e10vq
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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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 July 2, 2006
OR
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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
(State or other jurisdiction of
incorporation or organization)
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25-1843385
(I.R.S. Employer
Identification Number) |
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12333 West Olympic Boulevard
Los Angeles, California
(Address of principal executive offices)
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90064-1021
(Zip Code) |
(310) 893-1600
(Registrant’s 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
o No
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 issuer’s classes of common stock, as
of the latest practicable date.
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| Class
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Outstanding at July 31, 2006 |
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| Common Stock, $.01 par value per share
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34,387,353 shares |
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in millions, except share amounts)
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July 2, 2006 |
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January 1, 2006 |
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(Unaudited) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
7.9 |
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$ |
9.3 |
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Receivables, net |
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189.0 |
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167.6 |
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Inventories, net |
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146.6 |
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117.3 |
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Deferred income taxes, net |
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25.1 |
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25.4 |
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Prepaid expenses and other |
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9.9 |
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11.9 |
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Total current assets |
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378.5 |
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331.5 |
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Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $191.1
at July 2, 2006 and $181.4 at January 1, 2006 |
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99.9 |
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96.7 |
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Deferred income taxes, net |
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45.6 |
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42.9 |
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Goodwill, net |
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224.4 |
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197.0 |
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Acquired intangibles, net |
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39.0 |
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33.6 |
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Other assets |
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26.0 |
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26.5 |
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Total Assets |
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$ |
813.4 |
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$ |
728.2 |
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Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Accounts payable |
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$ |
87.0 |
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$ |
76.2 |
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Accrued liabilities |
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114.1 |
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101.1 |
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Current portion of long-term debt and capital lease obligation |
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0.2 |
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0.2 |
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Total current liabilities |
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201.3 |
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177.5 |
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Long-term debt and capital lease obligation |
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44.7 |
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47.0 |
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Accrued pension obligation |
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68.8 |
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68.2 |
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Accrued postretirement benefits |
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21.7 |
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22.5 |
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Other long-term liabilities |
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94.5 |
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87.0 |
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Total Liabilities |
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431.0 |
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402.2 |
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Stockholders’ Equity |
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Common stock, $0.01 par value; outstanding shares 34,343,908
at July 2, 2006 and 33,683,671 at January 1, 2006 |
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0.3 |
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0.3 |
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Additional paid-in capital |
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176.4 |
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159.4 |
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Retained earnings |
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244.3 |
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205.5 |
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Accumulated other comprehensive loss |
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(38.6 |
) |
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(39.2 |
) |
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Total Stockholders’ Equity |
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382.4 |
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326.0 |
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Total Liabilities and Stockholders’ Equity |
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$ |
813.4 |
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$ |
728.2 |
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The accompanying notes are an integral part of these financial statements.
2
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 2, 2006 AND JULY 3, 2005
(Unaudited — Amounts in millions, except per-share amounts)
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Second Quarter |
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Six Months |
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2006 |
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2005 |
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2006 |
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2005 |
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Net Sales |
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$ |
348.1 |
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$ |
303.3 |
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$ |
678.3 |
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$ |
600.8 |
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Costs and expenses |
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Cost of sales |
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245.4 |
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220.0 |
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482.2 |
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434.5 |
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Selling, general and administrative expenses |
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69.2 |
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56.6 |
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136.3 |
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116.0 |
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Total costs and expenses |
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314.6 |
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276.6 |
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618.5 |
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550.5 |
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Income before other income and expense and income taxes |
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33.5 |
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26.7 |
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59.8 |
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50.3 |
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Other income |
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0.5 |
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— |
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4.0 |
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2.5 |
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Interest and debt expense, net |
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(1.1 |
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(0.9 |
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(2.2 |
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(1.7 |
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Income before income taxes |
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32.9 |
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25.8 |
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61.6 |
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51.1 |
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Provision for income taxes |
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12.0 |
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9.7 |
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22.8 |
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19.2 |
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Net income |
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$ |
20.9 |
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$ |
16.1 |
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$ |
38.8 |
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$ |
31.9 |
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Basic earnings per common share |
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$ |
0.61 |
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$ |
0.49 |
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$ |
1.13 |
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$ |
0.96 |
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Weighted average common shares outstanding |
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34.4 |
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33.1 |
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34.2 |
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33.1 |
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Diluted earnings per common share |
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$ |
0.59 |
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$ |
0.47 |
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$ |
1.10 |
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$ |
0.93 |
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Weighted average diluted common shares outstanding |
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35.4 |
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34.5 |
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35.3 |
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34.5 |
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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 SIX MONTHS ENDED JULY 2, 2006 AND JULY 3, 2005
(Unaudited — Amounts in millions)
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Six Months |
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2006 |
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2005 |
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Cash flow from operating activities |
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Net income |
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$ |
38.8 |
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$ |
31.9 |
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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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13.1 |
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12.2 |
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Disposal of fixed assets |
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— |
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0.5 |
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Deferred income taxes |
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(0.8 |
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(2.0 |
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Stock option compensation expense |
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2.9 |
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— |
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Excess income tax benefits from stock options |
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(5.2 |
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(2.0 |
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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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(18.0 |
) |
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(21.2 |
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Increase in inventories |
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(24.6 |
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(8.1 |
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Increase in prepaid expenses and other assets |
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2.1 |
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1.1 |
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Increase in accounts payable |
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9.0 |
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2.1 |
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Increase (decrease) in accrued liabilities |
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2.1 |
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(7.6 |
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Increase in income taxes payable, net |
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15.7 |
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8.1 |
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(Increase) decrease in long-term assets |
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0.4 |
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(2.2 |
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Increase in other long-term liabilities |
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5.0 |
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18.6 |
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Increase in accrued pension obligation |
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0.7 |
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1.3 |
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Decrease in accrued postretirement benefits |
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(0.7 |
) |
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(0.9 |
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Other operating, net |
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0.6 |
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(0.1 |
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Net cash provided by operating activities |
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41.1 |
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31.7 |
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Cash flow from investing activities |
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Purchases of property, plant and equipment |
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(9.2 |
) |
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(7.4 |
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Purchase of businesses, net of cash acquired |
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(43.5 |
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(21.9 |
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Proceeds from sale of business and other assets |
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0.2 |
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5.2 |
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Net cash used by investing activities |
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(52.5 |
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(24.1 |
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Cash flow from financing activities |
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Repayment of debt, net |
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(2.3 |
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(11.6 |
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Proceeds from exercise of stock options |
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7.1 |
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4.9 |
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Excess income tax benefits from stock options |
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5.2 |
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— |
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Net cash provided (used) by financing activities |
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10.0 |
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(6.7 |
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Increase (decrease) in cash and cash equivalents |
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(1.4 |
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0.9 |
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Cash and cash equivalents—beginning of period |
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9.3 |
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11.4 |
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Cash and cash equivalents—end of period |
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$ |
7.9 |
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$ |
12.3 |
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The accompanying notes are an integral part of these financial statements.
4
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 2, 2006
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 January 1, 2006 (2005 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 July 2, 2006, and the consolidated results of operations
and cash flows for the three months and six months then ended. The results of operations and
cash flows for the period ended July 2, 2006, 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 2006 presentation.
Recent Accounting Pronouncements
On January 2, 2006, Teledyne Technologies adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standard (SFAS) No. 154, “Accounting Changes and Error
Corrections Disclosure,” (SFAS No. 154). SFAS No. 154 replaces Accounting Principles Board
(APB) Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in
Interim Financial Statements.” SFAS No. 154 requires retrospective application to prior
periods’ financial statements of changes in accounting principle unless it is impracticable.
SFAS No. 154 applies to all voluntary changes in accounting principle. It also applies to
changes required by a new accounting pronouncement in the unusual instance that the
pronouncement does not include explicit transition provisions. The adoption of SFAS No. 154
did not have a material impact on the condensed consolidated financial statements of the
Company.
In December 2004, the FASB issued SFAS No. 123(R), “Share Based Payment” (SFAS No. 123(R)),
that requires compensation costs related to share-based payment transactions to be recognized
in the financial statements. With limited exceptions, the amount of compensation costs will be
measured based on the grant date fair value of the equity or liability instrument issued. SFAS
No. 123(R) replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees.” On January 2, 2006, Teledyne
Technologies adopted SFAS No. 123(R), using the modified prospective method, and accordingly,
did not restate prior year financial statements. See Note 5 for additional disclosures
regarding the adoption of SFAS No. 123(R).
On January 2, 2006, Teledyne Technologies adopted SFAS No. 151, “Inventory Costs — an amendment
of ARB No. 43, Chapter 4” (SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43,
Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires that
those items be recognized as current-period charges. The adoption of SFAS No. 151 did not have
a material impact on the condensed consolidated financial statements of the Company.
5
Note 2. Business Combinations and Disposition
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. Teledyne funded the acquisition primarily from
borrowings under its $280.0 million credit facility and cash on hand. Principally located in
Carlsbad, California, the business will operate as Teledyne KW Microwave. KW Microwave designs
and manufactures high performance microwave filters and integrated filter assemblies that are
used in military electronic warfare, communication and navigation systems. KW Microwave
reported revenue of approximately $6.7 million for its fiscal year ended December 31, 2005.
On January 27, 2006, Teledyne Technologies 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. Teledyne funded the acquisition primarily from borrowings under its $280.0 million
credit facility. Benthos, located in North Falmouth, Massachusetts, provides oceanographic
products used in port and harbor security services, military applications, energy exploration
and oceanographic research and also manufactures package inspection systems. Benthos reported
revenue of approximately $24.0 million for its fiscal year ended September 30, 2005.
The following is a summary at the acquisition date of the estimated fair values of the assets
acquired and liabilities assumed for the Benthos acquisition and the acquisition of certain
assets of KW Microwave (in millions):
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Current assets, excluding cash acquired |
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$ |
9.3 |
|
Property, plant and equipment |
|
|
4.1 |
|
Goodwill |
|
|
25.7 |
|
Acquired intangible assets |
|
|
8.1 |
|
Other assets |
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|
1.8 |
|
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Total assets acquired |
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49.0 |
|
Current liabilities |
|
|
3.9 |
|
Other long-term liabilities |
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2.4 |
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Total liabilities assumed |
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6.3 |
|
Purchase price, net of cash acquired |
|
$ |
42.7 |
|
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|
On August 26, 2005, Teledyne Technologies through its wholly owned subsidiary, Teledyne
Investment, Inc., completed the acquisition of all of the stock of RD Instruments, Inc. (RDI).
The total purchase price was $36.0 million. In addition, Teledyne Technologies recorded a $3.6
million liability to be paid in August 2007. RDI designs and manufactures acoustic Doppler
instrumentation. The business will operate as Teledyne RD Instruments, Inc. and is based in
San Diego, California. Teledyne Technologies funded the acquisition with cash on hand and
borrowings under its credit facilities. RDI had sales of approximately $29.0 million for its
fiscal year ended December 31, 2004.
On August 26, 2005, Teledyne Technologies announced that Teledyne Isco, Inc., completed the
sale of its SWIFT™ assets for net proceeds of $2.9 million. These assets were acquired as part
of the Isco acquisition made in 2004. No gain was recorded on the sale and goodwill was
reduced by $2.7 million at the time of the sale.
On June 30, 2005, Teledyne Technologies through its wholly owned subsidiary, Teledyne
Investment, Inc., completed the acquisition of all of the stock of Cougar Components
Corporation (Cougar) for a purchase price of $26.5 million. In the third quarter Teledyne
Technologies also paid a $0.5 million purchase price adjustment. In connection with the
acquisition, Teledyne Technologies assumed debt obligations of $3.8 million and acquired cash
and cash equivalents of $3.2 million. In addition, Teledyne Technologies recorded contingent
payments totaling $1.6 million to be paid by Teledyne Technologies in specified increments as
certain conditions are satisfied through June 2007, of which $0.8 million was paid in the
second quarter of 2006. Cougar designs and manufactures RF and microwave cascadable amplifiers
and subsystems for signal processing equipment. Principally located in Sunnyvale, California,
the business operates as Teledyne Cougar, Inc., a business unit of Teledyne Microelectronic
Technologies. Teledyne Technologies funded the
6
acquisition primarily from borrowings under its $280 million credit facility. Cougar had sales
of approximately $18.1 million for its fiscal year ended August 31, 2004.
In March 2005, Teledyne Technologies sold the assets of STIP-Isco, a German subsidiary, for an
initial payment of $5.2 million and a subsequent payment of $0.2 million in the third quarter
of 2005. An additional $0.4 million is held in escrow to be released to Teledyne Technologies
in specified increments as certain conditions are satisfied through February 2007. This
business was acquired as part of the Isco acquisition made in 2004. No gain was recorded on
the sale and goodwill was reduced by $2.3 million at the time of the sale.
In all acquisitions, the results are included in the Company’s consolidated financial
statements from the date of each respective acquisition. Each of the above acquisitions is
part of the Electronics and Communications segment. The Company is in the process of
specifically identifying the amount to be assigned to intangible assets for the Benthos and KW
Microwave acquisitions. The Company made preliminary estimates as of July 2, 2006, since there
was insufficient time between the acquisition date and the end of the second quarter to
finalize the valuations. The preliminary amount of goodwill and acquired intangible assets
recorded as of July 2, 2006 for the Benthos acquisition was $19.0 million and $5.7 million,
respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of
July 2, 2006 for the KW Microwave acquisition was $6.7 million and $2.4 million, respectively.
These amounts were based on estimates that are subject to change pending the completion of the
Company’s internal review and the receipt of third party appraisals.
Note 3. Comprehensive Income
Teledyne Technologies’ comprehensive income is comprised of net income and foreign currency
translation adjustments. Teledyne Technologies’ total comprehensive income for the second
quarter and first six months of 2006 and 2005 consists of the following (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
Six Months |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net income |
|
$ |
20.9 |
|
|
$ |
16.1 |
|
|
$ |
38.8 |
|
|
$ |
31.9 |
|
Other comprehensive gain (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gains (losses) |
|
|
0.3 |
|
|
|
(0.4 |
) |
|
|
0.6 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive gain (loss) |
|
|
0.3 |
|
|
|
(0.4 |
) |
|
|
0.6 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
21.2 |
|
|
$ |
15.7 |
|
|
$ |
39.4 |
|
|
$ |
31.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
7
The following table sets forth the computations of basic and diluted earnings per share
(amounts in millions, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
Six Months |
|
| |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Basic earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20.9 |
|
|
$ |
16.1 |
|
|
$ |
38.8 |
|
|
$ |
31.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
34.4 |
|
|
|
33.1 |
|
|
|
34.2 |
|
|
|
33.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.61 |
|
|
$ |
0.49 |
|
|
$ |
1.13 |
|
|
$ |
0.96 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20.9 |
|
|
$ |
16.1 |
|
|
$ |
38.8 |
|
|
$ |
31.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
34.4 |
|
|
|
33.1 |
|
|
|
34.2 |
|
|
|
33.1 |
|
Dilutive effect of exercise of options outstanding |
|
|
1.0 |
|
|
|
1.4 |
|
|
|
1.1 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding |
|
|
35.4 |
|
|
|
34.5 |
|
|
|
35.3 |
|
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.59 |
|
|
$ |
0.47 |
|
|
$ |
1.10 |
|
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 5. Stock-Based Compensation Plans
Teledyne 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 a
non-employee director stock compensation plan, pursuant to which non-qualified stock options
and common stock have been issued to its directors. Prior to the adoption of SFAS No. 123(R)
in fiscal 2006, Teledyne Technologies accounted for these plans under the recognition and
measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and
related interpretations, therefore, compensation costs related to stock options were not
recognized in the consolidated statements of income prior to January 2, 2006. Compensation
costs related to the performance share plan and the restricted stock award program were
recognized in the consolidated statements of income in 2006 and 2005.
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. Stock option compensation expense is recorded on a straight line basis over the
appropriate vesting period, generally three years. For the second quarter and first six months
of 2006, the Company recorded a total of $1.5 million and $2.9 million, respectively, in stock
option expense related to stock options awarded after the adoption of SFAS No. 123(R) and for
stock options which were not vested by the date of adoption of SFAS No. 123(R). In 2006, the
Company expects approximately $5.8 million in stock option compensation expense based on the
fair value of stock options granted after the adoption of SFAS No. 123(R) and stock options
which were not vested by the date of adoption of SFAS No. 123(R), as well as, current
assumptions regarding the estimated fair value of expected stock option grants during the
remainder of the year. However, our assessment of the estimated compensation expense is
affected by our stock price 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. No compensation
expense related to stock options was recorded in the consolidated statements of income in 2005
or in prior years since it was not required. As of July 2, 2006, there was $9.9 million of
unrecognized compensation cost related to nonvested stock options, which is expected to be
recognized over a weighted-average period of approximately 1.7 years. During the second
quarter and first six months of 2006, the total intrinsic value of stock options exercised was
$3.2 million and $13.3 million respectively. Cash received from stock option exercises in the
second quarter and first six months of 2006 was $2.1 million and $7.1 million respectively.
The excess tax benefit (i.e., the tax deduction in excess of that which would have been
recognized had SFAS No. 123(R) been applied in previous periods) for the second quarter and
first six months of 2006 was $1.3 million and $5.2
8
million respectively. The Company issues shares of common stock upon the exercise of
stock options. No modifications to outstanding stock options were made prior to the adoption
of SFAS No. 123(R). The valuation methodologies and assumptions in estimating the fair value
of stock options granted in 2006 were similar to those used in estimating the fair value of
stock options granted in 2005.
As noted above, prior to the adoption of SFAS No. 123(R), Teledyne Technologies accounted for
its stock option plans in accordance with APB Opinion No. 25, “Accounting for Stock Issued to
Employees” and related interpretations. Under APB Opinion No. 25, no compensation expense is
recorded in the consolidated statements of income because the exercise price of the Company’s
employee stock options equals the market price of the underlying stock at the date of the
grant. The Company followed the requirements of APB Opinion No. 25, “Accounting for Stock
Issued to Employees” and related interpretations and the disclosure only provision of SFAS No.
123, “Accounting for Stock-based Compensation” as amended by SFAS No. 148, “Accounting for
Stock-Based Compensation-Transition and Disclosure” to require interim and annual disclosures
in the notes to the financial statements about the method of accounting for stock-based
compensation and the effect of the method used on reported results.
If compensation cost for these options had been determined under the SFAS No. 123 fair-value
method using the Black-Scholes option-pricing model for stock options granted prior to 2005 and
the lattice based binomial model for stock options granted in 2005, the impact on net income
and earnings per share is presented in the following table (amounts in millions, except per
share data):
| |
|
|
|
|
|
|
|
|
| |
|
Second |
|
|
Six |
|
| |
|
Quarter |
|
|
Months |
|
| |
|
2005 |
|
|
2005 |
|
Net income as reported |
|
$ |
16.1 |
|
|
$ |
31.9 |
|
Stock-based compensation under SFAS
No. 123 fair-value method, net of
tax |
|
|
(0.8 |
) |
|
|
(1.6 |
) |
|
|
|
|
|
|
|
Adjusted net income |
|
$ |
15.3 |
|
|
$ |
30.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.49 |
|
|
$ |
0.96 |
|
As adjusted |
|
$ |
0.47 |
|
|
$ |
0.92 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
|
|
|
|
|
|
|
As reported |
|
$ |
0.47 |
|
|
$ |
0.93 |
|
As adjusted |
|
$ |
0.44 |
|
|
$ |
0.88 |
|
The Company used a combination of the historical volatility of Teledyne’s stock price and the
implied volatility based on the price of traded options on Teledyne’s 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’s practice of not paying dividends. The risk-free rate of return is based
on the yield of U. S. Treasury Strips with terms equal to the expected life of the 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
2006 and 2005:
| |
|
|
|
|
|
|
|
|
| |
|
2006 |
|
|
2005 |
|
Expected dividend yield |
|
|
— |
|
|
|
— |
|
Expected volatility |
|
|
36.0 |
% |
|
|
33.0 |
% |
Risk-free interest rate |
|
|
4.7 |
% |
|
|
3.9 |
% |
Expected life in years |
|
|
5.5 |
|
|
|
6.3 |
|
Fair value per option granted |
|
$ |
13.30 |
|
|
$ |
10.24 |
|
|
|
|
|
|
|
|
9
Stock option transactions for Teledyne’s employee stock option plans for the second quarter and
first six months ended July 2, 2006 are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
| |
|
Second Quarter |
|
|
First Six Months |
|
| |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
| |
|
Shares |
|
|
|
|
|
|
Price |
|
|
Shares |
|
|
|
|
|
|
Price |
|
Beginning balance |
|
|
3,056,113 |
|
|
|
|
|
|
$ |
19.94 |
|
|
|
3,039,311 |
|
|
|
|
|
|
$ |
16.82 |
|
Granted |
|
|
500 |
|
|
|
|
|
|
$ |
36.10 |
|
|
|
466,063 |
|
|
|
|
|
|
$ |
32.36 |
|
Exercised |
|
|
(146,043 |
) |
|
|
|
|
|
$ |
14.10 |
|
|
|
(582,379 |
) |
|
|
|
|
|
$ |
12.14 |
|
Canceled or expired |
|
|
— |
|
|
|
|
|
|
$ |
— |
|
|
|
(12,425 |
) |
|
|
|
|
|
$ |
18.94 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
2,910,570 |
|
|
|
|
|
|
$ |
20.23 |
|
|
|
2,910,570 |
|
|
|
|
|
|
$ |
20.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at end of period |
|
|
2,017,111 |
|
|
|
|
|
|
$ |
16.49 |
|
|
|
2,017,111 |
|
|
|
|
|
|
$ |
16.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option transactions for Teledyne’s non-employee director stock option plan for the second
quarter and first six months ended July 2, 2006 are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 |
|
| |
|
Second Quarter |
|
|
First Six Months |
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
| |
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Beginning balance |
|
|
257,168 |
|
|
$ |
16.59 |
|
|
|
246,412 |
|
|
$ |
16.33 |
|
Granted |
|
|
30,212 |
|
|
$ |
36.50 |
|
|
|
40,968 |
|
|
$ |
33.14 |
|
Exercised |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
287,380 |
|
|
$ |
16.82 |
|
|
|
287,380 |
|
|
$ |
18.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at end of period |
|
|
241,444 |
|
|
$ |
16.19 |
|
|
|
241,444 |
|
|
$ |
16.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $0.7 million at
July 2, 2006 compared to no cash equivalents at January 1, 2006.
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 Company’s
estimates of expected year-end inventory levels and costs. Because these are subject to many
factors beyond the Company’s control, interim results are subject to the final year-end LIFO
inventory valuation. Inventories consist of the following (in millions):
| |
|
|
|
|
|
|
|
|
| Balance at |
|
July 2, 2006 |
|
|
January 1, 2006 |
|
Raw materials and supplies |
|
$ |
55.4 |
|
|
$ |
44.7 |
|
Work in process |
|
|
100.7 |
|
|
|
92.1 |
|
Finished goods |
|
|
15.3 |
|
|
|
12.2 |
|
|
|
|
|
|
|
|
|
|
|
171.4 |
|
|
|
149.0 |
|
Progress payments |
|
|
(1.0 |
) |
|
|
(8.0 |
) |
LIFO reserve |
|
|
(23.8 |
) |
|
|
(23.7 |
) |
|
|
|
|
|
|
|
Total inventories, net |
|
$ |
146.6 |
|
|
$ |
117.3 |
|
|
|
|
|
|
|
|
10
Note 8. Supplemental Balance Sheet Information
Other long-term assets included amounts related to deferred compensation of $16.8 million and
$15.4 million at July 2, 2006 and January 1, 2006, respectively. Accrued liabilities included
salaries and wages and other related compensation liabilities of $47.7 million and $48.1
million at July 2, 2006 and January 1, 2006, respectively. Other long-term liabilities
included aircraft product liability reserves of $41.1 million and $33.9 million at July 2, 2006
and January 1, 2006, respectively and deferred compensation liabilities of $16.6 million and
$15.3 million at July 2, 2006 and January 1, 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 Company’s 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 Company’s
product warranty reserve during the period are as follows (in millions):
| |
|
|
|
|
|
|
|
|
| |
|
First Six Months |
|
| |
|
2006 |
|
|
2005 |
|
Balance at beginning of year |
|
$ |
10.3 |
|
|
$ |
6.9 |
|
Accruals for product warranties
charged to expense |
|
|
3.9 |
|
|
|
5.8 |
|
Cost of product warranty claims |
|
|
(3.3 |
) |
|
|
(3.6 |
) |
Acquisitions |
|
|
0.2 |
|
|
|
— |
|
|
|
|
|
|
|
|
Balance at end of quarter |
|
$ |
11.1 |
|
|
$ |
9.1 |
|
|
|
|
|
|
|
|
Note 9. Income Taxes
The Company’s effective tax rates for the second quarter and first six months of 2006 were
36.5% and 37.0%, respectively. The Company’s estimated effective income tax rate for 2006 is
34.8% including the impact of the reversal, in the third quarter of 2006, of an income tax
contingency reserve. This reserve was determined to be no longer needed on July 31, 2006 due
to the expiration of the statute of limitations. The Company’s effective tax rates for the
second quarter and first six months of 2005 were 37.7% and 37.6%, respectively.
Note 10. Long-Term Debt and Capital Lease
At July 2, 2006, Teledyne Technologies had $31.0 million outstanding under its then existing
$280.0 million credit facility. Excluding interest and fees, no payments were due under the
credit facility until it matured. Available borrowing capacity under the $280.0 million
credit facility, which is reduced by borrowings, outstanding letters of credit and certain
guarantees was $224.1 million at July 2, 2006. 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 July 2, 2006, the Company was in compliance with these covenants.
Total debt at July 2, 2006, includes the $31.0 million under the $280.0 million credit
facility, $10.0 million under other unsecured lines of credit, a $3.7 million capital lease,
of which $0.1 million is current and $0.2 million of other debt, of which $0.1 million is
current. Effective July 14, 2006, Teledyne amended and restated its $280.0 million credit
facility. The amended and restated credit facility has lender commitments totaling $400.0
million and expires on July 14, 2011. Excluding interest and fees, no payments are due under
the amended and restated credit facility until it matures.
11
Note 11. Lawsuits, Claims, Commitments, Contingencies and Related Matters
The Company is subject to federal, state and local environmental laws and regulations which
require that it investigate and remediate the effects of the release or disposal of materials
at sites associated with past and present operations, including sites at which the Company has
been identified as a potentially responsible party under the federal Superfund laws and
comparable state laws.
In accordance with the Company’s accounting policy disclosed in Note 2 to the consolidated
financial statements in the 2005 Form 10-K, environmental liabilities are recorded when the
Company’s 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 Company’s liability are subject to
uncertainties as described in Note 15 to the Consolidated Financial Statements in the 2005 Form
10-K. As investigation and remediation of these sites proceeds, it is likely that adjustments
in the Company’s accruals will be necessary to reflect new information. The amounts of any
such adjustments could have a material adverse effect on the Company’s results of operations in
a given period, but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available information, however,
management does not believe that future environmental costs in excess of those accrued, with
respect to sites with which the Company has been identified, are likely to have a material
adverse effect on the Company’s financial condition. However, there can be no assurance that
additional future developments, administrative actions or liabilities relating to environmental
matters will not have a material adverse effect on the Company’s financial condition or results
of operations.
At July 2, 2006, the Company’s reserves for environmental remediation obligations totaled
approximately $3.6 million, of which approximately $0.1 million is included in other current
liabilities. The Company is evaluating whether it may be able to recover a portion of future
costs for environmental liabilities from its insurance carriers and from third parties.
The timing of expenditures depends on a number of factors that vary by site, including the
nature and extent of contamination, the number of potentially responsible parties, the timing
of regulatory approvals, the complexity of the investigation and remediation, and the standards
for remediation. The Company expects that it will expend present accruals over many years, and
will complete remediation of all sites with which it has been identified in up to thirty years.
Various claims (whether based on U.S. Government or Company audits and investigations or
otherwise) have been or may be asserted against the Company related to its U.S. Government
contract work, including claims based on business practices and cost classifications and
actions under the False Claims Act. Although such claims are generally resolved by detailed
fact-finding and negotiation, on those occasions when they are not so resolved, civil or
criminal legal or administrative proceedings may ensue. Depending on the circumstances and the
outcome, such proceedings could result in fines, penalties, compensatory and treble damages or
the cancellation or suspension of payments under one or more U.S. Government contracts. Under
government regulations, a company, or one or more of its operating divisions or units, can also
be suspended or debarred from government contracts based on the results of investigations.
However, although the outcome of these matters cannot be predicted with certainty, management
does not believe there is any audit, review or investigation currently pending against the
Company, of which management is aware, that is likely to result in suspension or debarment of
the Company, or that is otherwise likely to have a material adverse effect on the Company’s
financial condition, although the resolution in any reporting period of one or more of these
matters could have a material adverse effect on the Company’s 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 Company’s financial condition,
although the resolution in any reporting period of one or more of these matters could have a
material adverse effect on the Company’s 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 $22.9 million. The Company’s current aircraft product liability
insurance policies expire on May 31, 2007.
12
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 Company’s existing defined benefit pension
plan. The Company’s assumed discount rate is 6.00% for 2006, compared with 6.25% in 2005. The
Company’s assumed long-term rate of return on plan assets was 8.5% in 2006 and 2005.
Teledyne Technologies’ net periodic pension expense was $4.1 million and $8.2 million for the
second quarter and first six months of 2006, compared with net periodic pension expense of $3.1
million and $6.3 million for the second quarter and first six months of 2005 in accordance with
the pension accounting requirements of SFAS No. 87. Pension expense allocated to contracts
pursuant to U.S. Government Cost Accounting Standards (CAS) was $2.5 million and $4.9 million
for the second quarter and first six months of 2006, compared with $2.3 million and $4.7
million for the second quarter and first six months of 2005. Under one of its spin-off
agreements, since November 29, 2004, the Company is able to charge pension costs to the U.S.
Government under certain government contracts. Pension expense determined under CAS can
generally be recovered through the pricing of products and services sold to the U.S.
Government.
The Company sponsors several postretirement defined benefit plans covering certain salaried and
hourly employees. The plans provide health care and life insurance benefits for certain
eligible retirees.
The following table sets forth the components of net period pension benefit (income) expense
for Teledyne Technologies’ defined benefit pension plans and postretirement benefit plans for
the second quarter and first six months of 2006 and 2005 (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
Six Months |
|
| Pension Benefits |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Service cost — benefits earned during the period |
|
$ |
3.5 |
|
|
$ |
3.4 |
|
|
$ |
7.0 |
|
|
$ |
6.9 |
|
Interest cost on benefit obligation |
|
|
7.7 |
|
|
|
7.4 |
|
|
|
15.4 |
|
|
|
14.8 |
|
Expected return on plan assets |
|
|
(8.8 |
) |
|
|
(8.7 |
) |
|
|
(17.6 |
) |
|
|
(17.3 |
) |
Amortization of prior service cost |
|
|
0.5 |
|
|
|
0.6 |
|
|
|
1.0 |
|
|
|
1.1 |
|
Recognized actuarial loss |
|
|
1.2 |
|
|
|
0.4 |
|
|
|
2.4 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit expense |
|
$ |
4.1 |
|
|
$ |
3.1 |
|
|
$ |
8.2 |
|
|
$ |
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second Quarter |
|
|
Six Months |
|
| Postretirement Benefits |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Service cost — benefits earned during the period |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Interest cost on benefit obligation |
|
|
0.3 |
|
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.6 |
|
Recognized actuarial gain |
|
|
(0.1 |
) |
|
|
(0.3 |
) |
|
|
(0.3 |
) |
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit expense |
|
$ |
0.2 |
|
|
$ |
— |
|
|
$ |
0.3 |
|
|
$ |
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
13
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 (in
millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second |
|
|
Second |
|
|
|
|
|
|
Six |
|
|
Six |
|
|
|
|
| |
|
Quarter |
|
|
Quarter |
|
|
% |
|
|
Months |
|
|
Months |
|
|
% |
|
| |
|
2006(a) |
|
|
2005 |
|
|
Change |
|
|
2006(a) |
|
|
2005 |
|
|
Change |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
215.4 |
|
|
$ |
176.5 |
|
|
|
22.0 |
% |
|
$ |
417.4 |
|
|
$ |
350.0 |
|
|
|
19.3 |
% |
Systems Engineering Solutions |
|
|
68.9 |
|
|
|
66.2 |
|
|
|
4.1 |
% |
|
|
137.8 |
|
|
|
136.7 |
|
|
|
0.8 |
% |
Aerospace Engines and Components |
|
|
57.8 |
|
|
|
53.0 |
|
|
|
9.1 |
% |
|
|
110.9 |
|
|
|
99.4 |
|
|
|
11.6 |
% |
Energy Systems |
|
|
6.0 |
|
|
|
7.6 |
|
|
|
(21.1 |
)% |
|
|
12.2 |
|
|
|
14.7 |
|
|
|
(17.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
348.1 |
|
|
$ |
303.3 |
|
|
|
14.8 |
% |
|
$ |
678.3 |
|
|
$ |
600.8 |
|
|
|
12.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit and other segment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
27.9 |
|
|
$ |
20.8 |
|
|
|
34.1 |
% |
|
$ |
51.1 |
|
|
$ |
40.9 |
|
|
|
24.9 |
% |
Systems Engineering Solutions |
|
|
6.6 |
|
|
|
7.0 |
|
|
|
(5.7 |
)% |
|
|
12.5 |
|
|
|
14.5 |
|
|
|
(13.8 |
)% |
Aerospace Engines and Components (b) |
|
|
4.9 |
|
|
|
3.4 |
|
|
|
44.1 |
% |
|
|
11.2 |
|
|
|
6.7 |
|
|
|
67.2 |
% |
Energy Systems |
|
|
0.2 |
|
|
|
0.5 |
|
|
|
(60.0 |
)% |
|
|
0.2 |
|
|
|
1.0 |
|
|
|
(80.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income |
|
$ |
39.6 |
|
|
$ |
31.7 |
|
|
|
24.9 |
% |
|
$ |
75.0 |
|
|
$ |
63.1 |
|
|
|
18.9 |
% |
Corporate expense |
|
|
(6.1 |
) |
|
|
(5.0 |
) |
|
|
22.0 |
% |
|
|
(12.7 |
) |
|
|
(10.3 |
) |
|
|
(23.3 |
)% |
Other income, net |
|
|
0.5 |
|
|
|
— |
|
|
|
* |
|
|
|
1.5 |
|
|
|
— |
|
|
|
* |
|
Interest expense, net |
|
|
(1.1 |
) |
|
|
(0.9 |
) |
|
|
22.2 |
% |
|
|
(2.2 |
) |
|
|
(1.7 |
) |
|
|
(29.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
32.9 |
|
|
|
25.8 |
|
|
|
27.5 |
% |
|
|
61.6 |
|
|
|
51.1 |
|
|
|
20.5 |
% |
Provision for income taxes |
|
|
12.0 |
|
|
|
9.7 |
|
|
|
23.7 |
% |
|
|
22.8 |
|
|
|
19.2 |
|
|
|
18.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20.9 |
|
|
$ |
16.1 |
|
|
|
29.8 |
% |
|
$ |
38.8 |
|
|
$ |
31.9 |
|
|
|
21.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Effective January 2, 2006, the company adopted the provisions of SFAS No. 123(R) and began
recording stock option compensation expense and recorded $1.5 million of compensation expense
in the second quarter of 2006. Of this amount, $0.6 million was recorded as corporate
expense and $0.9 million was recorded in the operating segment results. The company recorded
$2.9 million of stock option compensation expense in the first six months of 2006. Of this
amount, $1.1 million was recorded as corporate expense and $1.8 million was recorded in the
operating segment results. No compensation expense related to stock options was recorded in
2005. |
| |
| (b) |
|
The first six months of 2006 and 2005 both include the receipt of $2.5 million, pursuant to
an agreement with Honda Motor Co., Ltd. related to the piston engine business. |
| |
| * |
|
not meaningful |
Note 17. Subsequent Events
On July 26, 2006, Teledyne Technologies through its subsidiary, Teledyne Brown Engineering,
Inc. entered into an agreement to acquire Rockwell Scientific Company, LLC (Rockwell
Scientific) for $167.5 million in cash, with the sellers retaining certain liabilities.
Rockwell Scientific, headquartered in Thousand Oaks, California, 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. The acquisition of Rockwell
Scientific, which is 50 percent owned by each of Rockwell Automation, Inc. and Rockwell
Collins, Inc. is subject to customary closing conditions, including satisfaction of the
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
As part of the acquisition, Rockwell Automation and Rockwell Collins have entered into service
agreements to continue funding research performed by Rockwell Scientific. In addition,
Teledyne has agreed to license certain intellectual property of Rockwell Scientific to Rockwell
Automation and Rockwell Collins. For its fiscal year ended September 30, 2005, Rockwell
Scientific had revenue of $114.0 million.
14
On July 31, 2006, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc.,
entered into an agreement to acquire a majority interest (51%) in Ocean Design, Inc. (ODI) for
approximately $30 million in cash. ODI, headquartered in Daytona Beach, Fla., 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
closing of the transaction is subject to various conditions.
For a period of twenty business days following the closing of Teledyne Instruments’ investment
in ODI, the stockholders of ODI that execute a stockholders’ agreement prior to the closing
will have the option to sell their shares to Teledyne Instruments at a price per share equal to
Teledyne Instruments’ initial investment in ODI. It is a condition to the closing of the
acquisition that 90% of the holders of the ODI common stock, after giving effect to the
Teledyne share purchase, become parties to the stockholders’ agreement. The ODI stockholders
will also have the option to sell their shares to Teledyne Instruments following the end of
each quarter through the quarter ended March 31, 2009, at a formula-determined price. All shares not sold to Teledyne Instruments following the quarter ended March 31, 2009, will be
purchased by Teledyne Instruments following the quarter ended June 30, 2009, at a same
formula-determined price, at which time Teledyne Instruments will own all of the ODI shares
held by the participating stockholders. For its fiscal year ended December 31, 2005, ODI had
revenue of $31.6 million.
On August 4, 2006, Teledyne Technologies, through its subsidiary, Teledyne Brown Engineering,
Inc., entered into an agreement to acquire CollaborX, Inc. for cash consideration of $17.5 million, less
certain transaction-related expenses. The transaction is subject to customary closing
conditions. CollaborX, based in Colorado Springs, Colorado, provides government engineering
services primarily to the U.S. Air Force and select joint military commands, such as the
Missile Defense Agency, the United States Joint Forces Command and the United States Northern
Command. CollaborX had revenue of $13.6 million for its fiscal year ended December 31, 2005.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Strategy
Our strategy emphasizes growth in our core markets of defense electronics, instrumentation and
government systems engineering. We intend to strengthen and expand our core businesses with
targeted acquisitions. We intend to aggressively pursue operational excellence to continually
improve our margins and earnings. Operational excellence to Teledyne includes the rapid
integration of the businesses we acquire. Over time, our goal is to create a set of businesses that
are truly superior in their niches. We continue to evaluate our product lines to ensure that they
are aligned with our strategy.
Results of Operations
Second quarter of 2006 compared with the second quarter of 2005
Teledyne Technologies’ second quarter 2006 sales were $348.1 million, compared with sales of $303.3
million for the same period of 2005, an increase of 14.8%. Net income for the second quarter of
2006 was $20.9 million ($0.59 per diluted share) compared with net income of $16.1 million ($0.47
per diluted share) for the second quarter of 2005. The increase in sales for the 2006 period,
compared with the same 2005 period, was driven by acquisitions and organic growth.
The second quarter of 2006, compared with the same period in 2005, reflected higher sales in our
Electronics and Communications segment, our Systems Engineering Solutions segment and our
Aerospace Engines and Components segment. The higher sales in the Electronics and Communications
segment resulted from both organic growth and strategic acquisitions, including Cougar Components
Corporation (Cougar), acquired in June 2005, RD Instruments, Inc. (RDI), acquired in August 2005,
the assets of the microwave technical solutions business of Avnet, Inc. acquired in October 2005,
Benthos, Inc. (Benthos), acquired in January 2006 and the acquisition of certain assets of KW
Microwave Corporation (KW Microwave) in April 2006. Revenue in the second quarter of 2006 from
businesses acquired since the first quarter of 2005 was $23.1 million.
Effective January 2, 2006, we adopted the provisions of Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standard (SFAS) No. 123(R), “Share Based Payment” (SFAS No.
123(R)) using the modified prospective method and began recording stock option compensation expense
in the consolidated statements of income, but did not restate prior year financial statements.
Stock option compensation expense is recorded on a straight line basis over the appropriate vesting
period, generally three years. For the second quarter of 2006, we recorded a total of $1.5 million
in stock option expense related to stock options awarded after the adoption of SFAS No. 123(R) and
for stock options which were not vested by the date of adoption of SFAS No. 123(R). No stock
option compensation expense was recorded in 2005.
The increase in earnings for the second quarter of 2006, compared with the same period of 2005,
primarily reflected improved operating profit in our Electronics and Communication segment and our
Aerospace Engines and Components segment. Operating profit in the second quarter of 2006 from
businesses acquired since the first quarter of 2005, including synergies, was $2.3 million. The
second quarter of 2006 included pretax pension expense in accordance with the pension requirements
of Statement of Financial Accounting Standard (SFAS) No. 87 of $4.1 million compared with pretax
pension expense of $3.1 million in the second quarter of 2005. Pension expense allocated to
contracts pursuant to U.S. Government Cost Accounting Standards (CAS) was $2.5 million in the
second quarter of 2006, compared with pretax pension expense of $2.3 million in the second quarter
of 2005.
Cost of sales in total dollars was higher in second quarter of 2006, compared with the second
quarter of 2005, primarily due to higher sales. Cost of sales as a percentage of sales for the
second quarter of 2006 decreased to 70.5% from 72.5% for the second quarter of 2005 and reflected
sales mix differences and $0.9 million in lower LIFO expense, as well as the combined impact of the
acquisitions noted earlier, which due to the nature of their business, carry lower cost of sales as
a percentage of sales than most of Teledyne Technologies’ other businesses.
Selling, general and administrative expenses, including research and development and bid and
proposal expense, in total dollars were higher in the second quarter of 2006, compared with the
second quarter of 2005. This increase primarily reflected the impact of our acquisitions, higher
organic sales and the inclusion of $1.5 million in stock option compensation expense in 2006
compared with no stock option compensation expense in 2005. Selling, general and administrative
expenses for the second quarter of 2006, as a percentage of sales, were 19.9%, compared
16
with 18.7% in the second quarter of 2005, which reflected higher compensation expense,
including the impact of stock option compensation expense in 2006 compared with no stock option
compensation expense in 2005 and higher professional fees expense, as well as the combined impact
of the acquisitions noted earlier, which due to the nature of their business, carry a higher
selling expense as a percentage of sales than most of Teledyne Technologies’ other businesses,
partially offset by lower bid and proposal expenses. Corporate expense for the second quarter of
2006, compared with the same period in 2005, was impacted by higher compensation expense including
stock option compensation expense and higher professional fee expenses for legal and tax related
work.
Other income in the second quarter of 2006 included $0.7 million related to insurance proceeds.
Interest expense, net of interest income, was $1.1 million in the second quarter of 2006, compared
with $0.9 million for the second quarter of 2005. The increase in net interest expense primarily
reflected the impact of higher average interest rates.
The Company’s effective tax rate for the second quarter of 2006 was 36.5%, compared with 37.7% for
the second quarter of 2005.
First six months of 2006 compared with the first six months of 2005
Teledyne Technologies’ sales for the first six months of 2006 were $678.3 million, compared with
sales of $600.8 million for the same period of 2005, an increase of 12.9%. Net income for the
first six months of 2006 was $38.8 million ($1.10 per diluted share) compared with net income of
$31.9 million ($0.93 per diluted share) for the first six months of 2005. The increase in sales
for the 2006 period, compared with the same 2005 period, was driven by acquisitions and organic
growth.
The first six months of 2006, compared with the same period in 2005, reflected higher sales in our
Electronics and Communications segment, our Systems Engineering Solutions segment and our Aerospace
Engines and Components segment. The higher sales in the Electronics and Communications segment
resulted from both organic growth and strategic acquisitions, including Cougar acquired in June
2005, RDI acquired in August 2005, the assets of the microwave technical solutions business of
Avnet, Inc. acquired in October 2005, Benthos acquired in January 2006 and the acquisition of
certain assets of KW Microwave in April 2006. Revenue in the first six months of 2006 from
businesses acquired since the first six months of 2005 was $43.0 million.
For the first six months of 2006, we recorded a total of $2.9 million in stock option expense
related to stock options awarded after the adoption of SFAS No. 123(R) and for stock options which
were not vested by the date of adoption of SFAS No. 123(R). No stock option compensation expense
was recorded in 2005.
The increase in earnings for the first six months of 2006, compared with the same period of 2005,
primarily reflected improved operating profit in our Electronics and Communication segment and our
Aerospace Engines and Components segment. Operating profit in the first six months of 2006 from
businesses acquired since 2004, including synergies, was $4.8 million. The first six months of
2006 included pretax pension expense in accordance with the pension requirements of Statement of
Financial Accounting Standard (SFAS) No. 87 of $8.2 million compared with pretax pension expense of
$6.3 million in the first six months of 2005. Pension expense allocated to contracts pursuant to
CAS was $4.9 million for the first six months of 2006, compared with $4.7 million for the first six
months of 2005.
Cost of sales in total dollars was higher in the first six months of 2006, compared with the first
six months of 2005, primarily due to higher sales, driven by acquisitions and organic growth. Cost
of sales as a percentage of sales for the first six months of 2006 decreased to 71.1% from 72.5%
for the first six months of 2005 and reflected sales mix differences and $1.3 million in lower LIFO
expense, as well as the combined impact of the acquisitions noted earlier, which due to the nature
of their business, carry lower cost of sales as a percentage of sales than most of Teledyne
Technologies’ other businesses.
Selling, general and administrative expenses, including research and development and bid and
proposal expense, in total dollars were higher in the first six months of 2006, compared with the
first six months of 2005. This increase primarily reflected the impact of higher sales and the
inclusion of $2.9 million in stock option compensation expense in 2006 compared with no stock
option compensation expense in 2005. Selling, general and administrative expenses for the first
six months of 2006, as a percentage of sales, were 20.1%, compared with 19.3% for the first six
months of 2005, which reflected higher compensation expense, including the impact of stock option
compensation expense in 2006 compared with no stock option compensation expense in 2005 and higher
professional fees expense, as well as the combined impact of the acquisitions noted earlier, which
due to the nature of their business, carry higher selling expense as a percentage of sales than
most of Teledyne Technologies’ other
17
businesses, partially offset by lower bid and proposal expenses. Corporate expense for the first
six months of 2006, compared with the same period in 2005, was impacted by higher compensation
expense including stock option compensation expense and higher professional fee expenses for legal
and tax related work.
Other income for both the first six months of 2006 and 2005 includes the receipt of $2.5 million
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. Other income in 2006 also includes $1.5 million related to
insurance proceeds.
Interest expense, net of interest income, was $2.2 million in the first six months of 2006,
compared with $1.7 million for the first six months of 2005. The increase in net interest expense
primarily reflected the impact of higher average interest rates.
The Company’s effective tax rate for the first six months of 2006 was 37.0%, compared with 37.6%
for the first six months of 2005.
Review of Operations:
The following table sets forth the sales and operating profit for each segment (in millions):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Second |
|
|
Second |
|
|
|
|
|
|
Six |
|
|
Six |
|
|
|
|
| |
|
Quarter |
|
|
Quarter |
|
|
% |
|
|
Months |
|
|
Months |
|
|
% |
|
| |
|
2006(a) |
|
|
2005 |
|
|
Change |
|
|
2006(a) |
|
|
2005 |
|
|
Change |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
215.4 |
|
|
$ |
176.5 |
|
|
|
22.0 |
% |
|
$ |
417.4 |
|
|
$ |
350.0 |
|
|
|
19.3 |
% |
Systems Engineering Solutions |
|
|
68.9 |
|
|
|
66.2 |
|
|
|
4.1 |
% |
|
|
137.8 |
|
|
|
136.7 |
|
|
|
0.8 |
% |
Aerospace Engines and Components |
|
|
57.8 |
|
|
|
53.0 |
|
|
|
9.1 |
% |
|
|
110.9 |
|
|
|
99.4 |
|
|
|
11.6 |
% |
Energy Systems |
|
|
6.0 |
|
|
|
7.6 |
|
|
|
(21.1 |
)% |
|
|
12.2 |
|
|
|
14.7 |
|
|
|
(17.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
348.1 |
|
|
$ |
303.3 |
|
|
|
14.8 |
% |
|
$ |
678.3 |
|
|
$ |
600.8 |
|
|
|
12.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit and other segment income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronics and Communications |
|
$ |
27.9 |
|
|
$ |
20.8 |
|
|
|
34.1 |
% |
|
$ |
51.1 |
|
|
$ |
40.9 |
|
|
|
24.9 |
% |
Systems Engineering Solutions |
|
|
6.6 |
|
|
|
7.0 |
|
|
|
(5.7 |
)% |
|
|
12.5 |
|
|
|
14.5 |
|
|
|
(13.8 |
)% |
Aerospace Engines and Components (b) |
|
|
4.9 |
|
|
|
3.4 |
|
|
|
44.1 |
% |
|
|
11.2 |
|
|
|
6.7 |
|
|
|
67.2 |
% |
Energy Systems |
|
|
0.2 |
|
|
|
0.5 |
|
|
|
(60.0 |
)% |
|
|
0.2 |
|
|
|
1.0 |
|
|
|
(80.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit and other
segment income |
|
$ |
39.6 |
|
|
$ |
31.7 |
|
|
|
24.9 |
% |
|
$ |
75.0 |
|
|
$ |
63.1 |
|
|
|
18.9 |
% |
Corporate expense |
|
|
(6.1 |
) |
|
|
(5.0 |
) |
|
|
22.0 |
% |
|
|
(12.7 |
) |
|
|
(10.3 |
) |
|
|
(23.3 |
)% |
Other income, net |
|
|
0.5 |
|
|
|
— |
|
|
|
* |
|
|
|
1.5 |
|
|
|
— |
|
|
|
* |
|
Interest expense, net |
|
|
(1.1 |
) |
|
|
(0.9 |
) |
|
|
22.2 |
% |
|
|
(2.2 |
) |
|
|
(1.7 |
) |
|
|
(29.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
32.9 |
|
|
|
25.8 |
|
|
|
27.5 |
% |
|
|
61.6 |
|
|
|
51.1 |
|
|
|
20.5 |
% |
Provision for income taxes |
|
|
12.0 |
|
|
|
9.7 |
|
|
|
23.7 |
% |
|
|
22.8 |
|
|
|
19.2 |
|
|
|
18.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
20.9 |
|
|
$ |
16.1 |
|
|
|
29.8 |
% |
|
$ |
38.8 |
|
|
$ |
31.9 |
|
|
|
21.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
|
Effective January 2, 2006, the company adopted the provisions of SFAS No. 123(R) and began
recording stock option compensation expense and recorded $1.5 million of compensation expense
in the second quarter of 2006. Of this amount, $0.6 million was recorded as corporate
expense and $0.9 million was recorded in the operating segment results. The company recorded
$2.9 million of stock option compensation expense in the first six months of 2006. Of this
amount, $1.1 million was recorded as corporate expense and $1.8 million was recorded in the
operating segment results. No compensation expense related to stock options was recorded in
2005. |
| |
| (b) |
|
The first six months of 2006 and 2005 both include the receipt of $2.5 million, pursuant to
an agreement with Honda Motor Co., Ltd. related to the piston engine business. |
| |
| * |
|
not meaningful |
18
Electronics and Communications
Second quarter of 2006 compared with the second quarter of 2005
Our Electronics and Communications segment’s second quarter 2006 sales were $215.4 million,
compared with second quarter 2005 sales of $176.5 million, an increase of 22.0%. Second quarter
2006 operating profit was $27.9 million, compared with operating profit of $20.8 million in the
second quarter of 2005, an increase of 34.1%.
The second quarter 2006 sales improvement resulted primarily from revenue growth in defense
electronics and electronic instruments. The revenue growth in defense electronics was driven by
increased sales of traveling wave tubes, connectors and other defense microwave products, partially
offset by lower sales of printed circuit card assemblies. Additionally, the second quarter
included revenue growth from the acquisitions of assets of KW Microwave in April 2006, Cougar in
June 2005 and the assets of the microwave technical solutions business of Avnet, Inc. in October
2005. The revenue growth in electronic instruments was primarily driven by the acquisitions of RDI
in August 2005 and Benthos in January 2006. Organic growth reflected significantly increased sales
of geophysical sensors for the energy exploration market and increased sales in the environmental
gas monitoring markets. Sales of geophysical sensors are currently expected to decline in the
third and fourth quarter of 2006, compared with the second quarter of 2006. The increase in
revenue in the second quarter of 2006 from businesses acquired since the first quarter of 2005 was
$23.1 million. Segment operating profit was favorably impacted by revenue from acquisitions and
organic growth. Operating profit in the second quarter of 2006 from businesses acquired since the
first quarter of 2005, including synergies, was $2.3 million. Segment operating profit was
negatively impacted by $0.6 million of stock option compensation expense in the second quarter of
2006. No stock option compensation expense was recorded in the second quarter of 2005. Segment
operating profit also reflected lower LIFO expense of $0.2 million. Pension expense, in accordance
with the pension accounting requirements of SFAS No. 87, was $1.2 million in the second quarter of
2006, compared with $1.0 million in the second quarter of 2005. Pension expense allocated to
contracts pursuant to CAS was $0.4 million in both the second quarter of 2006 and the second
quarter of 2005.
First six months of 2006 compared with the first six months of 2005
Our Electronics and Communications segment’s first six months 2006 sales were $417.4 million,
compared with $350.0 million for the first six months of 2005, an increase of 19.3%. The first six
months of 2006 operating profit was $51.1 million, compared with operating profit of $40.9 million
for the first six months of 2005, an increase of 24.9%.
The 2006 sales improvement resulted primarily from revenue growth in defense electronics and
electronic instruments. The revenue growth in defense electronics was driven by increased sales of
traveling wave tubes, connectors and the acquisitions of assets of KW Microwave in April 2006,
Cougar in June 2005 and the assets of the microwave technical solutions business of Avnet, Inc. in
October 2005. The revenue growth in electronic instruments was primarily driven by the
acquisitions of RDI in August 2005 and Benthos in January 2006 and also reflected increased sales
of geophysical sensors for the energy exploration market. The increase in revenue in the first six
months of 2006 from businesses acquired since the first six months of 2005 was $43.0 million.
Segment operating profit was favorably impacted by revenue from acquisitions, as well as organic
sales growth. Operating profit in the first six months of 2006, from businesses acquired since
2004, including synergies, was $4.8 million. Segment operating profit was negatively impacted by
$1.2 million of stock option compensation expense in the first six months of 2006. No stock option
compensation expense was recorded in the first six months of 2005. The first six months of 2006
also reflected lower LIFO expense of $0.5 million, compared with the first six months of 2005. We
also recorded $0.7 million in charges in our commercial electronics business for warranty reserves
and inventory obsolescence related to the termination of a product line. Pension expense, in
accordance with the pension accounting requirements of SFAS No. 87, was $2.4 million in the first
six months of 2006, compared with $2.1 million in the first six months of 2005. Pension expense
allocated to contracts pursuant to CAS was $0.7 million in the first six months of 2006, compared
with $0.8 million in the first six months of 2005.
19
Systems Engineering Solutions
Second quarter of 2006 compared with the second quarter of 2005
Our Systems Engineering Solutions segment’s second quarter 2006 sales were $68.9 million, compared
with second quarter 2005 sales of $66.2 million, an increase of 4.1%. Second quarter 2006
operating profit was $6.6 million, compared with operating profit of $7.0 million for the second
quarter of 2005, a decrease of 5.7%.
Second quarter 2006 sales, compared with the same period of 2005, reflected revenue growth in
aerospace and environmental programs. Operating profit in the second quarter of 2006, compared
with the same period of 2005, reflected higher segment revenue and a favorable overhead claim
settlement of $1.3 million in the second quarter of 2006, compared with a favorable overhead claim
settlement of $0.8 million in the second quarter of 2005. These amounts were more than offset by
lower margins in aerospace programs due to higher sales on certain contracts which carry lower
profit margins. Segment operating profit was negatively impacted by $0.2 million of stock option
compensation expense in the second quarter of 2006 compared with no stock option compensation
expense in the second quarter of 2005. Segment operating profit also included pension expense
under SFAS No. 87 of $2.3 million in the second quarter of 2006, compared with $1.6 million of
pension expense in the second quarter of 2005. Pension expense allocated to contracts pursuant to
CAS was $1.9 million in the second quarter of 2006 compared with $1.8 million in the second quarter
of 2005.
First six months of 2006 compared with the first six months of 2005
Our Systems Engineering Solutions segment’s first six months 2006 sales were $137.8 million,
compared $136.7 million for the first six months of 2005, an increase of 0.8%. The first six
months of 2006 operating profit was $12.5 million, compared with operating profit of $14.5 million
for the first six months of 2005, a decrease of 13.8%.
Sales for the first six months of 2006, compared with the same period of 2005, reflected revenue
growth in aerospace and environmental programs. Operating profit in the first six months of 2006,
compared with the same period of 2005, reflected slightly higher segment revenue and a favorable
overhead claim settlement of $1.3 million in the first six months of 2006, compared with a
favorable overhead claim settlement of $0.8 million in the second quarter of 2005, offset by lower
margins in aerospace programs due to higher sales on certain contracts which carry lower profit
margins. Segment operating profit was negatively impacted by $0.4 million of stock option
compensation expense in the first six months of 2006 compared with no stock option compensation
expense in the first six months of 2005. Segment operating profit also included pension expense
under SFAS No. 87 of $4.7 million in the six months of 2006, compared with $3.3 million of pension
expense in the first six months of 2005. Pension expense allocated to contracts pursuant to CAS
was $4.0 million in the first six months of 2006 compared with $3.7 million in the first six months
of 2005.
Aerospace Engines and Components
Second quarter of 2006 compared with the second quarter of 2005
Our Aerospace Engines and Components segment’s second quarter 2006 sales were $57.8 million,
compared with second quarter 2005 sales of $53.0 million, an increase of 9.1%. The second quarter
2006 operating profit was $4.9 million, compared with operating profit of $3.4 million in the
second quarter of 2005, an increase of 44.1%.
The higher second quarter 2006 sales, compared with the same period of 2005, primarily resulted
from higher OEM piston engine, rebuilt engine and spare part sales. Segment operating profit for
the second quarter of 2006, compared to the second quarter of 2005, reflected the impact of higher
sales, improved operating performance, $0.7 million in lower LIFO expense and lower warranty costs.
Turbine engine sales and operating profit for the second quarter of 2006 were unfavorable,
compared with the second quarter of 2005, due to lower Harpoon and Improved Tactical Air-Launched
Decoy (ITALD) engine sales, partially offset by higher Joint Air-to-Surface Standoff Missile
(JASSM) engine sales and research and development sales. Segment operating profit was negatively
impacted by $0.1 million of stock option compensation expense in the second quarter of 2006
compared with no stock option compensation expense in the second quarter of 2005. Segment
operating profit also included pension expense, under SFAS No. 87 of $0.3 million in both the
second quarter of 2006 and the second quarter of 2005.
20
First six months of 2006 compared with the first six months of 2005
Our Aerospace Engines and Components segment’s sales for the first six months of 2006 were $110.9
million, compared with sales of $99.4 million for the first six months of 2005, an increase of
11.6%. The first six months of 2006 operating profit was $11.2 million, compared with operating
profit of $6.7 million for the first six months of 2005, an increase of 67.2%.
The higher sales for the first six months of 2006, compared with the same period of 2005, primarily
resulted from higher OEM piston engine and spare part sales. Segment operating profit for the
first six months of 2006, compared with the first six months of 2005, reflected the impact of
higher sales, improved operating performance, $0.7 million in lower LIFO expense and lower warranty
costs. Turbine engine sales and operating profit for the first six months of 2006 were
unfavorable, compared with the first six months of 2005, due to lower Harpoon and ITALD engine
sales, partially offset by higher JASSM engine sales and research and development sales. Segment
operating profit for both the first six months of 2006 and the first six months of 2005, included
the receipt of $2.5 million pursuant to an agreement with Honda Motor Co., Ltd. related to the
piston engine business. The $2.5 million receipt in the first quarter of 2006 was the final
payment under the agreement. Segment operating profit was negatively impacted by $0.2 million of
stock option compensation expense in the first six months of 2006 compared with no stock option
compensation expense in the first six months of 2005. Segment operating profit also included
pension expense, under SFAS No. 87 of $0.6 million in the first six months of 2006, compared with
$0.5 million for the first six months of 2005.
Teledyne Energy Systems
Second quarter of 2006 compared with the second quarter of 2005
Our Energy Systems segment’s second quarter 2006 sales were $6.0 million, compared with second
quarter 2005 sales of $7.6 million, a decrease of 21.1%. Operating profit was $0.2 million for the
second quarter of 2006, compared with operating profit of $0.5 million in the second quarter of
2005, a decrease of 60.0%.
The decrease in second quarter 2006 sales, compared with the second quarter of 2005, primarily
reflected reduced work on the Multi-Mission Radioisotope Thermoelectric Generator (MMRTG) contract
due to moving from the engineering development phase to the product qualification phase.
Commercial hydrogen generator sales were also lower for the quarter. Segment operating profit was
impacted by the lower sales. Segment operating profit also included pension expense, under SFAS
No. 87 of $0.2 million for the second quarter of 2006 compared with $0.1 million for the second
quarter of 2005. Pension expense allocated to contracts pursuant to CAS was $0.2 million in the
second quarter of 2006 compared with $0.1 million in the second quarter of 2005.
First six months of 2006 compared with the first six months of 2005
Our Energy Systems segment’s sales for the first six months of 2006 were $12.2 million, compared
with sales of $14.7 million for the first six months of 2005, a decrease of 17.0%. The first six
months of 2006 operating profit was $0.2 million, compared with operating profit of $1.0 million
for the first six months of 2005, a decrease of 80.0%.
The decrease in sales for the first six months of 2006, compared with the first six months of 2005,
primarily resulted from reduced work on the MMRTG contract due to moving from the engineering
development phase to the product qualification phase. Segment operating profit was impacted by the
lower government sales and differences in contract fees. Segment operating profit also included
pension expense, under SFAS No. 87 of $0.3 million for first six months of 2006, compared with $0.2
million for the first six months of 2005. Pension expense allocated to contracts pursuant to CAS
was $0.2 for the first six months of 2006, compared with $0.2 million for the first six months of
2005.
Financial Condition, Liquidity and Capital Resources
Our net cash provided by operating activities was $41.1 million for the first six months of 2006,
compared with $31.7 million for the same period of 2005. The higher net cash provided in the first
six months of 2006, compared with the first six months of 2005, was primarily due to cash flow from
companies acquired since 2004, higher net income and $3.1 million in insurance receipts, partially
offset by $1.1 million in higher pension contributions made in 2006. In accordance with SFAS No.
123(R), excess tax benefits of $5.2 million, in the first six months of 2006,
21
for stock option compensation have been classified as a financing cash flow instead of an operating
cash flow as in prior years. In the first six months of 2005 cash flow from operations included
$2.0 million in excess tax benefits related to stock-based compensation.
Our net cash used by investing activities was $52.5 million for the first six months of 2006,
compared with cash used by investing activities of $24.1 million for the first six months of 2005.
On April 28, 2006, Teledyne Wireless, Inc. completed the acquisition of certain assets of KW
Microwave, a manufacturer of defense microwave components and subsystems, for $10.5 million in
cash. Principally located in Carlsbad, California, the business will operate as Teledyne KW
Microwave. KW Microwave designs and manufactures high performance microwave filters and integrated
filter assemblies that are used in military electronic warfare, communication and navigation
systems. Teledyne funded the acquisition primarily from borrowings and cash on hand.
In January 2006, we acquired all of the outstanding shares of Benthos for $17.50 per share in cash.
The aggregate consideration for the outstanding Benthos shares was approximately $40.6 million
(including payments for the settlement of outstanding stock options) or $32.2 million taking into
consideration $8.4 million in cash acquired. Benthos, located in North Falmouth, Massachusetts, is
a provider of oceanographic products used in port and harbor security services, military
applications, energy exploration and oceanographic research. Teledyne funded the acquisition
primarily from borrowings under its credit facility.
Our net cash used by investing activities for the first six months of 2006 also included a $0.8
million contingent payment in connection with the Cougar acquisition. We expect to make a final
payment of $0.8 million in June 2007 in connection with the Cougar acquisition.
Our net cash used by investing activities for the first six months of 2005 reflected $21.9 million
paid for the acquisition of the stock of Cougar. Net cash provided by investing activities in 2005
included the receipt of $5.2 million from the March 2005 sale of the assets of STIP-Isco, a German
subsidiary. Capital expenditures for the first six months of 2006 and 2005 were $9.2 million and
$7.4 million, respectively.
We are in the process of specifically identifying the amount to be assigned to intangible assets
for the Benthos and KW Microwave acquisitions. The Company made preliminary estimates as of July
2, 2006, since there was insufficient time between the acquisition date and the end of the second
quarter to finalize the valuations. The preliminary amount of goodwill and acquired intangible
assets recorded as of July 2, 2006 for the Benthos acquisition was $19.0 million and $5.7 million,
respectively. The preliminary amount of goodwill and acquired intangible assets recorded as of
July 2, 2006 for the KW Microwave acquisition was $6.7 million and $2.4 million, respectively.
These amounts were based on estimates that are subject to change pending the completion of our
internal review and the receipt of third party appraisals.
On July 26, 2006, Teledyne Technologies, through its subsidiary, Teledyne Brown Engineering, Inc.
entered into an agreement to acquire Rockwell Scientific Company, LLC (Rockwell Scientific) for
$167.5 million in cash, with the sellers retaining certain liabilities. Rockwell Scientific,
headquartered in Thousand Oaks, California, 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. The acquisition of Rockwell Scientific, which is 50 percent
owned by each of Rockwell Automation, Inc. and Rockwell Collins, Inc. is subject to customary
closing conditions, including satisfaction of the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. As part of the acquisition, Rockwell Automation and Rockwell
Collins have entered into service agreements to continue funding research performed by Rockwell
Scientific. For its fiscal year ended September 30, 2005, Rockwell Scientific had revenue of
$114.0 million. Teledyne Technologies expects to fund the acquisition with its amended and
restated credit facility.
On July 31, 2006, Teledyne Technologies through its subsidiary, Teledyne Instruments, Inc., entered
into an agreement to acquire a majority interest (51%) in Ocean Design, Inc. (ODI) for
approximately $30 million in cash. ODI, headquartered in Daytona Beach, Fla., 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 closing of
the transaction is subject to various conditions.
22
For a period of twenty business days following the closing of Teledyne Instruments’ investment in
ODI, the stockholders of ODI that execute a stockholders’ agreement prior to the closing will have
the option to sell their shares to Teledyne Instruments at a price per share equal to Teledyne
Instruments’ initial investment in ODI. It is a condition to the closing of the acquisition that
90% of the holders of the ODI common stock, after giving effect to the Teledyne share purchase,
become parties to the stockholders’ agreement. The ODI stockholders will also have the option to
sell their shares to Teledyne Instruments following the end of each quarter through the quarter
ended March 31, 2009, at a formula-determined price. All shares not sold to Teledyne Instruments
following the quarter ended March 31, 2009, will be purchased by Teledyne Instruments following the
quarter ended June 30, 2009, at the same formula-determined price, at which time Teledyne
Instruments will own all of the ODI shares held by the participating stockholders. For its fiscal
year ended December 31, 2005, ODI had revenue of $31.6 million. Teledyne Technologies expects to
fund the acquisition with its amended and restated credit facility.
On August 4, 2006, Teledyne Technologies, through its subsidiary, Teledyne Brown Engineering, Inc.,
entered into an agreement to acquire CollaborX, Inc. for cash consideration of $17.5 million, less certain
transaction-related expenses. The transaction is subject to customary closing conditions.
CollaborX, based in Colorado Springs, Colorado, provides government engineering services primarily
to the U.S. Air Force and select joint military commands, such as the Missile Defense Agency, the
United States Joint Forces Command and the United States Northern Command. CollaborX had revenue
of $13.6 million for its fiscal year ended December 31, 2005. Teledyne Technologies expects to fund the acquisition with its amended and restated credit facility.
Cash used by financing activities for the first six months of 2006 included the repayment of debt
of $2.3 million. The first six months of 2005 included the repayment of $11.6 million of debt.
The first six months of 2006 included $5.2 million in excess tax benefits related to stock-based
compensation. Proceeds from the exercise of stock options were $7.1 million and $4.9 million for
the first six months of 2006 and 2005, respectively.
Working capital was $180.4 million at July 2, 2006, compared with $154.0 million at January 1,
2006. The increase in working capital was due to higher accounts receivables resulting from higher
sales and the timing of customer payments, greater inventory balances due to anticipated sales and
the addition of working capital from our recent acquisitions.
Our principal capital requirements are to fund working capital needs, capital expenditures, pension
contributions and debt service requirements, as well as to fund acquisitions. It is anticipated
that operating cash flow, together with available borrowings under the amended and restated 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 $28.0 million in 2006, of which $9.2 million has been
spent in the first six months of 2006.
Available borrowing capacity under the $280.0 million credit facility, which is reduced by
borrowings, outstanding letters of credit and certain guarantees was $224.1 million at July 2,
2006. Effective July 14, 2006, Teledyne amended and restated its $280.0 million credit facility.
The amended credit facility has lender commitments totaling $400.0 million and expires on July 14,
2011. Excluding interest and fees, no payments are due under the amended and restated credit
facility until it matures.
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 Management’s
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 January 1, 2006 (2005 Form
10-K).
23
Recent Accounting Pronouncements
On January 2, 2006, we adopted SFAS No. 154, “Accounting Changes and Error Corrections Disclosure,”
(SFAS No. 154). SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements.” SFAS No. 154 requires
retrospective application to prior periods’ financial statements of changes in accounting principle
unless it is impracticable. SFAS No. 154 applies to all voluntary changes in accounting principle.
It also applies to changes required by a new accounting pronouncement in the unusual instance that
the pronouncement does not include explicit transition provisions. The adoption of SFAS No. 154
did not have a material impact on the condensed consolidated financial statements of the Company.
In December 2004, the FASB issued SFAS No. 123(R) that requires compensation costs related to
share-based payment transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation costs will be measured based on the grant date fair value of
the equity or liability instrument issued. Compensation cost will be recognized over the period
that an employee provides service in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123,
“Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock
Issued to Employees.” The Company adopted SFAS No. 123(R) effective January 2, 2006, using the
modified prospective method, and accordingly did not restate prior year financial statements.
Stock option compensation expense is recorded on a straight line basis over the appropriate vesting
period, generally three years. For the second quarter and first six months of 2006, the Company
recorded a total of $1.5 million and $2.9 million, respectively, in its consolidated statements of
income for stock option expense related to stock options awarded after the adoption of SFAS No.
123(R) and for stock options which were not vested by the date of adoption of SFAS No. 123(R). No
compensation expense related to stock options was recorded in the consolidated statements of income
for 2005 or in prior years since it was not required. The adoption of SFAS No. 123R is expected to
reduce pretax earnings by approximately $5.8 million in fiscal year 2006 based on the fair value of
stock options granted after the adoption of SFAS No. 123(R) and stock options which were not vested
by the date of adoption of SFAS No. 123(R), as well as current assumptions regarding the estimated
fair value of expected stock option grants during the remainder of the year. However, our
assessment of the estimated compensation expense is affected by our stock price 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. During the second quarter and first six months of 2006, the total
intrinsic value of stock options exercised was $3.2 million and $13.3 million respectively. As of
July 2, 2006, there was $9.9 million of unrecognized compensation cost related to nonvested stock
options, which is expected to be recognized over a weighted-average period of approximately 1.7
years. The Company issues shares of common stock upon the exercise of stock options. No
modifications to outstanding stock options were made prior to the adoption of SFAS No. 123(R). The
valuation methodologies and assumptions in estimating the fair value of stock options granted in
2006 were similar to those used in estimating the fair value of stock options granted in 2005.
We used a combination of the historical volatility of Teledyne’s stock price and the implied
volatility based on the price of traded options on Teledyne’s stock to calculate the expected
volatility assumption to value stock options. We used our actual stock trading history since
January 2001 in the volatility calculation. The expected dividend yield is based on Teledyne’s
practice of not paying dividends. The risk-free rate of return is based on the yield of U. S.
Treasury Strips with terms equal to the expected life of the option as of the grant date. The
expected life in years is based on historical actual stock option exercise experience.
On January 2, 2006, we adopted SFAS No. 151, “Inventory Costs — an amendment of ARB No. 43 Chapter
4” (SFAS No. 151). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,”
to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs,
and wasted material (spoilage). SFAS No. 151 requires that those items be recognized as
current-period charges. The adoption of SFAS No. 151 did not have a material impact on the
condensed consolidated financial statements of the Company.
24
Outlook
Based on its current outlook, the Company’s management believes that third quarter 2006 earnings
per share will be in the range of approximately $0.55 to $0.57, compared with the July 2006
estimate of $0.48 to $0.50. The full year 2006 earnings per share outlook is expected to be in the
range of approximately $2.11 to $2.15, compared with the April 2006 estimate of $1.90 to $1.95 and
the July 2006 estimate of $2.04 to $2.08. The update to the third quarter and full year 2006
outlook, from July 2006 is due to the impact of $0.07 from the reversal of an income tax
contingency reserve that was determined to be no longer needed as of July 31, 2006. The Company’s
estimated effective income tax rate for 2006 is 34.8% including the impact of the reversal of the
income tax contingency reserve.
Our 2006 outlook reflects anticipated sales growth in its defense electronics and instrumentation
businesses, due primarily to the contribution of our acquisitions completed in 2005, the Benthos
acquisition in the first quarter of 2006 and the expected closing of the pending Rockwell
Scientific acquisition late in the third quarter of 2006... In addition, the company’s full year
2006 earnings per share outlook reflects anticipated expenses, such as intangible asset
amortization, following completion of the pending Rockwell Scientific acquisition. Sales of
geophysical sensors are currently expected to decline in the third and fourth quarter of 2006,
compared with the second quarter of 2006.
The full year 2006 earnings outlook includes approximately $16.4 million ($0.28 per share) in
pension expense under SFAS No. 87, or $6.6 million ($0.11 per share) in net pension expense after
recovery of allowable pension costs from our CAS covered government contracts. Full year 2005
earnings included $12.7 million ($0.23 per share) in pension expense under SFAS No. 87, or $3.4
million ($0.06 per share) in net pension expense after recovery of allowable pension costs from our
CAS covered government contracts. The increase in full year 2006 pension expense, compared with
full year 2005 pension expense, reflects, in part, the reduction of the discount rate assumption
for our defined benefit plan from 6.25% in 2005 to 6.00% in 2006. Our 2006 earnings outlook also
reflects $5.8 million ($0.10 per share) in stock option compensation based on the fair value of
stock options granted after the adoption of SFAS No. 123(R) and stock options which were not vested
by the date of adoption of SFAS No. 123(R), as well as, current assumptions regarding the estimated
fair value of expected stock option grants during the remainder of the year..
EARNINGS PER SHARE SUMMARY (a)
(Diluted earnings per common share from continuing operations)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2006 Full Year Outlook |
|
|
2005 |
|
|
2004 |
|
| |
|
Low |
|
|
High |
|
|
Actual |
|
|
Actual |
|
Earnings per share (excluding net
pension expense, stock option
expense and excluding income tax
benefit) |
|
$ |
2.25 |
|
|
$ |
2.29 |
|
|
$ |
1.91 |
|
|
$ |
1.39 |
|
Pension expense — SFAS No. 87 |
|
|
(0.28 |
) |
|
|
(0.28 |
) |
|
|
(0.23 |
) |
|
|
(0.16 |
) |
Pension expense — CAS (b) |
|
|
0.17 |
|
|
|
0.17 |
|
|
|
0.17 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (excluding
stock option expense and income
tax benefit) |
|
|
2.14 |
|
|
|
2.18 |
|
|
|
1.85 |
|
|
|
1.24 |
|
Stock option expense (c) |
|
|
(0.10 |
) |
|
|
(0.10 |
) |
|
|
— |
|
|
|
— |
|
Income tax benefit (d) |
|
|
0.07 |
|
|
|
0.07 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share — GAAP |
|
$ |
2.11 |
|
|
$ |
2.15 |
|
|
$ |
1.85 |
|
|
$ |
1.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (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) |
|
Under one of its spin-off agreements, after November 29, 2004, we are able to charge
pension costs to the U.S. Government under certain government contracts. Pension expense
determined under CAS can generally be recovered through the pricing of products and
services sold to the U.S. Government. |
| |
| (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) |
|
The 2006 full year outlook reflects an income tax benefit of $2.6 million ($0.07 per
share) due to the reversal of an income tax contingency reserve which was determined to be
no longer needed on July 31, 2006 due to the expiration of the statute of limitations. |
25
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,
pension matters, stock option expense and strategic plans. All statements made in this
Management’s 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 semiconductor, defense electronics, communications, commercial aviation and energy
exploration markets, funding, continuation and award of government programs, continued liquidity of
our customers (including commercial airline 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 pending and possible acquisitions, we cannot provide any
assurance as to when, if or on what terms any acquisitions will be made. The announced pending
acquisitions are subject to conditions to closing and if these conditions are not satisfied or
waived prior to closing, then such acquisitions may not occur. 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 2005 Form 10-K and this Form
10-Q. We assume no duty to update forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes to the information provided under “Item 7A, Quantitative and
Qualitative Disclosure About Market Risk” included in our 2005 Annual Report on Form 10-K. At July
2, 2006, there were no hedging contracts outstanding.
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 July
2, 2006, 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 July 2, 2006, 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.
26
PART
II OTHER INFORMATION
Item 1A. Risk Factors
There are no material changes to the risk factors previously disclosed in our 2005 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 2006 earnings per share guidance.
Item 4. Submission of Matters to a Vote of Security Holders
This information was provided in Teledyne Technologies’ First Quarter 2006 Form 10-Q under Part
II Item 4, filed on May 8, 2006.
Item 6. Exhibits
| |
(a) |
|
Exhibits |
| |
| |
|
|
Exhibit 31.1 302 Certification — Robert Mehrabian
Exhibit 31.2 302 Certification — Dale A. Schnittjer
Exhibit 32.1 906 Certification — Robert Mehrabian
Exhibit 32.2 906 Certification — Dale A. Schnittjer
|
27
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: August 7, 2006
|
|
By: /s/ Dale A. Schnittjer
|
|
|
|
|
Dale A. Schnittjer, Senior Vice President
and Chief Financial Officer |
|
|
|
|
(Principal Financial Officer and Authorized Officer) |
|
|
28
Teledyne Technologies Incorporated
Index to Exhibits
| |
|
|
|
|
| Exhibit Number |
|
Description |
|
|
|
|
|
|
|
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