense |
|
|
5.6 |
|
|
|
6.9 |
|
Cost of product warranty claims |
|
|
(5.8 |
) |
|
|
(6.1 |
) |
Acquisitions |
|
|
0.1 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
11.3 |
|
|
$ |
11.6 |
|
|
|
|
|
|
|
|
Note 9. Income Taxes
On January 1, 2007, Teledyne Technologies adopted FIN No. 48. As a result of the
implementation the Company recognized a $0.2 million increase in the liability for
unrecognized tax benefits, which was accounted for as a cumulative-effect adjustment
(decrease) to the beginning balance of retained earnings. As of the date of adoption, and
after the impact of recognizing the increase in the liability noted above, the Companys total
gross unrecognized tax benefits totaled $5.5 million. Due to offsetting related deferred tax
assets, $3.9 million represents the amount of unrecognized tax benefits that, if recognized,
would favorably affect the effective income tax rate in future periods.
Except for claims for refunds related to credits for research activities, the Company has
substantially concluded all U.S. federal income tax matters for years through 2002.
Substantially all material state and local, and foreign income tax matters have been concluded
for years through 2002.
11
The Company recognizes potential accrued interest and penalties related to unrecognized tax
benefits in income tax expense. In conjunction with the adoption of FIN No. 48, the Company
recognized approximately $0.6 million for the payment of interest and did not recognize any
amounts for the payment of penalties which are included as a component of the unrecognized tax
benefit noted above. During the first nine months of 2007, the Company recognized
approximately $0.3 million in interest associated with uncertain tax positions. To the extent
interest is not assessed with respect to uncertain tax positions, amounts accrued will be
reduced and reflected as a reduction of the overall income tax provision.
For the third quarter and first nine months of 2007, reductions to unrecognized tax benefits as
a result of a lapse of the applicable statues of limitations were $0.5 million and $0.9
million, respectively. For the third quarter and first nine months of 2007, decreases in the
unrecognized tax benefits relating to settlements with tax authorities were $0.8 million. At
the end of the third quarter of 2007, the Companys total unrecognized tax benefits totaled
$3.8 million. Due to offsetting related deferred tax assets, $2.5 million would favorably
affect the effective income tax rate in future periods.
The Company anticipates the total unrecognized tax benefits will be reduced by $1.4 million due
to the completion of audits and the expiration of statutes of limitations in the next 12
months.
The Companys effective tax rates for the third quarter and first nine months of 2007 were
26.8% and 34.2%, respectively. The Company completed an analysis of research and development
spending for 2000 through 2005, as well as the base period years, and anticipates the receipt
of income tax refunds for those years. The Companys estimated effective income tax rate for
the full year of 2007 is expected to be 35.6%, and reflects the impact of research and
development income tax credits of $4.0 million in the third quarter of 2007 and also reflects
the reversal of $1.1 million in income tax contingency reserves during the year which are
expected to be no longer needed due to the completion of state tax audits and the expiration
of applicable statutes of limitations by year end. Of the $1.1 million, $1.0 million has been
recorded at September 30, 2007. Excluding these benefits the Companys effective tax rates
for the third quarter and first nine months of 2007 would have been 39.1% and 38.8%,
respectively. The Companys effective tax rates for the third quarter and first nine months
of 2006 were 27.0% and 33.6%, respectively. The effective tax rate for the third quarter of
2006 reflects the impact of the reversal of income tax contingency reserves of $3.3 million
during the third quarter which were determined to be no longer needed due to the expiration
of the applicable statutes of limitations. Excluding this benefit the Companys effective tax
rate for the third quarter and first nine months of 2006 would have been 37.6% and 37.2%,
respectively.
Note 10. Long-Term Debt and Capital Lease
At September 30, 2007, Teledyne Technologies had $174.0 million outstanding under its $400.0
million credit facility. Excluding interest and fees, no payments are due under the credit
facility until it matures in July 2011. Available borrowing capacity under the $400.0 million
credit facility, which is reduced by borrowings and outstanding letters of credit, was $217.1
million at September 30, 2007. 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 September 30, 2007, the Company was in compliance with these covenants. The Company also
has two $5.0 million uncommitted credit lines available. These credit lines are utilized, as
needed, for periodic cash needs. Total debt at September 30, 2007 includes $174.0 million
outstanding under the $400.0 million credit facility at a weighted average interest rate of
6.2%, $1.4 million outstanding under the two $5.0 million uncommitted credit lines and $1.9
million in other debt, of which $1.0 million is current. The amounts outstanding under the
uncommitted bank facilities are classified as long term debt on the balance sheet as the
Company has the ability and the intent to repay these using its credit facility, if necessary.
The Company also has a $3.9 million capital lease, of which $0.1 million is current. At
September 30, 2007, Teledyne Technologies had $8.8 million in outstanding letters of credit.
Note 11. Lawsuits, Claims, Commitments, Contingencies and Related Matters
The Company is subject to federal, state and local environmental laws and regulations which
require that it investigate and remediate the effects of the release or disposal of materials
at sites associated with past and present operations, including sites at which the Company has
been identified as a potentially responsible party under the federal Superfund laws and
comparable state laws.
12
In accordance with the Companys accounting policy disclosed in Note 2 to the consolidated
financial statements in the 2006 Form 10-K, environmental liabilities are recorded when the
Companys liability is probable and the costs are reasonably estimable. In many cases,
however, investigations are not yet at a stage where the Company has been able to determine
whether it is liable or, if liability is probable, to reasonably estimate the loss or range of
loss, or certain components thereof. Estimates of the Companys liability are subject to
uncertainties as described in Note 15 to the consolidated financial statements in the 2006
Form 10-K. As investigation and remediation of these sites proceeds, it is likely that
adjustments in the Companys accruals will be necessary to reflect new information. The
amounts of any such adjustments could have a material adverse effect on the Companys results
of operations in a given period, but the amounts, and the possible range of loss in excess of
the amounts accrued, are not reasonably estimable. Based on currently available information,
management does not believe that future environmental costs in excess of those accrued, with
respect to sites with which the Company has been identified, are likely to have a material
adverse effect on the Companys financial condition. The Company cannot provide assurance
that additional future developments, administrative actions or liabilities relating to
environmental matters will not have a material adverse effect on the Companys financial
condition or results of operations.
At September 30, 2007, the Companys reserves for environmental remediation obligations
totaled $5.0 million, of which $1.9 million is included in other current liabilities. The
Company periodically evaluates whether it may be able to recover a portion of future costs for
environmental liabilities from its insurance carriers and from third parties.
The timing of expenditures depends on a number of factors that vary by site, including the
nature and extent of contamination, the number of potentially responsible parties, the timing
of regulatory approvals, the complexity of the investigation and remediation, and the
standards for remediation. The Company expects that it will expend present accruals over many
years, and will complete remediation of all sites with which it has been identified in up to
30 years.
Various claims (whether based on U.S. Government or Company audits and investigations or
otherwise) may be asserted against the Company related to its U.S. Government contract work,
including claims based on business practices and cost classifications and actions under the
False Claims Act. Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal legal or
administrative proceedings may ensue. Depending on the circumstances and the outcome, such
proceedings could result in fines, penalties, compensatory and treble damages or the
cancellation or suspension of payments under one or more U.S. Government contracts. Under
government regulations, a company, or one or more of its operating divisions or units, can
also be suspended or debarred from government contracts based on the results of
investigations. Although the outcome of these matters cannot be predicted with certainty,
management does not believe there is any audit, review or investigation currently pending
against the Company, of which management is aware, that is likely to result in suspension or
debarment of the Company, or that is otherwise likely to have a material adverse effect on the
Companys financial condition. The resolution in any reporting period of one or more of these
matters could, however, have a material adverse effect on the Companys results of operations
for that period.
A number of other lawsuits, claims and proceedings have been or may be asserted against the
Company, including those pertaining to product liability, patent infringement, commercial
contracts, employment and employee benefits. While the outcome of litigation cannot be
predicted with certainty, and some of these lawsuits, claims or proceedings may be determined
adversely to the Company, management does not believe that the disposition of any such pending
matters is likely to have a material adverse effect on the Companys financial condition. The
resolution in any reporting period of one or more of these matters could have a material
adverse effect on the Companys results of operations for that period. Teledyne Technologies
has
aircraft and product liability insurance with an annual self-insured retention for general
aviation aircraft liabilities incurred in connection with products manufactured by Teledyne
Continental Motors of $21.0 million. The Companys current aircraft product liability
insurance policies expire on May 31, 2008.
13
Note 12. Pension Plans and Postretirement Benefits
Teledyne Technologies has a defined benefit pension plan covering substantially all employees
hired before January 1, 2004. As of January 1, 2004, non-union new hires participate in an
enhanced defined contribution plan as opposed to the Companys existing defined benefit pension
plan. On September 15, 2006, Teledyne Technologies merged the defined benefit pension plan
acquired with the acquisition of Scientific Company with its existing defined benefit plan.
The defined benefit pension plan is frozen to new Teledyne Continental Motors (TCM) Toledo
union entrants as of November 10, 2006 and to new TCM Mobile union entrants as of February 20,
2007. The Companys assumed discount rate on plan liabilities is 6.0% for 2007 and 2006. The
Companys assumed long-term rate of return on plan assets is 8.5% for 2007 and 2006.
Teledyne Technologies net periodic pension expense was $3.0 million and $8.9 million for the
third quarter and first nine months of 2007, compared with net periodic pension expense of $4.0
million and $12.2 million for the third quarter and first nine months of 2006 in accordance
with the pension accounting requirements of SFAS No. 87 and SFAS No. 158. Pension expense
allocated to contracts pursuant to U.S. Government Cost Accounting Standards (CAS) was $2.5
million and $7.6 million for the third quarter and first nine months of 2007, compared with
$3.0 million and $7.9 million for the third quarter and first nine months of 2006. Pension
expense determined under CAS can generally be recovered through the pricing of products and
services sold to the U.S. Government.
The Company sponsors several postretirement defined benefit plans including a plan acquired
with the acquisition of Scientific Company that cover certain salaried and hourly employees.
The plans provide health care and life insurance benefits for certain eligible retirees.
The following tables set forth the components of net period pension benefit expense for
Teledyne Technologies defined benefit pension plans and postretirement benefit plans for the
third quarter and first nine months of 2007 and 2006 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Nine Months |
|
Pension Benefits |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Service cost benefits earned during the period |
|
$ |
4.1 |
|
|
$ |
3.6 |
|
|
$ |
12.4 |
|
|
$ |
10.6 |
|
Interest cost on benefit obligation |
|
|
9.2 |
|
|
|
7.9 |
|
|
|
27.6 |
|
|
|
23.3 |
|
Expected return on plan assets |
|
|
(11.7 |
) |
|
|
(9.2 |
) |
|
|
(35.2 |
) |
|
|
(26.8 |
) |
Amortization of prior service cost |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
1.2 |
|
|
|
1.5 |
|
Recognized actuarial loss |
|
|
1.0 |
|
|
|
1.2 |
|
|
|
2.9 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit expense |
|
$ |
3.0 |
|
|
$ |
4.0 |
|
|
$ |
8.9 |
|
|
$ |
12.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
|
Nine Months |
|
Postretirement Benefits |
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Service cost benefits earned during the period |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Interest cost on benefit obligation |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.8 |
|
|
|
0.9 |
|
Recognized actuarial gain |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
|
(0.5 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit expense |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
0.3 |
|
|
$ |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Note 13. Industry Segments
Teledyne Technologies 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 Technologies 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.
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, non revenue licensing and royalty income, domestic and foreign
income taxes and corporate office expenses.
The following table presents Teledyne Technologies interim industry segment disclosures for
net sales and operating profit including other segment income. The table also provides a
reconciliation of segment operating profit and other segment income to total net income
(amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
|
|
Nine |
|
|
Nine |
|
|
|
|
|
|
Quarter |
|
|
Quarter |
|
|
% |
|
|
Months |
|
|
Months |
|
|
% |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
273.8 |
|
|
$ |
228.0 |
|
|
|
20.1 |
% |
|
$ |
788.1 |
|
|
$ |
645.4 |
|
|
|
22.1 |
% |
Systems Engineering Solutions |
|
|
75.8 |
|
|
|
72.3 |
|
|
|
4.8 |
% |
|
|
223.4 |
|
|
|
210.2 |
|
|
|
6.3 |
% |
Aerospace Engines and Components |
|
|
53.9 |
|
|
|
55.9 |
|
|
|
(3.6) |
% |
|
|
165.7 |
|
|
|
166.7 |
|
|
|
(0.6) |
% |
Energy Systems |
|
|
5.4 |
|
|
|
7.4 |
|
|
|
(27.0) |
% |
|
|
17.6 |
|
|
|
19.6 |
|
|
|
(10.2) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
408.9 |
|
|
$ |
363.6 |
|
|
|
12.5 |
% |
|
$ |
1,194.8 |
|
|
$ |
1,041.9 |
|
|
|
14.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit and other segment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
37.0 |
|
|
$ |
28.0 |
|
|
|
32.1 |
% |
|
$ |
104.5 |
|
|
$ |
79.1 |
|
|
|
32.1 |
% |
Systems Engineering Solutions |
|
|
6.2 |
|
|
|
6.0 |
|
|
|
3.3 |
% |
|
|
19.1 |
|
|
|
18.5 |
|
|
|
3.2 |
% |
Aerospace Engines and Components (a) |
|
|
4.7 |
|
|
|
3.4 |
|
|
|
38.2 |
% |
|
|
19.2 |
|
|
|
14.6 |
|
|
|
31.5 |
% |
Energy Systems |
|
|
(0.1 |
) |
|
|
0.7 |
|
|
|
* |
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
(66.7) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income |
|
$ |
47.8 |
|
|
$ |
38.1 |
|
|
|
25.5 |
% |
|
$ |
143.1 |
|
|
$ |
113.1 |
|
|
|
26.5 |
% |
Corporate expense |
|
|
(7.8 |
) |
|
|
(6.0 |
) |
|
|
30.0 |
% |
|
|
(22.6 |
) |
|
|
(18.7 |
) |
|
|
20.9 |
% |
Other income, net |
|
|
0.9 |
|
|
|
0.6 |
|
|
|
50.0 |
% |
|
|
1.4 |
|
|
|
2.1 |
|
|
|
(33.3) |
% |
Minority interest |
|
|
(0.9 |
) |
|
|
(0.3 |
) |
|
|
200.0 |
% |
|
|
(2.5 |
) |
|
|
(0.3 |
) |
|
|
* |
|
Interest expense, net |
|
|
(3.0 |
) |
|
|
(1.4 |
) |
|
|
114.3 |
% |
|
|
(10.1 |
) |
|
|
(3.6 |
) |
|
|
180.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes (b) |
|
|
37.0 |
|
|
|
31.0 |
|
|
|
19.4 |
% |
|
|
109.3 |
|
|
|
92.6 |
|
|
|
18.0 |
% |
Provision for income taxes |
|
|
9.9 |
|
|
|
8.4 |
|
|
|
17.9 |
% |
|
|
37.4 |
|
|
|
31.2 |
|
|
|
19.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
27.1 |
|
|
$ |
22.6 |
|
|
|
19.9 |
% |
|
$ |
71.9 |
|
|
$ |
61.4 |
|
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The first nine months of 2006, includes the first quarter receipt of $2.5 million,
pursuant to an agreement with Honda Motor Co., Ltd. related to the piston engine
business. |
|
(b) |
|
The first nine months of 2007 includes income tax credits of $4.0 million in the third
quarter of 2007 and also reflects the reversal of $1.0 million in income tax contingency
reserves which were determined to be no longer needed due to the completion of state tax
audits and the expiration of applicable statutes of limitations. Of this amount, $0.5
million was included in the third quarter of 2007. The third quarter of 2006 included
the reversal of income tax contingency reserves of $3.3 million, which were determined to
be no longer needed due to the expiration of applicable statutes of limitations. |
|
* |
|
percentage change not meaningful |
15
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Strategy
Our strategy continues to emphasize growth in our core markets of defense electronics,
instrumentation and government systems engineering. We intend to strengthen and expand our core
businesses with targeted acquisitions. We continue to aggressively pursue operational excellence
to improve our margins and earnings. At Teledyne Technologies, 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 markets. We intend to continue to evaluate our product
lines to ensure that they are aligned with our strategy.
Results of Operations
Third quarter of 2007 compared with the third quarter of 2006
Teledyne Technologies third quarter 2007 sales were $408.9 million, compared with sales of $363.6
million for the same period of 2006, an increase of 12.5%. Net income for the third quarter of
2007 was $27.1 million ($0.75 per diluted share) compared with net income of $22.6 million ($0.63
per diluted share) for the third quarter of 2006, an increase of 19.9%. The increase in sales for
the 2007 period, compared with the same 2006 period, was driven primarily by acquisitions.
The third quarter of 2007, compared with the same period in 2006, reflected higher sales in the
Electronics and Communications segment and the Systems Engineering Solutions segment, and lower
sales in the Aerospace Engines and Components segment and Energy Systems segment. The higher sales
in the Electronics and Communications segment resulted from strategic acquisitions, including the
acquisition of the majority interest in Ocean Design, Inc. (ODI) acquired on August 16, 2006,
Rockwell Scientific Company LLC (Scientific Company) acquired on September 15, 2006 and assets of
D.G. OBrien, Inc. (DGO) acquired on March 30, 2007. The higher sales in the Systems Engineering
Solutions segment reflected both organic growth and the acquisition of CollaborX, Inc.
(CollaborX) on August 16, 2006. Incremental revenue in the third quarter of 2007 from businesses
acquired since the end of the second quarter of 2006 was $42.6 million.
The increase in earnings for the third quarter of 2007, compared with the same period of 2006,
reflected improved operating profit in each operating segment except the Energy Systems segment.
Incremental operating profit in the third quarter of 2007 from businesses acquired since the end of
the second quarter of 2006, including synergies, was $5.7 million.
The third quarter of 2007 included pretax pension expense, in accordance with the pension
requirements of Statement of Financial Accounting Standards (SFAS) No. 87 and No. 158 of $3.0
million, compared with pretax pension expense of $4.0 million in the third quarter of 2006.
Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards
(CAS) was $2.5 million in the third quarter of 2007, compared with pretax pension expense of $3.0
million in the third quarter of 2006.
For the third quarter of 2007 and 2006, we recorded a total of $1.8 million and $1.5 million,
respectively, in stock option expense.
Cost of sales in total dollars was higher in the third quarter of 2007, compared with the second
quarter of 2006, primarily due to higher sales, driven by acquisitions. Cost of sales as a
percentage of sales for the third quarter of 2007 decreased to 69.7% from 71.9% for the third
quarter of 2006 and reflected sales mix differences. Cost of sales for the third quarter of 2007
also reflected lower LIFO expense of $0.1 million.
Selling, general and administrative expenses, including research and development and bid and
proposal expense, in total dollars were higher in the third quarter of 2007, compared with the
third quarter of 2006. This increase was primarily due to higher sales, driven by acquisitions.
Selling, general and administrative expenses for the third quarter of 2007, as a percentage of
sales, increased to 20.5%, compared with 19.3% in the third quarter of 2006, which reflected
slightly higher general and administrative expenses as percentage of sales. Corporate expense for
the third quarter of 2007, compared with the same period in 2006, was impacted by higher
compensation expense and higher professional fee expenses.
16
Interest expense, net of interest income, was $3.0 million in the third quarter of 2007, compared
with $1.4 million for the third quarter of 2006. The increase in net interest expense primarily
reflected the impact of higher debt levels due to acquisitions. Minority interest reflects the
minority ownership interest in ODI and Teledyne Energy Systems.
The Companys effective tax rate for the third quarter of 2007 was 26.8% compared with 27.0% for
the third quarter of 2006. The Company completed an analysis of research and development spending
in 2000 through 2005, as well as the base period years, and anticipates the receipt of income tax
refunds for those years. The effective tax rate for the third quarter of 2007 reflects the impact
of expected research and development income tax refunds of $4.0 million and also reflects the
reversal of $0.5 million in income tax contingency reserves during the third quarter which were
determined to be no longer needed due to the completion of state tax audits and the expiration of
applicable statutes of limitations. Excluding these items the Companys effective tax rate for the
third quarter of 2007 would have been 39.1%. The effective tax rate for the third quarter of 2006
reflects the impact of the reversal of income tax contingency reserves of $3.3 million during the
third quarter, which were determined to be no longer needed due to the expiration of applicable
statutes of limitations. Excluding the impact of the reversals the Companys effective tax rate
for the third quarter of 2006 would have been 37.6%.
First nine months of 2007 compared with the first nine months of 2006
Teledyne Technologies sales for the first nine months of 2007 were $1,194.8 million, compared with
sales of $1,041.9 million for the same period of 2006, an increase of 14.7%. Net income for the
first nine months of 2007 was $71.9 million ($1.99 per diluted share) compared with net income of
$61.4 million ($1.73 per diluted share) for the first nine months of 2006, an increase of 17.1%.
The increase in sales for the 2007 period, compared with the same 2006 period, was driven primarily
by acquisitions.
The first nine months of 2007, compared with the same period in 2006, reflected higher sales in the
Electronics and Communications segment and the Systems Engineering Solutions segment, and lower
sales in the Aerospace Engines and Components segment and Energy Systems segment. The higher sales
in the Electronics and Communications segment resulted from strategic acquisitions, including
Benthos, Inc. (Benthos), acquired in January 2006, KW Microwave Corporation (KW Microwave) in
April 2006, the majority interest in ODI, and the acquisition of Scientific Company and DGO. The
higher sales in the Systems Engineering Solutions segment reflected both organic growth and the
acquisition of CollaborX. Incremental revenue in the first nine months of 2007 from businesses
acquired since the end of 2005 was $148.6 million.
The increase in earnings for the first nine months of 2007, compared with the same period of 2006,
reflected improved operating profit in each operating segment except the Energy Systems segment.
Incremental operating profit in the first nine months of 2007 from businesses acquired since the
end of 2005, including synergies, was $16.3 million. The first nine months of 2007 included pretax
pension expense in accordance with the pension requirements of SFAS No. 87 and SFAS No. 158 of $8.9
million, compared with pretax pension expense of $12.2 million in the first nine months of 2006.
Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards
(CAS) was $7.6 million in the first nine months of 2007, compared with pretax pension expense of
$7.9 million in the first nine months of 2006. For the first nine months of 2007 and 2006, we
recorded a total of $5.1 million and $4.4 million respectively in stock option expense.
Cost of sales in total dollars was higher in first nine months of 2007, compared with the first
nine months of 2006, primarily due to higher sales, driven by acquisitions. Cost of sales as a
percentage of sales for the first nine months of 2007 decreased to 69.6% from 71.4% for the first
nine months of 2006 and reflected sales mix differences. Cost of sales for the first nine months
of 2007 also reflected higher LIFO expense of $0.8 million.
17
Selling, general and administrative expenses, including research and development and bid and
proposal expense, in total dollars were higher in the first nine months of 2007, compared with the
first nine months of 2006. This increase is primarily due to higher sales, driven by acquisitions.
Selling, general and administrative expenses for the first nine months of 2007, as a percentage of
sales, increased slightly to 20.3%, compared with 19.8% in the first nine months of 2006.
Corporate expense for the first nine months of 2007, compared with the same period in 2006, was
impacted by higher compensation expense and higher professional fee expenses.
Other income for the first nine months of 2006 includes the first quarter receipt of the final $2.5
million payment, pursuant to an agreement with Honda Motor Co., Ltd. related to the piston engine
business and is included as part of our Aerospace Engines and Components segment operating profit
and other segment income for segment reporting purposes. Interest expense, net of interest income,
was $10.1 million in the first nine months of 2007, compared with $3.6 million for the first nine
months of 2006. The increase in net interest expense primarily reflected the impact of higher debt
levels due to acquisitions. Minority interest reflects the minority ownership interest in ODI and
Teledyne Energy Systems.
The Companys effective tax rate for the first nine months of 2007 was 34.2% compared with 33.6%
for the first nine months of 2006. The effective tax rate for the first nine months of 2007
reflects the impact of expected research and development income tax refunds of $4.0 million and
also reflects the reversal of $1.0 million in income tax contingency reserves during the year which
were determined to be no longer needed due to the completion of state tax audits and the expiration
of applicable statutes of limitations. Excluding these items the Companys effective tax rate for
the first nine months of 2007 would have been 38.8%. The effective tax rate for the first nine
months of 2006 reflects the impact of the reversal of income tax contingency reserves of $3.3
million during the third quarter, which were determined to be no longer needed due to the
expiration of applicable statutes of limitations. Excluding the impact of the reversals the
Companys effective tax rate for the first nine months of 2006 would have been 37.2%.
18
Review of Operations:
The following table sets forth the sales and operating profit for each segment (amounts in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third |
|
|
Third |
|
|
|
|
|
|
Nine |
|
|
Nine |
|
|
|
|
|
|
Quarter |
|
|
Quarter |
|
|
% |
|
|
Months |
|
|
Months |
|
|
% |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
273.8 |
|
|
$ |
228.0 |
|
|
|
20.1 |
% |
|
$ |
788.1 |
|
|
$ |
645.4 |
|
|
|
22.1 |
% |
Systems Engineering Solutions |
|
|
75.8 |
|
|
|
72.3 |
|
|
|
4.8 |
% |
|
|
223.4 |
|
|
|
210.2 |
|
|
|
6.3 |
% |
Aerospace Engines and Components |
|
|
53.9 |
|
|
|
55.9 |
|
|
|
(3.6) |
% |
|
|
165.7 |
|
|
|
166.7 |
|
|
|
(0.6) |
% |
Energy Systems |
|
|
5.4 |
|
|
|
7.4 |
|
|
|
(27.0) |
% |
|
|
17.6 |
|
|
|
19.6 |
|
|
|
(10.2) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
408.9 |
|
|
$ |
363.6 |
|
|
|
12.5 |
% |
|
$ |
1,194.8 |
|
|
$ |
1,041.9 |
|
|
|
14.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit and other segment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
37.0 |
|
|
$ |
28.0 |
|
|
|
32.1 |
% |
|
$ |
104.5 |
|
|
$ |
79.1 |
|
|
|
32.1 |
% |
Systems Engineering Solutions |
|
|
6.2 |
|
|
|
6.0 |
|
|
|
3.3 |
% |
|
|
19.1 |
|
|
|
18.5 |
|
|
|
3.2 |
% |
Aerospace Engines and Components (a) |
|
|
4.7 |
|
|
|
3.4 |
|
|
|
38.2 |
% |
|
|
19.2 |
|
|
|
14.6 |
|
|
|
31.5 |
% |
Energy Systems |
|
|
(0.1 |
) |
|
|
0.7 |
|
|
|
* |
|
|
|
0.3 |
|
|
|
0.9 |
|
|
|
(66.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income |
|
$ |
47.8 |
|
|
$ |
38.1 |
|
|
|
25.5 |
% |
|
$ |
143.1 |
|
|
$ |
113.1 |
|
|
|
26.5 |
% |
Corporate expense |
|
|
(7.8 |
) |
|
|
(6.0 |
) |
|
|
30.0 |
% |
|
|
(22.6 |
) |
|
|
(18.7 |
) |
|
|
20.9 |
% |
Other income, net |
|
|
0.9 |
|
|
|
0.6 |
|
|
|
50.0 |
% |
|
|
1.4 |
|
|
|
2.1 |
|
|
|
(33.3 |
)% |
Minority interest |
|
|
(0.9 |
) |
|
|
(0.3 |
) |
|
|
200.0 |
% |
|
|
(2.5 |
) |
|
|
(0.3 |
) |
|
|
* |
|
Interest expense, net |
|
|
(3.0 |
) |
|
|
(1.4 |
) |
|
|
114.3 |
% |
|
|
(10.1 |
) |
|
|
(3.6 |
) |
|
|
180.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes (b) |
|
|
37.0 |
|
|
|
31.0 |
|
|
|
19.4 |
% |
|
|
109.3 |
|
|
|
92.6 |
|
|
|
18.0 |
% |
Provision for income taxes |
|
|
9.9 |
|
|
|
8.4 |
|
|
|
17.9 |
% |
|
|
37.4 |
|
|
|
31.2 |
|
|
|
19.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
27.1 |
|
|
$ |
22.6 |
|
|
|
19.9 |
% |
|
$ |
71.9 |
|
|
$ |
61.4 |
|
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The first nine months of 2006, includes the first quarter receipt of $2.5 million,
pursuant to an agreement with Honda Motor Co., Ltd. related to the piston engine
business. |
|
(b) |
|
The first nine months of 2007 includes income tax credits of $4.0 million in the third
quarter of 2007 and also reflects the reversal of $1.0 million in income tax contingency
reserves which were determined to be no longer needed due to the completion of state tax
audits and the expiration of applicable statutes of limitations. Of this amount, $0.5
million was included in the third quarter of 2007. The third quarter of 2006 included
the reversal of income tax contingency reserves of $3.3 million, which were determined to
be no longer needed due to the expiration of applicable statutes of limitations. |
|
* |
|
percentage change not meaningful |
19
Electronics and Communications
Third quarter of 2007 compared with the third quarter of 2006
Our Electronics and Communications segments third quarter 2007 sales were $273.8 million, compared
with third quarter 2006 sales of $228.0 million, an increase of 20.1%. Third quarter 2007
operating profit was $37.0 million, compared with operating profit of $28.0 million in the third
quarter of 2006, an increase of 32.1%.
The third quarter 2007 sales improvement resulted primarily from revenue growth in defense
electronics and electronic instruments, partially offset by lower sales of other commercial
electronics. The revenue growth of $28.0 million in defense electronics was driven by the
acquisition of Rockwell Scientific in September 2006. Third quarter 2007 organic sales of defense
electronics increased due, in part, to higher sales of microwave components and subsystems. The
revenue growth of $23.8 million in electronic instruments was driven by recent acquisitions.
Revenue growth in electronic instruments included the acquisition of the majority interest in ODI
in August 2006 and the acquisition of assets of DGO in March 2007. Third quarter 2007 organic
sales of electronic instruments increased due to higher sales of instruments for the environmental
monitoring, marine and industrial instrumentation markets. Sales of geophysical sensors are
expected to decline in 2007, compared with 2006, due to lower first half sales. Lower sales of
other commercial electronics primarily reflected decreased sales of medical electronic
manufacturing services and commercial microwave assemblies used in cellular infrastructure
applications. Declines in electronic manufacturing services are expected to continue in the
remainder of 2007, compared with 2006. Incremental revenue in the third quarter of 2007, from
businesses acquired since the second quarter of 2006, was $41.3 million. Segment operating profit
was favorably impacted by revenue from acquisitions. Incremental operating profit in the third
quarter of 2007, from businesses acquired since the second quarter of 2006, including synergies,
was $5.6 million. Segment operating profit was negatively impacted by $0.8 million of stock option
compensation expense in the third quarter of 2007, compared with $0.6 million for the third quarter
of 2006. Segment operating profit for the third quarter of 2007 reflected lower LIFO expense of
$0.2 million. Pension expense, in accordance with the pension accounting requirements of SFAS No.
87 and No. 158, was $1.0 million in the third quarter of 2007, compared with $1.2 million in the
third quarter of 2006. Pension expense allocated to contracts pursuant to CAS was $0.4 million in
the third quarter of 2007 compared with $0.6 million in the third quarter of 2006.
First nine months of 2007 compared with the first nine months of 2006
Our Electronics and Communications segments first nine months 2007 sales were $788.1 million,
compared with first nine months 2006 sales of $645.4 million, an increase of 22.1%. First nine
months 2007 operating profit was $104.5 million, compared with operating profit of $79.1 million in
the first nine months of 2006, an increase of 32.1%.
The first nine months 2007 sales improvement resulted primarily from revenue growth in defense
electronics and electronic instruments, partially offset by lower sales of other commercial
electronics. The revenue growth of $89.8 million in defense electronics was driven by the
acquisition of Rockwell Scientific in September 2006 and the acquisition of assets of KW Microwave
in April 2006. Organic sales of defense electronics for the first nine months of 2007 increased
due to higher sales of microwave components and subsystems. The revenue growth of $62.8 million in
electronic instruments was driven by recent acquisitions. Revenue growth in electronic instruments
included the acquisition of the majority interest in ODI in August 2006 and the acquisition of
Benthos, Inc. in January 2006 and the acquisition of assets of DGO in March 2007. The first nine
months of 2007 organic sales of electronic instruments increased slightly with increased sales of
instruments for the industrial and environmental monitoring instrumentation markets being partially
offset by lower sales of geophysical sensors for the energy exploration market. Lower sales of
other commercial electronics primarily reflected decreased sales of medical electronic
manufacturing services and commercial microwave assemblies. Incremental revenue in the first nine
months of 2007, from businesses acquired since the end of 2005, was $139.9 million. Segment
operating profit was favorably impacted by revenue from acquisitions. Incremental operating profit
for the first nine months of 2007, from businesses acquired since the end of 2005, including
synergies, was $15.9 million. Segment operating profit was negatively impacted by $2.3 million of
stock option compensation expense in the first nine months of 2007, compared with $1.8 million for
the first nine months of 2006. Pension expense, in accordance with the pension accounting
requirements of SFAS No. 87 and No. 158, was $3.0 million in the first nine months of 2007,
compared with $3.6 million in the first nine months of 2006. Pension expense allocated to
contracts
20
pursuant to CAS was $1.3 million for both the first nine months of 2007 and the first
nine months of 2006. Segment operating profit for the first nine months of 2007 reflected higher
LIFO expense of $0.3 million. In the first nine months of 2006, we 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.
Systems Engineering Solutions
Third quarter of 2007 compared with the third quarter of 2006
Our Systems Engineering Solutions segments third quarter 2007 sales were $75.8 million, compared
with third quarter 2006 sales of $72.3 million, an increase of 4.8%. Third quarter 2007 operating
profit was $6.2 million, compared with operating profit of $6.0 million for the third quarter of
2006, an increase of 3.3%.
Third quarter 2007 sales reflected revenue growth in aerospace and defense programs of $8.5 million, partially offset by lower environmental sales of $5.0 million. The revenue growth in
aerospace and defense programs included $1.3 million in incremental revenue from the acquisition of
CollaborX in August 2006. Operating profit in the third quarter of 2007 reflected the impact of
higher revenue, lower pension expense and operating profit of $0.1 million from CollaborX,
partially offset by lower margins in certain defense programs. Segment operating profit was
impacted by $0.2 million of stock option compensation expense for both the third quarter of 2007
and the third quarter of 2006. Operating profit also included pension expense under SFAS No. 87
and No. 158, of $1.6 million in the third quarter of 2007, compared with $2.4 million in the third
quarter of 2006. Pension expense allocated to contracts pursuant to CAS was $2.0 million in the
third quarter of 2007, compared with $2.4 million in the third quarter of 2006.
First nine months of 2007 compared with the first nine months of 2006
Our Systems Engineering Solutions segments first nine months 2007 sales were $223.4 million,
compared with first nine months 2006 sales of $210.2 million, an increase of 6.3%. First nine
months 2007 operating profit was $19.1 million, compared with operating profit of $18.5 million for
the first nine months of 2006, an increase of 3.2%.
The first nine months 2007 sales reflected revenue growth in aerospace and defense programs of
$25.6 million, partially offset by lower environmental sales of $12.4 million. The revenue growth
in aerospace and defense programs included $8.7 million in incremental revenue from the acquisition
of CollaborX in August 2006. Operating profit in the first nine months of 2007 reflected the
impact of higher revenue, lower pension expense and operating profit of $0.4 million from
CollaborX, partially offset by lower margins in certain defense programs. Segment operating profit
was impacted by $0.6 million of stock option compensation expense for both the first nine months of
2007 and 2006. Operating profit also included pension expense under SFAS No. 87 and No. 158, of
$4.9 million in the first nine months of 2007, compared with $7.1 million in the first nine months
of 2006. Pension expense allocated to contracts pursuant to CAS was $6.0 million in the first nine
months of 2007, compared with $6.4 million in the first nine months of 2006.
Aerospace Engines and Components
Third quarter of 2007 compared with the third quarter of 2006
Our Aerospace Engines and Components segments third quarter 2007 sales were $53.9 million,
compared with third quarter 2006 sales of $55.9 million, a decrease of 3.6%. Third quarter 2007
operating profit was $4.7 million, compared with operating profit of $3.4 million in the third
quarter of 2006, an increase of 38.2%.
The lower third quarter 2007 sales reflected lower turbine engine sales of $2.2 million, partially
offset by slightly higher sales in the piston engine business. The lower turbine engine sales for
2007 primarily reflected lower Harpoon engine sales. The higher piston engine sales reflected
higher spare part sales, partially offset by lower overhaul services. Operating profit for the
third quarter of 2007 reflected the impact of improved operating performance including lower
aircraft product liability expense and a favorable mix of higher margin sales, partially offset by
a $1.7 million writedown of accounts receivable related to a customer bankruptcy. Segment
operating profit was impacted by $0.1 million of stock option compensation expense for the third
quarter of 2007, compared with $0.2 million for the third quarter of 2006. Segment operating
profit also included pension
expense, under
21
SFAS No. 87 and No. 158, of $0.2 million in the third quarter of 2007 compared with
$0.3 million in the third quarter of 2006. Segment operating profit for the third quarter of 2007
also reflected higher LIFO expense of $0.1 million.
First nine months of 2007 compared with the first nine months of 2006
Our Aerospace Engines and Components segments first nine months 2007 sales were $165.7 million,
compared with first nine months 2006 sales of $166.7 million, a decrease of 0.6%. The first nine
months 2007 operating profit was $19.2 million, compared with operating profit of $14.6 million in
the first nine months of 2006, an increase of 31.5%.
The lower first nine months 2007 sales resulted from decreased sales in the turbine engine business
of $1.7 million, partially offset by increased sales of $0.7 million in the piston engine business.
The higher sales in the piston engine business was due to increased spare parts sales, partially
offset by reduced sales of OEM and aftermarket engines. The lower turbine engine sales for 2007
reflected lower JASSM engine sales, partially offset by higher Harpoon engine sales and higher
research and development sales. Operating profit for the first nine months of 2007 reflected the
impact of higher sales and improved operating performance including lower aircraft product
liability expense, the receipt of a litigation settlement of $1.4 million, net of expenses, as well
as a favorable mix of higher margin sales, partially offset by a $1.7 million writedown of accounts
receivable related to a customer bankruptcy. Segment operating profit was impacted by $0.3 million
of stock option compensation expense for the first nine months of 2007, compared with $0.4 million
for the first nine months of 2006. Segment operating profit also included pension expense, under
SFAS No. 87 and No. 158, of $0.6 million in the first nine months of 2007 compared with $0.9
million in the first nine months of 2006. Segment operating profit for the first nine months of
2007 also reflected higher LIFO expense of $0.5 million. Operating profit for the first nine
months of 2006 included the receipt of the final $2.5 million payment pursuant to an agreement with
Honda Motor Co., Ltd. related to the piston engine business.
Teledyne Energy Systems
Third quarter of 2007 compared with the third quarter of 2006
Our Energy Systems segments third quarter 2007 sales were $5.4 million, compared with $7.4
million, a decrease of 27.0%. The third quarter 2007 operating loss was $0.1 million, compared
with operating profit of $0.7 million.
Third quarter 2007 sales reflected lower commercial hydrogen generator sales and lower government
sales. Sales decreased substantially in the third quarter compared with last year due, in part, to
unfavorable timing of customer deliveries; however, the Companys management currently expects
sales to increase in the fourth quarter of 2007 compared with the third quarter of 2007 and the
fourth quarter of 2006. Operating profit reflected the impact of lower sales as well as sales mix.
Segment operating profit was impacted by $0.1 million of stock option compensation expense for the
third quarter of 2007, compared with no stock option compensation expense for the third quarter of
2006. Segment operating profit also included pension expense, under SFAS No. 87 and No. 158, of
$0.1 million for both the third quarter of 2007 and 2006. Pension expense allocated to contracts
pursuant to CAS was $0.1 million in the third quarter of 2007 compared with no pension expense
allocated to the third quarter of 2006.
First nine months of 2007 compared with the first nine months of 2006
Our Energy Systems segments sales for the first nine months of 2007 were $17.6 million, compared
with $19.6 million for the first nine months of 2006, a decrease of 10.2%. Operating profit was
$0.3 million for the first nine months of 2007, compared with $0.9 million for the first nine
months of 2006, a decrease of 66.7%.
The first nine months 2007 sales reflected lower government sales and lower commercial hydrogen
generator sales. Operating profit reflected the impact of lower sales as well as sales mix.
Segment operating profit was impacted by $0.1 million of stock option compensation expense for the
first nine months of 2007, compared with no stock option compensation expense for the first nine
months of 2006. Segment operating profit also included pension expense, under SFAS No. 87 and No.
158, of $0.3 million for the first nine months of 2007, compared
with $0.4 million for the first nine months of 2006. Pension expense allocated to contracts
pursuant to CAS was $0.3 million in the first nine months of 2007 compared with $0.2 million for
the first nine months of 2006.
22
Financial Condition, Liquidity and Capital Resources
Our net cash provided by operating activities was $123.4 million for the first nine months of 2007,
compared with $62.5 million for the same period of 2006. The higher net cash provided in the first
nine months of 2007, compared with the first nine months of 2006, was primarily due to incremental
cash flow from companies acquired since 2005, higher net income, higher customer advance payments
and deposits, improved accounts receivable collections due to timing and $8.4 million in lower
pension contributions, partially offset by $5.5 million in higher tax payments.
Our net cash used by investing activities was $76.9 million for the first nine months of 2007,
compared with cash used by investing activities of $271.4 million for the first nine months of
2006. The 2007 and 2006 amount included $47.5 million and $255.4 million, respectively, for the
purchase of businesses, net of cash acquired.
On June 20, 2007, Teledyne Technologies through its subsidiary, Teledyne Cougar, Inc., completed
the acquisition of Tindall Technologies, Inc. (Tindall) a designer and supplier of microwave
subsystems for defense applications for consideration of $6.6 million. At September 30, 2007 total
cash paid, net of cash acquired was $5.6 million. Teledyne Technologies also recorded $1.0 million
in contingent payments in connection with the acquisition payable from 2008 through 2010 in three
installments. Tindall designs and manufactures high performance Instantaneous Frequency
Measurement (IFM) based systems and subsystems, including integrated frequency locked sources and
set-on receiver-jammers used for U.S. Navy and Air Force training. Tindalls operations, based in
Pleasanton, California, have been consolidated with the operations of Teledyne Cougar in Sunnyvale,
California. Tindalls results of operations and cash flows have been included in Teledyne
Technologies results beginning July 2, 2007. Tindall had revenue of $2.7 million for its fiscal
year ended December 2006.
On March 30, 2007, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc.,
completed the acquisition of assets of DGO for consideration of $37.1 million, which includes a
$1.0 million purchase price adjustment. DGO, headquartered in Seabrook, New Hampshire, is a
leading manufacturer of highly reliable electrical and fiber-optic interconnect systems, primarily
for subsea military and offshore oil and gas applications. At September 30, 2007, total cash paid,
including other fees was $37.1 million. DGOs results of operations and cash flows have been
included in Teledyne Technologies results beginning April 2, 2007. DGO had sales of $26.2 million
for its fiscal year ended September 2006. Teledyne Technologies operates this business under the
name Teledyne D.G. OBrien.
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. 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 and Imaging, LLC. 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.
On August 16, 2006, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc.,
acquired an initial majority interest 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.
The ODI minority stockholders have the option to sell their shares of ODI to Teledyne Instruments
following the end of each quarter through the quarter ended March 31, 2009, at a formula-determined
price. In September 2006, Teledyne Instruments acquired an additional 9.9% of ownership in ODI for
$5.8 million. In 2007, Teledyne Instruments acquired an additional 0.4% of ownership in ODI for
$0.2 million. Total cash paid to date, including the initial investment and subsequent share
purchases, net of cash acquired was $34.6 million. At September 30, 2007, Teledyne Instruments
owns 61.3% of ODI. All shares not sold to Teledyne Instruments following the quarter ended March
31, 2009, will be purchased by Teledyne Instruments following the quarter ended June 30, 2009, at a
same formula-determined price, at which time Teledyne Instruments will own all of the ODI shares
held by the participating stockholders. Based on the formula-determined purchase price as of the
quarter ended
September 30, 2007, the aggregate amount of funds required to repurchase all the shares held by the
remaining minority ODI stockholders would be approximately $56.1 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
23
significantly higher or lower than this amount, as this amount will
depend on when individual stockholders elect to exercise their put options and on the actual
financial performance of ODI.
On August 16, 2006, Teledyne Technologies, through its subsidiary, Teledyne Brown Engineering,
Inc., acquired CollaborX for consideration of $17.5 million, less certain transaction-related
expenses. Teledyne Technologies recorded $2.9 million in notes payable related to the transaction,
payable through 2009. At September 30, 2007, 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.
On April 28, 2006, Teledyne Technologies through its subsidiary, 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 Poway, California,
the business operates as Teledyne KW Microwave.
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.
Our net cash used by investing activities for the first nine months of 2007 and 2006 each included
a $0.8 million contingent payment related to the Cougar Components Corporation acquisition made in
2005. Our net cash used by investing activities for the first nine months of 2007 also included a
payment of $3.7 million in August 2007 related to the RD Instruments acquisition made in 2005.
This amount was recorded as a liability at the time of the acquisition.
Teledyne Technologies funded the acquisitions primarily from borrowings under its credit facility
and cash on hand.
Capital expenditures for the first nine months of 2007 and 2006 were $30.7 million and $16.3
million, respectively. The increase included costs of $11.5 million to relocate a manufacturing
facility and other capital projects.
Teledyne Technologies goodwill was $350.6 million at September 30, 2007 and $313.6 million at
December 31, 2006. Teledyne Technologies net acquired intangible assets were $61.2 million at
September 30, 2007 and $69.4 million at December 31, 2006. The change in the balance of goodwill
in 2007 primarily resulted from the acquisitions made in 2007 and an adjustment for the Scientific
Company acquisition. The change in the balance of acquired intangible assets in 2007 resulted from
the acquisitions made in 2007, an adjustment for the Scientific Company acquisition and
amortization of acquired intangible assets. In all acquisitions, the results of operations and
cash flows are included in the Companys consolidated financial statements from the date of each
respective acquisition, except as noted for DGO and Tindall. Each of the companies acquired,
except for CollaborX, is part of the Electronics and Communications segment. CollaborX is part of
the Systems Engineering Solutions segment. The Company completed the
process of specifically identifying the amount to be assigned to intangible assets, as well as certain assets and
liabilities for the CollaborX, ODI and Scientific Company acquisitions made in 2006. The amount of
goodwill and acquired intangible assets recorded as of September 30, 2007 for the ODI acquisition
was $16.8 million and $13.8 million, respectively. 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 change in goodwill from December 31, 2006 reflects additional
share purchases and changes to the estimated income tax balances. The amount of goodwill and
acquired intangible assets recorded as of September 30, 2007 for the CollaborX acquisition was
$14.2 million and $2.1 million, respectively, and did not change from December 31, 2006. The
amount of goodwill and gross acquired intangible assets recorded as of September 30, 2007 for the
Scientific Company acquisition was $73.2 million and $8.3 million, respectively. The
preliminary amount of goodwill and gross acquired intangible assets recorded as of December 31,
2006 for the Scientific Company acquisition was $60.1 million and $19.0 million, respectively. The
primary change was a $10.7 million reduction to acquired intangible assets and a corresponding
increase to goodwill to reflect changes in the estimated amount of acquired intangible assets based
on the completed appraisal report for the valuation of acquired intangible assets and for the final
allocation for certain assets and liabilities. The Company is in the process of specifically
24
identifying the amount to be assigned to intangible assets, as well as certain assets and
liabilities for the DGO and Tindall acquisitions made in 2007. The Company made preliminary
estimates as of September 30, 2007, since there was insufficient time between the acquisition dates
and the end of the period to finalize the valuations. The preliminary amount of goodwill and
acquired intangible assets recorded as of September 30, 2007 for the DGO acquisition was $19.7
million and $6.0 million, respectively. The preliminary amount of goodwill and acquired intangible
assets recorded as of September 30, 2007 for the Tindall acquisition was $4.1 million and $1.1
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 certain third party valuation reports. Goodwill resulting from the CollaborX, Scientific Company and DGO acquisitions
will be deductible for tax purposes.
Cash used by financing activities for the first nine months of 2007 included net repayments of
borrowings of $50.8 million. Cash provided by financing activities for the first nine months of
2006 included net borrowings of $208.1 million, primarily to fund acquisitions. The first nine
months of 2007 and 2006 included $2.4 million and $7.8 million, respectively, in excess tax
benefits related to stock-based compensation. Proceeds from the exercise of stock options were
$5.0 million and $11.1 million for the first nine months of 2007 and 2006, respectively.
Working capital was $211.7 million at September 30, 2007, compared with $216.4 million at December
31, 2006.
Our principal capital requirements are to fund working capital needs, capital expenditures, pension
contributions and debt service requirements, as well as acquisitions. It is anticipated that
operating cash flow, together with available borrowings under the credit facility described below,
will be sufficient to meet these requirements over the next twelve months. To support
acquisitions, we may need to raise additional capital. We currently expect capital expenditures to
be approximately $40.0 million in 2007, of which $30.7 million has been spent in the first nine
months of 2007.
Our 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 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 September 30, 2007, the Company was in
compliance with these covenants. Available borrowing capacity under the $400.0 million credit
facility, which is reduced by borrowings and outstanding letters of credit, was $217.1 million at
September 30, 2007.
Our liquidity is not dependent upon the use of off-balance sheet financial arrangements. We have
no off-balance sheet financing arrangements that incorporate the use of special purpose entities or
unconsolidated entities.
Critical Accounting Policies
Our critical accounting policies are those that are reflective of significant judgments and
uncertainties, and may potentially result in materially different results under different
assumptions and conditions. Our critical accounting policies are the following: contract revenue
recognition and contract estimates; aircraft product liability reserve; accounting for pension
plans; and accounting for business combinations, goodwill and other long-lived assets. For
additional discussion of the application of these and other accounting policies, see Managements
Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting
Policies and Note 2 of the Notes to Consolidated Financial Statements included in Teledyne
Technologies Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (2006 Form
10-K).
25
Recent Accounting Pronouncements
In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115. SFAS No. 159 permits entities to choose to measure eligible items at fair
value at specified election dates and report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007 and is not expected to have
an effect on the Companys consolidated results of operations or financial position.
On January 1, 2007, Teledyne Technologies adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN No. 48). As a result of the implementation the Company
recognized a $0.2 million increase in the liability for unrecognized tax benefits, which was
accounted for as a cumulative-effect adjustment (decrease) to the beginning balance of retained
earnings. As of the date of adoption and after the impact of recognizing the increase in the
liability noted above, the Companys total gross unrecognized tax benefits totaled $5.5 million.
Due to offsetting tax benefits, $3.9 million (net of the federal benefit on state issues)
represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in any future periods. See Note 9 for additional disclosures regarding
the adoption of FIN No. 48.
Outlook
Based on its current outlook, the Companys management believes that fourth quarter 2007 earnings
per share will be in the range of approximately $0.65 to $0.68. The full year 2007 earnings per
share outlook is expected to be in the range of approximately $2.64 to $2.67 an increase from the
prior outlook of $2.56 to $2.62. The Companys estimated effective income tax rate for 2007 is
expected to be 35.6% and reflects impact of tax credits and tax contingency reserve reversals
totaling of $5.1 million in for 2007. Excluding the tax credits our estimated effective income tax
rate for 2007 would be 39.1%.
Our 2007 outlook reflects anticipated sales growth in the defense electronics and instrumentation
businesses, due primarily to the contribution of our acquisitions completed in 2006 and 2007. The
Companys fourth quarter and full year 2007 earnings per share outlook reflects an anticipated
increase in expenses, including higher interest expense, as a result of the acquisitions completed
in 2006 and 2007. Our current outlook reflects continued declines in sales of medical electronic
manufacturing services in the remainder of 2007, compared with 2006. In addition, full year sales
of geophysical sensors are expected to decline in 2007, compared with 2006, due to lower first half
sales.
The full year 2007 earnings outlook includes approximately $11.9 million in pension expense under
SFAS No. 87 and No. 158, or $1.7 million in net pension expense after recovery of allowable pension
costs from our CAS covered government contracts. 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 Teledyne Technologies pension
plan.
26
The Companys 2007 earnings outlook also reflects $6.8 million in stock option compensation
expense. The Companys 2006 earnings included $5.9 million in stock option compensation expense.
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 excluding income tax
benefit) |
|
$ |
2.66 |
|
|
$ |
2.69 |
|
|
$ |
2.36 |
|
|
$ |
1.91 |
|
Pension expense SFAS No. 87 |
|
|
(0.21 |
) |
|
|
(0.21 |
) |
|
|
(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) |
|
|
2.63 |
|
|
|
2.66 |
|
|
|
2.27 |
|
|
|
1.85 |
|
Stock option expense (c) |
|
|
(0.12 |
) |
|
|
(0.12 |
) |
|
|
(0.10 |
) |
|
|
|
|
Income tax benefit (d) |
|
|
0.13 |
|
|
|
0.13 |
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share GAAP |
|
$ |
2.64 |
|
|
$ |
2.67 |
|
|
$ |
2.26 |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
We believe that this supplemental non-GAAP information is useful to assist management and
the investment community in analyzing the financial results and trends of ongoing
operations. The table facilitates comparisons with prior periods and reflects a
measurement management uses to analyze financial performance. |
|
(b) |
|
Pension expense determined allowable under CAS can generally be recovered through the
pricing of products and services sold to the U.S. Government. |
|
(c) |
|
Effective January 2, 2006, we adopted the provisions of SFAS No. 123(R) and began
recording stock option compensation expense. No compensation expense related to stock
options was recorded in 2005 or in prior years. |
|
(d) |
|
Fiscal year 2007 reflects income tax credits of $4.0 million in the third quarter of 2007
and also reflects the reversal of $1.1 million in income tax contingency reserves for the
year which are expected to be no longer needed due to the completion of state tax audits
and the expiration of applicable statutes of limitations by year end. Fiscal year 2006
included the reversal of income tax contingency reserves of $3.3 million, which were
determined to be no longer needed due to the expiration of applicable statutes of
limitations. |
Safe Harbor Cautionary Statement Regarding Outlook and Forward-Looking Information
From time to time we make, and this report contains forward looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, relating to earnings, growth opportunities,
product sales, pension matters, stock option compensation expense, tax credits and strategic plans.
All statements made in this Managements Discussion and Analysis of Financial Condition and
Results of Operations that are not historical in nature should be considered forward-looking.
Actual results could differ materially from these forward-looking statements. Many factors,
including changes in demand for products sold to the defense electronics, instrumentation and
energy exploration and production, commercial aviation, semiconductor and communications markets,
funding, continuation and award of government programs, continued liquidity of our customers
(including commercial aviation customers) and economic and political conditions, could change the
anticipated results. In addition, financial market fluctuations affect the value of our pension
assets.
Global responses to terrorism and other perceived threats increase uncertainties associated with
forward-looking statements about our businesses. Various responses to terrorism and perceived
threats could realign government programs, and affect the composition, funding or timing of our
programs. Flight restrictions would negatively impact the market for general aviation aircraft
piston engines and components.
We continue to take action to assure compliance with the internal controls, disclosure controls and
other requirements of the Sarbanes-Oxley Act of 2002. While we believe our control systems are
effective, there are inherent limitations in all control systems, and misstatements due to error or
fraud may occur and not be detected.
While our growth strategy includes possible acquisitions, we cannot provide any assurance as to
when, if or on what terms any acquisitions will be made. Acquisitions involve various inherent
risks, such as, among others, our ability to integrate acquired businesses and to achieve
identified financial and operating synergies.
Additional information concerning factors that could cause actual results to differ materially from
those projected in the forward-looking statements is contained in Teledyne Technologies periodic
filings with the Securities and Exchange Commission, including its 2006 Form 10-K and this Form
10-Q. We assume no duty to update forward-looking statements.
27
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Other than as set forth below, there were no material changes to the information provided under
Item 7A, Quantitative and Qualitative Disclosure About Market Risk included in our 2006 Annual
Report on Form 10-K. At September 30, 2007, there were no hedging contracts outstanding.
Interest Rate Exposure
We are exposed to market risk through the interest rate on our borrowings under our amended and
restated credit facility. Borrowings under our credit facility are at fixed rates that vary with
the term and timing of each loan under the facility. Loans under the facility typically have terms
of one, three or six months and the interest rate for each such loan is subject to change if the
loan is continued or converted following the applicable maturity date. Interest rates are also
subject to change based on our debt to earnings before interest, taxes, depreciation and
amortization (EBITDA) ratio. As of September 30, 2007, we had $174.0 million in outstanding
indebtedness under our amended and restated credit facility. A 100 basis point change in interest
rates would result in an increase in annual interest expense of approximately $1.7 million,
assuming the $174.0 million in debt was outstanding for the full year.
Item 4. Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be
disclosed in reports that we file or submit, under the Securities Exchange Act of 1934, are
recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Our Chairman, President and Chief Executive
Officer and our Senior Vice President and Chief Financial Officer, with the participation and
assistance of other members of management, have reviewed the effectiveness of our disclosure
controls and procedures and have concluded that the disclosure controls and procedures, as of
September 30, 2007, are effective in timely alerting them to material information relating to the
Company that is required to be included in its SEC periodic filings.
In connection with our evaluation during the quarterly period ended September 30, 2007, we have
made no change in our internal controls over financial reporting that have materially affected or
are reasonably likely to materially affect our internal controls over financial reporting. There
also were no significant deficiencies or material weaknesses identified for which corrective action
needed to be taken.
28
PART
II OTHER INFORMATION
Item 1A. Risk Factors
There are no material changes to the risk factors previously disclosed in our 2006 Annual Report on
Form 10-K in response to Item 1A to Part 1 of Form 10-K. See also our Outlook discussion
beginning at page 26 for some factors reflected in our 2007 earnings per share guidance.
Item 6. Exhibits
|
|
|
|
|
(a)
|
|
Exhibits |
|
|
|
|
|
|
|
|
|
Exhibit 10.1
|
|
Form of Amendment to Stock Options, dated October 1, 2007, by and
between Teledyne Technologies Incorporated and directors Frank V. Cahouet,
Charles Crocker, Simon M. Lorne, Paul D. Miller and Michael T. Smith |
|
|
|
|
|
|
|
Exhibit 10.2
|
|
Third Amended and Restated Employment Agreement dated September 1, 2007, by and between Teledyne
Technologies Incorporated and Dr. Robert Mehrabian (incorporated by reference to Exhibit 10.1 to Teledyne
Technologies Incorporateds Current Report on Form 8-K dated September 1, 2007). |
|
|
|
|
|
|
|
Exhibit 31.1
|
|
302 Certification Robert Mehrabian |
|
|
|
|
|
|
|
Exhibit 31.2
|
|
302 Certification Dale A. Schnittjer |
|
|
|
|
|
|
|
Exhibit 32.1
|
|
906 Certification Robert Mehrabian |
|
|
|
|
|
|
|
Exhibit 32.2
|
|
906 Certification Dale A. Schnittjer |
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
TELEDYNE TECHNOLOGIES INCORPORATED
|
|
DATE: November 2, 2007 |
By: |
/s/ Dale A. Schnittjer
|
|
|
|
Dale A. Schnittjer, Senior Vice President and |
|
|
|
Chief Financial Officer
(Principal Financial Officer and Authorized Officer) |
|
|
30
Teledyne Technologies Incorporated
Index to Exhibits
Exhibit Number Description
|
|
|
Exhibit 10.1
|
|
Form of Amendment to Stock Options, dated October 1, 2007, by and between Teledyne
Technologies Incorporated and directors Frank V. Cahouet, Charles Crocker, Simon M. Lorne,
Paul D. Miller and Michael T. Smith |
|
|
|
Exhibit 10.2
|
|
Third Amended and Restated Employment Agreement dated September 1, 2007, by and between Teledyne
Technologies Incorporated and Dr. Robert Mehrabian (incorporated by reference to Exhibit 10.1 to Teledyne
Technologies Incorporateds Current Report on Form 8-K dated September 1, 2007). |
|
|
|
Exhibit 31.1
|
|
302 Certification Robert Mehrabian |
|
|
|
Exhibit 31.2
|
|
302 Certification Dale A. Schnittjer |
|
|
|
Exhibit 32.1
|
|
906 Certification Robert Mehrabian |
|
|
|
Exhibit 32.2
|
|
906 Certification Dale A. Schnittjer |
31