SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2002March 30, 2003
OR
o[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-15295
TELEDYNE TECHNOLOGIES INCORPORATED
Delaware (State or other jurisdiction of incorporation or organization) | 25-1843385 (I.R.S. Employer Identification Number) |
12333 West Olympic Boulevard Los Angeles, California (Address of principal executive offices) | 90064-1021 (Zip Code) |
(310) 893-1600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
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[X] No o[ ]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at | |
| Common Stock, $.01 par value per share |
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
| PAGE | ||||||||||||
| Part I | Financial Information | 2 | ||||||||||
| Item 1. | Financial Statements | 2 | ||||||||||
| Consolidated Condensed Balance Sheets | 2 | |||||||||||
| Consolidated Condensed Statements of Operations | 3 | |||||||||||
| Consolidated Condensed Statements of Cash Flows | 4 | |||||||||||
| Notes to Consolidated Condensed Financial Statements | 5 | |||||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |||||||||||
| Item 4. | Controls and Procedures | |||||||||||
| Part II | Other Information | |||||||||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 19 | ||||||||||
| Item 6. | Exhibits and Reports on Form 8-K | |||||||||||
| Signatures and | ||||||||||||
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETSSEPTEMBERMARCH 30, 2003 AND DECEMBER 29, 2002 AND DECEMBER 30, 2001
(Amounts in millions, except share amounts)
| September 29, | December 30, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
Assets | ||||||||||
Current Assets | ||||||||||
| Cash and cash equivalents | $ | 8.9 | $ | 11.9 | ||||||
| Receivables, net | 112.5 | 108.7 | ||||||||
| Inventories, net | 67.9 | 56.1 | ||||||||
| Deferred income taxes, net | 17.7 | 18.4 | ||||||||
| Prepaid and income taxes receivable | — | 5.8 | ||||||||
| Prepaid expenses, notes receivable and other | 7.3 | 8.4 | ||||||||
Total Current Assets | 214.3 | 209.3 | ||||||||
| Property, plant and equipment, at cost, net of accumulated depreciation and amortization of $125.7 at September 29, 2002 and $113.2 at December 30, 2001 | 76.0 | 80.2 | ||||||||
| Deferred income taxes, net | 9.2 | 7.9 | ||||||||
| Prepaid pension cost | 7.6 | 5.2 | ||||||||
| Goodwill, net | 45.7 | 26.2 | ||||||||
| Other assets | 18.0 | 20.5 | ||||||||
Total Assets | $ | 370.8 | $ | 349.3 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||
Current Liabilities | ||||||||||
| Accounts payable | $ | 51.5 | $ | 36.9 | ||||||
| Accrued liabilities | 72.6 | 57.1 | ||||||||
Total Current Liabilities | 124.1 | 94.0 | ||||||||
| Long-term debt | — | 30.0 | ||||||||
| Accrued postretirement benefits | 27.3 | 29.0 | ||||||||
| Other long-term liabilities | 26.7 | 23.3 | ||||||||
Total Liabilities | 178.1 | 176.3 | ||||||||
Stockholders’ Equity | ||||||||||
| Common stock, $0.01 par value; outstanding shares 32,044,425 at September 29, 2002 and 31,859,839 at December 30, 2001 | 0.3 | 0.3 | ||||||||
| Additional paid-in capital | 129.7 | 128.0 | ||||||||
| Retained earnings | 62.7 | 44.5 | ||||||||
| Accumulated other comprehensive income | — | 0.2 | ||||||||
Total Stockholders’ Equity | 192.7 | 173.0 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 370.8 | $ | 349.3 | ||||||
| March 30, | December 29, | |||||||||
| 2003 | 2002 | |||||||||
| (Unaudited) | ||||||||||
Assets | ||||||||||
Current Assets | ||||||||||
| Cash and cash equivalents | $ | 15.4 | $ | 19.0 | ||||||
| Receivables, net | 108.1 | 109.2 | ||||||||
| Inventories, net | 74.3 | 66.8 | ||||||||
| Deferred income taxes, net | 19.2 | 18.9 | ||||||||
| Prepaid expenses, notes receivable and other | 7.8 | 8.0 | ||||||||
Total Current Assets | 224.8 | 221.9 | ||||||||
| Property, plant and equipment, at cost, net of accumulated depreciation and amortization of $131.3 at March 30, 2003 and $126.8 at December 29, 2002 | 72.5 | 74.7 | ||||||||
| Deferred income taxes, net | 25.2 | 22.2 | ||||||||
| Goodwill, net | 44.3 | 44.3 | ||||||||
| Other assets | 27.4 | 28.0 | ||||||||
Total Assets | $ | 394.2 | $ | 391.1 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||
Current Liabilities | ||||||||||
| Accounts payable | $ | 48.5 | $ | 53.1 | ||||||
| Accrued liabilities | 69.1 | 66.2 | ||||||||
Total Current Liabilities | 117.6 | 119.3 | ||||||||
| Accrued pension obligation | 42.1 | 40.5 | ||||||||
| Accrued postretirement benefits | 26.5 | 26.8 | ||||||||
| Other long-term liabilities | 24.5 | 27.7 | ||||||||
Total Liabilities | 210.7 | 214.3 | ||||||||
Stockholders’ Equity | ||||||||||
| Common stock, $0.01 par value; outstanding shares 32,172,634 at March 30, 2003 and 32,048,827 at December 29, 2002 | 0.3 | 0.3 | ||||||||
| Additional paid-in capital | 131.0 | 129.8 | ||||||||
| Retained earnings | 75.4 | 69.9 | ||||||||
| Accumulated other comprehensive income (loss) | (23.2 | ) | (23.2 | ) | ||||||
Total Stockholders’ Equity | 183.5 | 176.8 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 394.2 | $ | 391.1 | ||||||
The accompanying notes are an integral part of these financial statements.
2
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONSINCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 29,MARCH 30, 2003 AND MARCH 31, 2002 AND SEPTEMBER 30, 2001
(Unaudited — Amounts in millions, except per-share amounts)
| Third Quarter | Nine Months | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Sales | $ | 191.8 | $ | 185.6 | $ | 563.1 | $ | 559.3 | |||||||||
Costs and expenses | |||||||||||||||||
| Cost of sales | 143.6 | 141.1 | 424.3 | 435.3 | |||||||||||||
| Selling, general and administrative expenses | 36.7 | 34.8 | 109.0 | 108.0 | |||||||||||||
| Asset impairment charge | — | — | — | 7.4 | |||||||||||||
| Restructuring and other charges | — | — | (0.6 | ) | 8.7 | ||||||||||||
| 180.3 | 175.9 | 532.7 | 559.4 | ||||||||||||||
Operating profit (loss) | 11.5 | 9.7 | 30.4 | (0.1 | ) | ||||||||||||
| Interest and debt expense, net | — | 0.4 | 0.5 | 1.5 | |||||||||||||
| Other income (expense) | (0.1 | ) | 0.2 | 0.3 | 2.1 | ||||||||||||
Income from continuing operations before income taxes | 11.4 | 9.5 | 30.2 | 0.5 | |||||||||||||
| Provision for income taxes | 4.5 | 3.8 | 12.0 | 0.2 | |||||||||||||
Income from continuing operations | 6.9 | 5.7 | 18.2 | 0.3 | |||||||||||||
| Discontinued operations, net of tax | — | — | — | (0.2 | ) | ||||||||||||
Net income | $ | 6.9 | $ | 5.7 | $ | 18.2 | $ | 0.1 | |||||||||
BASIC EARNINGS PER COMMON SHARE: | |||||||||||||||||
| Income from continuing operations | $ | 0.22 | $ | 0.18 | $ | 0.57 | $ | 0.01 | |||||||||
| Discontinued operations | — | — | — | (0.01 | ) | ||||||||||||
Basic earnings per common share | $ | 0.22 | $ | 0.18 | $ | 0.57 | $ | — | |||||||||
| Weighted average common shares outstanding | 32.0 | 31.7 | 32.0 | 31.6 | |||||||||||||
DILUTED EARNINGS PER COMMON SHARE: | |||||||||||||||||
| Income from continuing operations | $ | 0.21 | $ | 0.18 | $ | 0.56 | $ | 0.01 | |||||||||
| Discontinued operations | — | — | — | (0.01 | ) | ||||||||||||
Diluted earnings per common share | $ | 0.21 | $ | 0.18 | $ | 0.56 | $ | — | |||||||||
| Weighted average diluted common shares outstanding | 32.7 | 32.5 | 32.7 | 32.6 | |||||||||||||
| First Quarter | |||||||||
| 2003 | 2002 | ||||||||
Sales | $ | 197.2 | $ | 183.3 | |||||
Costs and expenses | |||||||||
| Cost of sales | 151.6 | 139.0 | |||||||
| Selling, general and administrative expenses | 36.4 | 35.7 | |||||||
| 188.0 | 174.7 | ||||||||
Income before other income and expense and income taxes | 9.2 | 8.6 | |||||||
| Interest and debt expense, net | (0.1 | ) | (0.3 | ) | |||||
| Other income (expense) | (0.1 | ) | 0.2 | ||||||
Income before income taxes | 9.0 | 8.5 | |||||||
| Provision for income taxes | 3.5 | 3.4 | |||||||
Net Income | $ | 5.5 | $ | 5.1 | |||||
| Basic earnings per common share | $ | 0.17 | $ | 0.16 | |||||
| Weighted average basic common shares outstanding | 32.2 | 32.0 | |||||||
| Diluted earnings per common share | $ | 0.17 | $ | 0.16 | |||||
| Weighted average diluted common shares outstanding | 32.5 | 32.5 | |||||||
The accompanying notes are an integral part of these financial statements.
3
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 29,MARCH 30, 2003 AND MARCH 31, 2002 AND SEPTEMBER 30, 2001
(Unaudited — Amounts in millions)
| Nine Months | |||||||||||
| 2002 | 2001 | ||||||||||
| CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||
| Net income from continuing operations | $ | 18.2 | $ | 0.3 | |||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Depreciation and amortization | 16.3 | 15.2 | |||||||||
| Deferred income taxes | 0.5 | 11.1 | |||||||||
| Non-cash asset impairment, restructuring and other charges | — | 15.6 | |||||||||
| Gains on disposal of property, plant and equipment | (0.1 | ) | — | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Decrease in accounts receivables | 1.0 | 0.7 | |||||||||
| Increase in inventories | (9.1 | ) | (10.7 | ) | |||||||
| Decrease (increase) in prepaid expenses and other assets | 1.2 | (2.8 | ) | ||||||||
| Increase (decrease) in accounts payable | 13.2 | (13.7 | ) | ||||||||
| Increase in accrued liabilities | 8.0 | 3.8 | |||||||||
| Increase (decrease) in income taxes payable, net | 9.7 | (22.7 | ) | ||||||||
| Increase in long term assets | 0.9 | 1.3 | |||||||||
| Increase (decrease) in other long-term liabilities | 4.2 | (6.9 | ) | ||||||||
| Decrease in accrued pension obligation | (2.4 | ) | (7.7 | ) | |||||||
| Decrease in accrued postretirement benefits | (1.7 | ) | (1.6 | ) | |||||||
| Other operating, net | (0.3 | ) | 0.6 | ||||||||
| 59.6 | (17.5 | ) | |||||||||
| Net cash flow from discontinued operations | (0.7 | ) | (1.3 | ) | |||||||
| Net cash provided (used) by operating activities | 58.9 | (18.8 | ) | ||||||||
| CASH FLOW FROM INVESTING ACTIVITIES | |||||||||||
| Purchases of property, plant and equipment | (10.0 | ) | (20.8 | ) | |||||||
| Proceeds from the sale investments/property, plant and equipment | — | 1.0 | |||||||||
| Purchase of business and other investments | (24.0 | ) | (2.5 | ) | |||||||
| Other investing, net | 0.4 | (1.0 | ) | ||||||||
| Net cash used by investing activities | (33.6 | ) | (23.3 | ) | |||||||
| CASH FLOW FROM FINANCING ACTIVITIES | |||||||||||
| Net proceeds from (repayments of) revolving credit agreement | (30.0 | ) | 31.9 | ||||||||
| Proceeds from issuance of common stock | 1.7 | 2.2 | |||||||||
| Net cash provided (used) by financing activities | (28.3 | ) | 34.1 | ||||||||
| Decrease in cash and cash equivalents | (3.0 | ) | (8.0 | ) | |||||||
| Cash and cash equivalents—beginning of period | 11.9 | 14.9 | |||||||||
| Cash and cash equivalents—end of period | $ | 8.9 | $ | 6.9 | |||||||
| First Quarter | |||||||||||
| 2003 | 2002 | ||||||||||
| CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | 5.5 | $ | 5.1 | |||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Depreciation and amortization | 5.6 | 5.1 | |||||||||
| Deferred income taxes | (3.3 | ) | 3.4 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| (Increase) decrease in accounts receivables | 1.2 | (11.4 | ) | ||||||||
| (Increase) decrease in inventories | (7.5 | ) | 1.1 | ||||||||
| (Increase) decrease in prepaid expenses and other assets | 0.1 | (0.7 | ) | ||||||||
| Increase (decrease) in accounts payable | (4.6 | ) | 5.5 | ||||||||
| Increase (decrease) in accrued liabilities | (3.0 | ) | 1.6 | ||||||||
| Decrease in prepaid income taxes, net | 5.9 | 0.2 | |||||||||
| Decrease in other long-term assets | 0.3 | — | |||||||||
| Increase (decrease) in other long-term liabilities | (3.1 | ) | 0.6 | ||||||||
| Increase (decrease) in accrued pension obligation | 1.5 | (0.9 | ) | ||||||||
| Decrease in accrued postretirement benefits | (0.3 | ) | (0.6 | ) | |||||||
| Net cash flow from continuing operations | (1.7 | ) | 9.0 | ||||||||
| Net cash flow from discontinued operations | (0.1 | ) | (0.5 | ) | |||||||
| Net cash provided (used) by operating activities | (1.8 | ) | 8.5 | ||||||||
| CASH FLOW FROM INVESTING ACTIVITIES | |||||||||||
| Purchases of property, plant and equipment | (2.9 | ) | (3.5 | ) | |||||||
| Other investing, net | (0.2 | ) | — | ||||||||
| Net cash used by investing activities | (3.1 | ) | (3.5 | ) | |||||||
| CASH FLOW FROM FINANCING ACTIVITIES | |||||||||||
| Net repayments of long-term debt | — | (10.5 | ) | ||||||||
| Proceeds from exercise of stock options and other, net | 1.3 | 0.6 | |||||||||
| Net cash provided (used) by financing activities | 1.3 | (9.9 | ) | ||||||||
| Decrease in cash and cash equivalents | (3.6 | ) | (4.9 | ) | |||||||
| Cash and cash equivalents—beginning of period | 19.0 | 11.9 | |||||||||
| Cash and cash equivalents—end of period | $ | 15.4 | $ | 7.0 | |||||||
The accompanying notes are an integral part of these financial statements.
4
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTSSeptember 29, 2002
March 30, 2003
| 1. | General | |
| Basis of Accounting | ||
| The accompanying unaudited consolidated condensed 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 consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in Teledyne Technologies’ Annual Report on Form 10-K for the fiscal year ended December | ||
| In the opinion of Teledyne Technologies’ management, the accompanying consolidated condensed 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 | ||
| Certain financial statements and notes for the prior year have been changed to conform to the | ||
| Effective November 29, 1999, Teledyne Technologies became an independent, public company as a result of the distribution by Allegheny Teledyne Incorporated, now known as Allegheny Technologies Incorporated (ATI), of the Company’s Common Stock, $.01 par value per share, to holders of ATI Common Stock at a distribution ratio of one for seven (the spin-off). | ||
| Accounting Pronouncements | ||
| In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) |
5
| 2001 | |||||||||
| Third Quarter | Nine Months | ||||||||
Reported net income | $ | 5.7 | $ | 0.1 | |||||
| Add back: goodwill amortization | 0.1 | 0.5 | |||||||
| Tax benefit | — | (0.2 | ) | ||||||
| Adjusted net income | $ | 5.8 | $ | 0.4 | |||||
Basic earnings per share | |||||||||
| Reported net income | $ | 0.18 | $ | — | |||||
| Adjusted net income | $ | 0.18 | $ | 0.01 | |||||
Diluted earnings per share | |||||||||
| Reported net income | $ | 0.18 | $ | — | |||||
| Adjusted net income | $ | 0.18 | $ | 0.01 | |||||
| In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on Teledyne Technologies’ financial position or results of operations. | ||
| In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34.” FIN |
5
| 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year end. The Company adopted the initial recognition and initial measurement provisions in the first quarter of 2003. The adoption of FIN 45 had no impact on Teledyne Technologies’ financial position or results of operations. | ||
| 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): |
| Balance at year-end 2002 | $ | 5.2 | ||
| Accruals for product warranties | 1.2 | |||
| Cost of warranty claims | (1.1 | ) | ||
| Balance at March 30, 2003 | $ | 5.3 | ||
| 2. | Business Combinations and Discontinued Operations | |
6
| In July 2001, Teledyne Technologies combined its Energy Systems business unit with assets of Florida-based Energy Partners, Inc., to create majority-owned (86%) Teledyne Energy Systems, Inc. This transaction was recorded as a transfer of net assets between entities under common control in accordance with SFAS No. 141. The company focuses on supplying hydrogen gas generators and thermoelectric power systems, as well as commercialization of proton exchange membrane (PEM) fuel cell stacks, test stands and systems. | ||
| In December 2000, Teledyne Technologies sold the assets of Teledyne Cast Parts, a provider of sand and investment castings to the aerospace and defense industries. Teledyne Cast Parts was previously reported as part of the Aerospace Engines and Components segment. | ||
| Asset Impairments | ||||||||||||||||||||||||||||||||
| Property, | Restructuring | |||||||||||||||||||||||||||||||
| Plant and | Inventory | Discontinued | ||||||||||||||||||||||||||||||
| Equipment | Goodwill | Other | Terminations | Other | Write-down | Operations | Total | |||||||||||||||||||||||||
| Second quarter 2001 charge at year end 2001 | $ | 1.9 | $ | 1.8 | $ | 3.8 | $ | 5.7 | $ | 3.1 | $ | 9.8 | $ | 0.3 | $ | 26.4 | ||||||||||||||||
| Change in estimate 2nd Qtr 2002 | — | — | — | 0.4 | (1.0 | ) | 0.6 | — | — | |||||||||||||||||||||||
| Total charge | 1.9 | 1.8 | 3.8 | 6.1 | 2.1 | 10.4 | 0.3 | 26.4 | ||||||||||||||||||||||||
| Assets disposed | (1.9 | ) | (1.8 | ) | (3.8 | ) | — | — | (10.4 | ) | — | (17.9 | ) | |||||||||||||||||||
| Cash payments | — | — | — | (5.9 | ) | (1.7 | ) | — | (0.3 | ) | (7.9 | ) | ||||||||||||||||||||
| Liability as of Sept. 29, 2002 | $ | — | $ | — | $ | — | $ | 0.2 | 0.4 | $ | — | $ | — | 0.6 | ||||||||||||||||||
76
| Comprehensive Income | ||
| Teledyne Technologies’ comprehensive income |
| First Quarter | |||||||||
| 2003 | 2002 | ||||||||
| Net income | $ | 5.5 | $ | 5.1 | |||||
| Other comprehensive income, net of tax: | |||||||||
| Foreign currency translation gains | — | 0.1 | |||||||
| — | 0.1 | ||||||||
| Total comprehensive income | $ | 5.5 | $ | 5.2 | |||||
| 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, and this number of shares was increased by the dilutive effect of stock options based on the treasury stock method in the calculation of diluted earnings per share. | ||
| The following table sets forth the computations of basic and diluted earnings per share (amounts in millions, except per-share data): |
| Third Quarter | Nine Months | First Quarter | |||||||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | 2003 | 2002 | ||||||||||||||||||||
| BASIC EARNINGS PER SHARE | BASIC EARNINGS PER SHARE | ||||||||||||||||||||||||
| Net income/earnings applicable to common stock | $ | 5.5 | $ | 5.1 | |||||||||||||||||||||
| Income from continuing operations applicable to common stock | $ | 6.9 | $ | 5.7 | $ | 18.2 | $ | 0.3 | |||||||||||||||||
| Discontinued operations, net of tax | — | — | — | (0.2 | ) | ||||||||||||||||||||
| Net income applicable to common stock | $ | 6.9 | $ | 5.7 | $ | 18.2 | $ | 0.1 | |||||||||||||||||
| Weighted average common shares outstanding | 32.0 | 31.7 | 32.0 | 31.6 | |||||||||||||||||||||
| BASIC EARNINGS PER COMMON SHARE | |||||||||||||||||||||||||
| Income from continuing operations | $ | 0.22 | $ | 0.18 | $ | 0.57 | $ | 0.01 | |||||||||||||||||
| Discontinued operations | — | — | — | (0.01 | ) | ||||||||||||||||||||
| Weighted average common shares outstanding | 32.2 | 32.0 | |||||||||||||||||||||||
| Basic earnings per common share | Basic earnings per common share | $ | 0.22 | $ | 0.18 | $ | 0.57 | $ | — | $ | 0.17 | $ | 0.16 | ||||||||||||
| DILUTED EARNINGS PER SHARE | DILUTED EARNINGS PER SHARE | ||||||||||||||||||||||||
| Income from continuing operations applicable to common stock | $ | 6.9 | $ | 5.7 | $ | 18.2 | $ | 0.3 | |||||||||||||||||
| Discontinued operations, net of tax | — | — | — | (0.2 | ) | ||||||||||||||||||||
| Net income applicable to common stock | $ | 6.9 | $ | 5.7 | $ | 18.2 | $ | 0.1 | |||||||||||||||||
| Earnings applicable to common stock | $ | 5.5 | $ | 5.1 | |||||||||||||||||||||
| Weighted average common shares outstanding | Weighted average common shares outstanding | 32.0 | 31.7 | 32.0 | 31.6 | 32.2 | 32.0 | ||||||||||||||||||
| Dilutive effect of exercise of options outstanding | Dilutive effect of exercise of options outstanding | 0.7 | 0.8 | 0.7 | 1.0 | 0.3 | 0.5 | ||||||||||||||||||
| Weighted average diluted common shares outstanding | Weighted average diluted common shares outstanding | 32.7 | 32.5 | 32.7 | 32.6 | 32.5 | 32.5 | ||||||||||||||||||
| DILUTED EARNINGS PER COMMON SHARE | |||||||||||||||||||||||||
| Income from continuing operations | $ | 0.21 | $ | 0.18 | $ | 0.56 | $ | 0.01 | |||||||||||||||||
| Discontinued operations | — | — | — | (0.01 | ) | ||||||||||||||||||||
| Diluted earnings per common share | Diluted earnings per common share | $ | 0.21 | $ | 0.18 | $ | 0.56 | $ | — | $ | 0.17 | $ | 0.16 | ||||||||||||
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| 5. | Stock-Based Compensation | |
| The following disclosures are based on stock options held by Teledyne Technologies’ employees and include the stock options that have been converted from ATI options to Teledyne Technologies’ options as noted above. Teledyne Technologies accounts for its stock option plans in accordance with APB Opinion No. 25—“Accounting for Stock Issued to Employees” (APB Opinion No. 25) and related Interpretations. Under APB Opinion No. 25, no compensation expense is recognized 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. In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-based Compensation” (SFAS No. 123) and was effective immediately upon issuance. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of Statement No. 123 to require interim and annual disclosures about the method of accounting for stock based compensation and the effect of the method used on reported results. The Company follows the requirements of APB Opinion No. 25 and the disclosure only provision of SFAS No. 123, as amended by SFAS No. 148. | ||
| As noted in the preceding paragraph, Teledyne Technologies accounts for its stock options under APB Opinion No. 25. If compensation cost for these options had been determined using the fair-value method using the Black-Scholes option-pricing model the impact on net income and earnings per share is presented in the following table (amounts in millions, except per-share data): |
| First Quarter | |||||||||
| 2003 | 2002 | ||||||||
Net income as reported | $ | 5.5 | $ | 5.1 | |||||
| Stock-based compensation under SFAS 123 fair value method, net of tax | (1.2 | ) | (1.3 | ) | |||||
| Adjusted net income | $ | 4.3 | $ | 3.8 | |||||
Basic earnings per share | |||||||||
| As reported | $ | 0.17 | $ | 0.16 | |||||
| As adjusted | $ | 0.13 | $ | 0.12 | |||||
Diluted earnings per share | |||||||||
| As reported | $ | 0.17 | $ | 0.16 | |||||
| As adjusted | $ | 0.13 | $ | 0.12 | |||||
| 6. | Cash and Cash Equivalents | |
| Cash equivalents consist of highly liquid money-market mutual funds and bank deposits with maturities of three months or less when purchased. Cash equivalents totaled |
8
| 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 (amounts in millions): |
| Balance at | September 29, 2002 | December 30, 2001 | March 30, 2003 | December 29, 2002 | ||||||||||||
| Raw materials and supplies | $ | 23.1 | $ | 24.3 | $ | 24.2 | $ | 23.7 | ||||||||
| Work in process | 66.0 | 52.0 | 72.0 | 65.7 | ||||||||||||
| Finished goods | 7.9 | 8.8 | 9.3 | 8.5 | ||||||||||||
| 97.0 | 85.1 | 105.5 | 97.9 | |||||||||||||
| Progress payments | (3.6 | ) | (1.9 | ) | (4.9 | ) | (4.9 | ) | ||||||||
| LIFO reserve | (25.5 | ) | (27.1 | ) | (26.3 | ) | (26.2 | ) | ||||||||
| Total inventories, net | $ | 67.9 | $ | 56.1 | $ | 74.3 | $ | 66.8 | ||||||||
| 8. | Supplemental Balance Sheet Information | |
| Goodwill primarily includes goodwill acquired as part of the acquisitions of API in 2001 and Monitor Labs in 2002. Accrued liabilities included salaries and wages of | ||
| 9. | 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. The Company has been identified as a potentially responsible party at approximately 17 such sites, excluding those at which the Company believes it has no future liability. | ||
| In accordance with the Company’s accounting policy disclosed in Note 2 to the consolidated financial statements in the |
9
| reasonably estimable. Based on currently available information, management does not believe that future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company’s financial condition or liquidity. However, resolution of one or more of these environmental matters or future accrual adjustments in any one reporting period could have a material adverse effect on results of operations for that period. Additionally, |
9
| 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 | ||
| The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and will complete remediation of all sites with which it has been identified in up to 30 years. | ||
| Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) 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. | ||
| The Company learns from time to time that it has been named as a defendant in civil actions filed under seal pursuant to the False Claims Act. Such cases are under seal and remain so until the U.S. Government decides if it will intervene and the Company therefore does not generally possess sufficient information to determine whether the Company could sustain a material loss in connection with such cases, or to reasonably estimate the amount of any loss attributable to such cases. The Company was | ||
| The Tax Sharing and Indemnification Agreement between ATI and Teledyne Technologies provides that the Company will indemnify ATI and its agents and representatives for taxes imposed on, and other amounts paid by, them or ATI stockholders if the Company takes actions or fails to take actions that result in the spin-off not qualifying as a tax-free distribution. If the Company were required to so indemnify ATI, such an obligation could have a material adverse effect on its financial condition, results of operations and cash flow and the amount the Company could be required to pay could exceed its net worth by a substantial amount. The Company believes that it has satisfied all principal spin-off requirements to assure such tax-free treatment. | ||
| A number of other lawsuits, claims and proceedings have been or may be asserted against the Company relating to the conduct of its business, including those pertaining to aircraft and other product liability, patent infringement, contract disputes, employment and employee benefits. While the outcome of litigation cannot be predicted |
10
| 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 or |
10
| operations for that period. | ||
| 10. | Industry Segments | |
| The following table presents Teledyne Technologies’ interim industry segment disclosures (amounts in millions): |
| Third Quarter | Nine Months | First Quarter | |||||||||||||||||||||||||
| 2002 | 2001(a) | 2002 | 2001(a) | 2003 | 2002 | ||||||||||||||||||||||
Sales: | Sales: | Sales: | |||||||||||||||||||||||||
| Electronics and Communications | Electronics and Communications | $ | 92.6 | $ | 95.5 | $ | 277.3 | $ | 277.4 | Electronics and Communications | $ | 103.6 | $ | 90.5 | |||||||||||||
| Systems Engineering Solutions | Systems Engineering Solutions | 54.8 | 49.0 | 153.2 | 157.0 | Systems Engineering Solutions | 52.4 | 46.9 | |||||||||||||||||||
| Aerospace Engines and Components | Aerospace Engines and Components | 40.7 | 37.5 | 121.6 | 114.7 | Aerospace Engines and Components | 37.8 | 41.9 | |||||||||||||||||||
| Energy Systems | Energy Systems | 3.7 | 3.6 | 11.0 | 10.2 | Energy Systems | 3.4 | 4.0 | |||||||||||||||||||
Total sales | $ | 191.8 | $ | 185.6 | $ | 563.1 | $ | 559.3 | Total sales | $ | 197.2 | $ | 183.3 | ||||||||||||||
Operating Profit (Loss): | |||||||||||||||||||||||||||
| Electronics and Communications(b) | $ | 8.9 | $ | 6.7 | $ | 26.2 | $ | 1.0 | |||||||||||||||||||
| Systems Engineering Solutions(c) | 7.0 | 4.7 | 16.5 | 8.4 | |||||||||||||||||||||||
| Aerospace Engines and Components(d) | (0.1 | ) | 2.1 | 0.7 | 6.7 | ||||||||||||||||||||||
| Energy Systems(e) | (0.8 | ) | (0.6 | ) | (2.0 | ) | (6.2 | ) | |||||||||||||||||||
Operating Profit: | Operating Profit: | ||||||||||||||||||||||||||
| Electronics and Communications | Electronics and Communications | $ | 7.3 | $ | 8.3 | ||||||||||||||||||||||
| Systems Engineering Solutions | Systems Engineering Solutions | 5.7 | 3.8 | ||||||||||||||||||||||||
| Aerospace Engines and Components | Aerospace Engines and Components | 0.5 | 0.7 | ||||||||||||||||||||||||
| Energy Systems | Energy Systems | (0.5 | ) | (0.3 | ) | ||||||||||||||||||||||
Segment operating profit | 15.0 | 12.9 | 41.4 | 9.9 | Total segment operating profit | 13.0 | 12.5 | ||||||||||||||||||||
| Corporate expense | Corporate expense | (3.5 | ) | (3.2 | ) | (11.0 | ) | (10.0 | ) | Corporate expense | (3.8 | ) | (3.9 | ) | |||||||||||||
| Interest and debt expense, net | Interest and debt expense, net | — | (0.4 | ) | (0.5 | ) | (1.5 | ) | Interest and debt expense, net | (0.1 | ) | (0.3 | ) | ||||||||||||||
| Other income (expense) | Other income (expense) | (0.1 | ) | 0.2 | 0.3 | 2.1 | Other income (expense) | (0.1 | ) | 0.2 | |||||||||||||||||
Income from continuing operations before income taxes | 11.4 | 9.5 | 30.2 | 0.5 | |||||||||||||||||||||||
Income before income taxes | 9.0 | 8.5 | |||||||||||||||||||||||||
| Provision for income taxes | Provision for income taxes | 4.5 | 3.8 | 12.0 | 0.2 | Provision for income taxes | 3.5 | 3.4 | |||||||||||||||||||
| Income from continuing operations | 6.9 | 5.7 | 18.2 | 0.3 | |||||||||||||||||||||||
| Discontinued operations, net of tax | — | — | — | (0.2 | ) | ||||||||||||||||||||||
Net income | Net income | $ | 6.9 | $ | 5.7 | $ | 18.2 | $ | 0.1 | Net income | $ | 5.5 | $ | 5.1 | |||||||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Teledyne Technologies’ thirdfirst quarter 20022003 sales were $191.8$197.2 million, compared with sales of $185.6$183.3 million for the same period in 2001.2002. Net income for the thirdfirst quarter of 20022003 was $6.9$5.5 million ($0.210.17 per diluted share), compared with a net income of $5.7$5.1 million ($0.18 per diluted share) for the third quarter of 2001. Sales for the first nine months of 2002 were $563.1 million, compared with sales of $559.3 million for the same period in 2001. Net income for the first nine months of 2002 was $18.2 million ($0.56 per diluted share), compared with a net income of $0.1 million (less than $0.010.16 per diluted share) for the first nine monthsquarter of 2001.2002.
The 2001 results included a second quarter pretax charge of $26.4 million for asset impairment, restructuring and other charges. Excluding these charges, net income was $16.0 million ($0.49 per diluted share) for the first nine months of 2001.
The third quarter of 2002,2003, compared with the same period in 2001,2002, reflected higher sales in each operating segment except for the Electronics and Communications segment. The first nine months of 2002, compared with the same period in 2001, reflected highersegment and Systems Engineering Solutions segment, partially offset by lower sales in the Aerospace Engines and Components and the Energy Systems segment, flat sales in the Electronics and Communications segment and lower sales in the Systems Engineering Solutions segment.segments.
The increase in earnings for the thirdfirst quarter of 2002,2003, compared with the same period of 2001,2002, reflected improved results in the Electronics and Communications segment and the Systems Engineering Solutions segment, partially offset by lower results in the Aerospace Engines and Components segment and Energy Systems segment.Company’s other segments. The increasefirst quarter of 2003 included pretax non-cash pension expense of $1.7 million compared with pretax non-cash pension income of $0.6 million in earnings for the first nine monthsquarter of 2002,2002.
Cost of sales in total dollars was higher in the first quarter of 2003, compared with the same periods of 2001,period in 2002, which increased in line with higher sales and also reflected improved results in each business segment except for the Aerospace Engines and Components segment. Nethigher pension income was $1.7 million and $7.2 million for the first nine months of 2002 and 2001, respectively, and was $0.5 million and $2.3 million for the third quarter of 2002 and 2001, respectively. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $16.9 million and $14.6 million for the third quarter of 2002 and 2001, respectively. Excluding the second quarter 2001 charges, EBITDA were $47.0 million and $43.3 million for the nine months of 2002 and 2001, respectively.
expense as well as product mix differences. Cost of sales as a percentage of sales for the first nine monthsquarter of 20022003 was lower,slightly higher, compared with the same period in 2001 due to the inventory write-off discussed below in the second quarter of 2001 and also2002, which primarily reflected lower expenses associated with optoelectronic and broadband growth initiatives partially offset by mix and volume differences in 2002 and lowerhigher pension income. Cost of sales as a percentage of sales for the third quarter of 2002 was lower, compared with the same period in 2001 which reflected lower expenses associated with optoelectronic and broadband growth initiatives partially offset by lower pension income. Expenses related to the optoelectronic and broadband growth initiatives were lower by $10.8 million and $1.5 million for the first nine months and third quarter of 2002, respectively, compared with the same periods in 2001.expense. Selling, general and administrative expenses for the first nine months and third quarter of 20022003 as a percentage of sales were relatively flatlower, compared with the same periodsperiod in 2001.2002, which reflected lower selling, general and administrative and research and development expenses. Selling, general and administrative expenses for the first nine months and third quarter of 2002, in total dollars increasedwere higher in the first quarter of 2003, compared with the same period in 2002. This increase was in line with higher sales and also included selling, general and administrative expenses from Monitor Labs, acquired in September 2002, and higher aircraft product liability reserves which were partiallyseverance costs, offset in part, by the benefitslower research and development expenses. The first quarter of the restructuring programs initiated2003 includes a $0.3 million charge, in 2001. In the first nine months of 2001, other income reflects a gain of $1.7 millionexpense, related to the second quarter salepartial write-down of the Company’s share$2.3 million cost-based investment in a private company engaged in manufacturing and development of an optical components company.micro optics and microelectromechanical devices. The Company’s effective tax rate for the first nine months and third quarter of both 2002 and 20012003 was 39.0%, compared with an effective tax rate of 39.7%.
During for the secondfirst quarter of 2001, the Company took a pretax charge of $26.4 million for asset impairment ($7.4 million), restructuring and other charges ($8.7 million), inventory write-down ($10.0 million) and a pretax charge for discontinued operations ($0.3 million). The 2001 pretax charge included plans to exit, within 12 months, manufacturing for the following non-core product lines from its Electronics and Communications segment: industrial solid state relays and certain microwave switches and filters. The Company’s process control software and sodium iodide crystals product lines within its Systems Engineering Solutions segment were sold in the second quarter of 2001. Teledyne2002.
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Technologies also exited certain environmental programs within this same segment. Annual sales for these non-core product lines were approximately $10.0 million in 2000.
The pretax charges also included: pretax restructuring charges for employee termination benefits; the consolidation and downsizing of manufacturing operations; non-cancelable lease expenses; and transaction costs associated with the formation of Teledyne Energy Systems, Inc. Teledyne Technologies reduced its total workforce by approximately 14% during 2001. The Company recorded pretax asset impairment charges for equipment, net of expected sale proceeds, and goodwill related to product lines to be discontinued and the loss on the sale of non-core product lines. A pretax charge was also recorded in cost of sales for the write off of inventory from discontinued product lines and the write-down of excess inventory resulting from reduced customer demand.
While the original charge remained at $26.4 million at both December 30, 2001 and September 29, 2002, there were some changes in income statement classification as noted in the following table. Total charges by segment were as follows: $15.6 million in the Electronics and Communication segment; $5.6 million in the Energy Systems segment; $4.4 million in the Systems Engineering Solutions segment; and $0.3 million in the Aerospace Engines and Components segment. The Company also recorded a $0.2 million restructuring charge for its corporate office and a pretax charge of $0.3 million was recorded for discontinued operations. At September 29, 2002, Teledyne Technologies has a balance of approximately $0.6 million for future amounts to be spent in connection with the second quarter 2001 charge. The Company has exited the manufacturing of industrial solid state relays and certain microwave switches and filters from its Electronics and Communications segment. The following table details the components of the 2001 second quarter charge and the changes in estimate at September 29, 2002 (amounts in millions):
| Asset Impairments | ||||||||||||||||||||||||||||||||
| Property, | Restructuring | |||||||||||||||||||||||||||||||
| Plant and | Inventory | Discontinued | ||||||||||||||||||||||||||||||
| Equipment | Goodwill | Other | Terminations | Other | Write-down | Operations | Total | |||||||||||||||||||||||||
| Second quarter 2001 charge at year end 2001 | $ | 1.9 | $ | 1.8 | $ | 3.8 | $ | 5.7 | $ | 3.1 | $ | 9.8 | $ | 0.3 | $ | 26.4 | ||||||||||||||||
| Change in estimate 2nd Qtr 2002 | — | — | — | 0.4 | (1.0 | ) | 0.6 | — | — | |||||||||||||||||||||||
| Total charge | 1.9 | 1.8 | 3.8 | 6.1 | 2.1 | 10.4 | 0.3 | 26.4 | ||||||||||||||||||||||||
| Assets disposed | (1.9 | ) | (1.8 | ) | (3.8 | ) | — | — | (10.4 | ) | — | (17.9 | ) | |||||||||||||||||||
| Cash payments | — | — | — | (5.9 | ) | (1.7 | ) | — | (0.3 | ) | (7.9 | ) | ||||||||||||||||||||
| Liability as of Sept. 29, 2002 | $ | — | $ | — | $ | — | $ | 0.2 | $ | 0.4 | $ | — | $ | — | $ | 0.6 | ||||||||||||||||
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Review of Operations:
The following table sets forth the sales and operating profit (loss) for each segment (amounts in millions):
| Third Quarter | Nine Months | First Quarter | ||||||||||||||||||||||||
| 2002 | 2001(a) | 2002 | 2001(a) | 2003 | 2002 | |||||||||||||||||||||
Sales: | Sales: | Sales: | ||||||||||||||||||||||||
| Electronics and Communications | Electronics and Communications | $ | 92.6 | $ | 95.5 | $ | 277.3 | $ | 277.4 | Electronics and Communications | $ | 103.6 | $ | 90.5 | ||||||||||||
| Systems Engineering Solutions | Systems Engineering Solutions | 54.8 | 49.0 | 153.2 | 157.0 | Systems Engineering Solutions | 52.4 | 46.9 | ||||||||||||||||||
| Aerospace Engines and Components | Aerospace Engines and Components | 40.7 | 37.5 | 121.6 | 114.7 | Aerospace Engines and Components | 37.8 | 41.9 | ||||||||||||||||||
| Energy Systems | Energy Systems | 3.7 | 3.6 | 11.0 | 10.2 | Energy Systems | 3.4 | 4.0 | ||||||||||||||||||
Total sales | $ | 191.8 | $ | 185.6 | $ | 563.1 | $ | 559.3 | Total sales | $ | 197.2 | $ | 183.3 | |||||||||||||
Operating Profit (loss): | ||||||||||||||||||||||||||
| Electronics and Communications(b) | $ | 8.9 | $ | 6.7 | $ | 26.2 | $ | 1.0 | ||||||||||||||||||
| Systems Engineering Solutions(c) | 7.0 | 4.7 | 16.5 | 8.4 | ||||||||||||||||||||||
| Aerospace Engines and Components(d) | (0.1 | ) | 2.1 | 0.7 | 6.7 | |||||||||||||||||||||
| Energy Systems(e) | (0.8 | ) | (0.6 | ) | (2.0 | ) | (6.2 | ) | ||||||||||||||||||
Operating Profit: | Operating Profit: | |||||||||||||||||||||||||
| Electronics and Communications | Electronics and Communications | $ | 7.3 | $ | 8.3 | |||||||||||||||||||||
| Systems Engineering Solutions | Systems Engineering Solutions | 5.7 | 3.8 | |||||||||||||||||||||||
| Aerospace Engines and Components | Aerospace Engines and Components | 0.5 | 0.7 | |||||||||||||||||||||||
| Energy Systems | Energy Systems | (0.5 | ) | (0.3 | ) | |||||||||||||||||||||
Total segment operating profit | $ | 15.0 | $ | 12.9 | $ | 41.4 | $ | 9.9 | Total segment operating profit | 13.0 | 12.5 | |||||||||||||||
| Corporate expense | Corporate expense | (3.8 | ) | (3.9 | ) | |||||||||||||||||||||
| Interest and debt expense, net | Interest and debt expense, net | (0.1 | ) | (0.3 | ) | |||||||||||||||||||||
| Other income (expense) | Other income (expense) | (0.1 | ) | 0.2 | ||||||||||||||||||||||
Income before income taxes | 9.0 | 8.5 | ||||||||||||||||||||||||
| Provision for income taxes | Provision for income taxes | 3.5 | 3.4 | |||||||||||||||||||||||
Net income | Net income | $ | 5.5 | $ | 5.1 | |||||||||||||||||||||
Electronics and Communications
The Electronics and Communications segment’s thirdfirst quarter 2003 sales were $103.6 million, compared with first quarter 2002 sales were $92.6 million, compared with third quarter 2001 sales of $95.5$90.5 million. ThirdFirst quarter 2002 operating profit was $8.9$7.3 million, compared with operating profit of $6.7$8.3 million in the thirdfirst quarter of 2001. Sales for the first nine months of 2002 were $277.3 million, compared with $277.4 million for the same period of 2001. The first nine months of 2002 operating profit was $26.2 million, compared with operating profit of $1.0 million for the same period in 2002. The 2001 results included a second
First quarter pretax charge of $15.6 million related to asset impairments, restructuring and other charges. Excluding this charge, operating profit for the first nine months of 2001 would have been $16.6 million.
The third quarter and first nine months of 20022003 sales, compared with the same periodsperiod of 2001, primarily2002, reflected revenue growth in electronic manufacturing services, electronic instruments, defense electronic products and electronic instruments.commercial lighting products. The revenue growth in electronic manufacturing services was primarily driven by increased sales from theto military and medical markets. The revenue growth in electronic instruments resulted from the acquisition of Advanced Pollution Instrumentation inMonitor Labs Incorporated at the fourthend of the third quarter of 2001. The first nine months of 2002, compared with the same period in 2001, reflected higher sales ofstronger demand for geophysical sensors for the petroleum exploration market. The third quartermarket and first nine months of 2002stronger demand for other electronic measuring equipment. These sales increases were negatively impactedpartially offset by reduced sales of relays used in semiconductor test equipment and communications applications, as well ascontinued weakness in the commercial aviation market. The improvement inSegment operating profit reflectedwas negatively impacted by pension expense of $1.3 million in the first quarter of 2003 compared with pension income of $0.5 million in the first quarter of 2002. In addition, operating profit was favorably impacted by increased sales, a reduced workforce and decreased administrative expenses, as well as lower expensesreduction in the Company’s optoelectroniccommercial broadband communications investments and broadband growth initiatives. The third quarter and first nine months of 2002 were negatively impacted by lower non-cash pension income of $1.3 million and $3.8 million, respectively, compared with the same periods in 2001. The 2001 first nine months results included second quarter pretax charges of $15.6 million related to the following actions: $6.2 million of restructuring costs; $3.7 million of asset impairment charges; and $5.7 million to write off inventory for products to be discontinued and excess inventory.an improved cost structure.
1413
Systems Engineering Solutions
The Systems Engineering Solutions segment’s thirdfirst quarter 2003 sales were $52.4 million, compared with first quarter 2002 sales were $54.8 million, compared with thirdof $46.9 million. First quarter 2001 sales of $49.0 million. Third quarter 20022003 operating profit was $7.0$5.7 million, compared with operating profit of $4.7$3.8 million in the thirdfirst quarter of 2001. Sales for the first nine months of 2002 were $153.2 million, compared with $157.0 million for the same period of 2001. The first nine months of 2002 operating profit was $16.5 million, compared with operating profit of $8.4 million for the same period in 2001. The 2001 results included a second2002.
First quarter pretax charge of $4.4 million related to asset impairments, restructuring and other charges. Excluding this charge, operating profit for the first nine months of 2001 would have been $12.8 million.
The third quarter and first nine months of 20022003 sales, compared with the same periodsperiod of 2001,2002, reflected revenue growth in core defense and aerospace programs and reducedincreased work in environmental programs. Operating profit reflected the mix and timing of certain government programs, profit improvement due to the close out of a number of contracts and improved margins for environmental programs. The improvement inAdditionally, segment operating profit primarily reflected the recognition of government award fees based on collective performance achievements as well as lower general and administrative expenses. The third quarter and first nine months of 2002 were negativelywas unfavorably impacted by lower non-cash pension incomeexpense of $0.1 million and $0.5 million, respectively,in the first quarter of 2003 compared with the same periodsno pension cost in 2001. The 2001 results included second quarter pretax charges of $4.4 million related to the following actions: $0.5 million of restructuring costs; $3.7 million of asset impairment charges; and $0.2 million to write off inventory for products to be discontinued and excess inventory.2002.
Aerospace Engines and Components
The Aerospace Engines and Components segment’s thirdfirst quarter 2003 sales were $37.8 million, compared with first quarter 2002 sales were $40.7of $41.9 million. First quarter 2003 operating profit was $0.5 million, compared with 2001 third quarter sales of $37.5 million. The third quarter 2002 operating loss was $0.1 million, compared operating profit of $2.1$0.7 million in the thirdfirst quarter of 2001. Sales for the first nine months of 2002 were $121.6 million, compared with $114.7 million for the same period of 2001. Operating profit for the first nine months of 2002 was $0.7 million, compared with $6.7 million for the same period of 2001. The 2001 results included a second2002.
First quarter pretax charge of $0.3 million related to a pretax restructuring charge for employee termination costs. Excluding this charge, operating profit for the first nine months of 2001 would have been $7.0 million.
The third quarter and first nine months of 20022003 sales, compared with the same periodsperiod of 2001,2002, reflected revenue growth in OEM piston engines which was more than offset by reduced sales of aftermarket products and spares, as well as revenue growth in the turbine engine business.services. Operating profit for the third quarter and first nine months of 2002 in the piston engine business was negativelypositively impacted by net charges totaling $3.3 millionan improved cost structure, productivity improvements and $7.2 million, respectively, related to higher aircraftlower requirements for product liability reserves and increasedpartially offset by higher insurance premiums. The nine month 2002 results, compared to the same period in 2001 included crankshaft litigation costs (net of settlement awards).premium costs. Sales in thefrom turbine engine business in both 2002 periods reflected higher revenues ofengines were unfavorably impacted by lower revenue from spare parts for Air Force training aircraft. In addition,aircraft, partially offset by favorable Joint Air-to-Surface Standoff Missile (JASSM) sales. Operating profit for turbine engines was lower in the first quarter of 2003, compared with the first quarter of 2002, which corresponded with lower sales. Additionally, segment operating profit for the third quarter and first nine months of 2002 was negativelyunfavorably impacted by lower non-cashpension expense of $0.3 million in the first quarter of 2003 compared with pension income of $0.4$0.1 million and $1.0 million, respectively, compared within the same periods in 2001.
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first quarter of 2002.
Teledyne Energy Systems
The Energy Systems segment’s thirdfirst quarter 2003 sales were $3.4 million, compared with first quarter 2002 sales were $3.7 million, compared with third quarter 2001 sales of $3.6$4.0 million. The thirdfirst quarter 20022003 operating loss was $0.8$0.5 million, compared with an operating loss of $0.6$0.3 million in the thirdfirst quarter of 2001. Sales for2002.
First quarter 2003 sales reflected lower revenues from certain government cost-plus-fixed-fee contracts due to an improved cost structure that resulted in lower revenue, as well as lower contract billings under our NASA PEM Fuel Cell program as the first nine monthsphase of 2002the contract came to conclusion. Commercial sales were $11.0 million, compared with $10.2 million for the same period of 2001. The first nine months of 2002 operating loss was $2.0 million, compared with an operating loss of $6.2 million for the same periodrelatively flat in 2001. The 2001 results included a second quarter pretax charge of $5.6 million related to asset impairments, restructuring and other charges. Excluding this charge the operating loss for the first nine monthsquarter of 2001 would have been $0.6 million.
Third quarter and first nine months 2002 sales,2003 compared with the same periodsfirst quarter of 2001, reflected growth in government program sales. 2002.
The thirdfirst quarter and first nine months of 20022003 operating loss reflected additional researchincluded charges for contract claims, offset in part by lower manufacturing overhead and development expenses for fuel cell programs and higher general and administrative expenses. The third quarter 2002 results also reflected greater than anticipated costs on certain hydrogen generators. The 2001 results included second quarter pretax charges of $5.6 million related to the following actions: $1.0 million of restructuring costs; $0.1 million of asset impairment charges; and $4.5 million to write off inventory for products to be discontinued and excess inventory.
Financial Condition, Liquidity and Capital Resources
Teledyne Technologies’ net cash providedused by operating activities from continuing operations was $59.6$1.7 million for the first ninethree months of 2002,2003, compared with net cash usedprovided from continuing operations of $17.5$9.0 million for the same period of 2001.2002. The increasenet usage of cash in cash flow in 2002,the first quarter of 2003, compared with 2001, reflectedcash provided in the receiptfirst quarter of a federal income tax refund of $5.7 million in April 2002, compared with income tax payments in 2001 for the final required tax payment for the twelve months of 2000. In addition, 2002 reflectedwas primarily driven by an increase in accounts payable, compared with a decreaseinventories from year-end 2002 due to purchases of long lead-time items in accounts payable in 2001. The net cash used by discontinued operations in 2002our defense electronics and 2001 primarily reflected purchase price adjustment payments.medical businesses.
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Working capital decreasedincreased to $90.2$107.2 million at September 29, 2002,March 30, 2003, compared with $115.3$102.6 million at the end of 2001.2002. The decreaseincrease in working capital was primarily due to higher accounts payable, payroll and accrued liability balances, partially offset by higherthe increase in inventory balances.noted above. Some of the Company’s customers have been undergoing bankruptcies, none of which currently are expected to have a material adverse effect on the Company.
Teledyne Technologies’ net cash used by investing activities from continuing operations was $33.6$3.1 million and $23.3$3.5 million for the first ninethree months of 2003 and 2002, respectively and 2001, respectively. The 2002 amount includes the acquisition of Monitor Labs Incorporated (Monitor Labs) for $24.0 million and capital expenditures of $10.0 million. The 2001 amount was primarily for capital expenditures. Capital expenditures were $20.8 million for the first nine months of 2001. For the first nine months of 2001, capital spending included $7.4 million of expenditures committed in 2000. In 2001, Teledyne Technologies invested $2.5 million in a manufacturer of micro lenses for optical data recording and optical communications.
On September 27, 2002, Teledyne Technologies acquired Monitor Labs from Spirent plc for $24 million in cash. Monitor Labs is a supplier of environmental monitoring instrumentation for the detection, measurement, and reporting of air pollutants with locations in Englewood, Colorado and Gibsonia, Pennsylvania. As Monitor Labs was acquired at the end of the third quarter, its results of operations will be included in the consolidated financial statements beginning with the fourth quarter 2002. At September 29, 2002, theThe excess of the purchase price notover the fair value of net assets acquired has been allocated to specificidentifiable intangible assets has been recorded asincluding goodwill on the balance sheet. Teledyne Technologies is currently in the process of allocating this amount ($19.5 million) between goodwill and any identifiable intangibles in accordance with SFAS No. 141.
In July 2001, Teledyne Technologies combined its Energy Systems business unit with assets of Florida-based Energy Partners, Inc., to create majority-owned (86%) Teledyne Energy Systems, Inc. This transaction was recorded as a transfer of net assets between entities under common control in accordance with SFAS No. 141.
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Financing activities usedprovided net cash of $28.3$1.3 million in the first ninethree months of 2002,2003, compared with cash providedused of $34.1$9.9 million for the same period of 2001.2002. The 2002 amount primarily reflected net repayments of long-term debt. The 2001 amount primarily reflected net borrowings of long-term debt. Both periods include proceeds from the exercise of stock options.
Teledyne Technologies’ principal capital requirements are to fund working capital needs, capital expenditures and debt service requirements. It is anticipated that operating cash flow, together with available borrowings under the credit facility described below, will be sufficient to meet these requirements in the year 2002.2003. Teledyne Technologies currently expects capital expenditures to be in the range of approximately $16$20 million to $18$21 million in 2002.2003.
A $200.0 million five-year revolving credit agreement that terminates in November 2004 was arranged with a syndicate of banks in connection with the Company’s 1999 spin-off from Allegheny Technologies Incorporated (ATI). At September 29, 2002,March 30, 2003, Teledyne Technologies had no amounts outstanding under the facility. Excluding interest and fees, no payments are due under the credit facility until the facility terminates. Available borrowing capacity under the credit facility was $200.0 million at September 29, 2002, compared with $170.0 millionMarch 30, 2003 and at year end 2001.2002. The credit agreement requires the Company to comply with various financial covenants and restrictions. It prohibits stock repurchases, the declaration of dividends or making other specified distributions in aggregate amounts exceeding 25% of cumulative net income ($15.718.9 million as of September 29, 2002)March 30, 2003) after the effective date of the credit agreement.
In March 2003, Teledyne Technologies announced that its Board of Directors authorized the Company to purchase from time to time up to one million shares of its Common Stock in open market or privately negotiated transactions through March 31, 2004. No repurchases have been made under this program.
Critical Accounting Policies
In Teledyne Technologies’ Annual Report on Form 10-K for the fiscal year ended December 30, 2001 (2001 Form 10-K), the Company identified fiveOur 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. TheOur critical accounting policies include:continue to be the following: revenue recognition,recognition; impairment of long-lived assets,assets; accounting for income taxes,taxes; inventories and related allowance for obsolete and excess inventory, andinventory; aircraft product liability reserves.reserve; and accounting for pension plans. 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 in the 2001 Form 10-K.
We continue to monitor our accounting for aircraft product liability reserves, and due to a litigious environment, have increased our reserves in accordance with current experience.
Teledyne Technologies has a defined benefit pension plan covering substantially all of its employees. The Company accounts for its defined benefit pension plan in accordance with Statement of Financial Accounting Standards (SFAS) No. 87—“Employers’ Accounting for Pensions”, which requires that amounts recognized in financial statements be determined on an actuarial basis, rather than as contributions are made to the plan. A significant element in determining the Company’s pension income (expense) in accordance with SFAS No. 87 is the expected return on plan assets. The Company has assumed, based upon the types of securities the plan assets are invested in and the long-term historical returns of these investments, that the long-term expected return on pension assets will be 9 percent. The assumed long-term rate of return on assets is applied to the market-related value of plan assets at the end of the previous year. This produces the expected return on plan assets that isStatements. included in annual pension income (expense) for the current year. The cumulative difference between this expected return and the actual returnTeledyne Technologies’ Annual Report on plan assets is deferred and amortized into pension income or expense over future periods. Given today’s volatile and declining market, SFAS No. 87— “Employers’ Accounting for Pensions” is having a greater impact on the Company. If the performance of the equity markets does not improve relative to September 29, 2002, the Company may record a non-cash charge to stockholders’ equity of approximately $30 million as further discussed on the Outlook section of this Form 10-Q. See also Note 13 to the Consolidated Financial Statements in the 2001 Form 10-K for the Company’s pension plan disclosures.fiscal year ended December 29, 2002 (2002 Form 10-K).
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Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141—“Business Combinations,” which changes the accounting for business combinations. This statement supersedesStatement of Financial Accounting Principles Board (APB) Opinion No. 16, “Business Combinations,” and amends or supersedes a number of interpretations of APB 16. Also in June 2001, the FASB issued SFAS No. 142—“Goodwill and Other Intangible Assets,” which changes the accounting for goodwill. This statement supersedes APB Opinion No. 17, “Intangible Assets,” but carries forward some of its provisions. In accordance with the provisions of SFAS No. 142, goodwill will no longer be amortized, but must be reviewed for impairment. Teledyne Technologies’ goodwill amortization for fiscal years 2001, 2000 and 1999 was $0.6 million, $0.8 million and $0.7 million, respectively. Teledyne Technologies’ goodwill amortization for the third quarter and first nine months of 2001 was $0.1 million and $0.5 million, respectively. SFAS No. 142 was effective January 1, 2002, except for certain provisions that apply to goodwill and intangible assets acquired after September 29, 2001.
Teledyne Technologies’ adoption of SFAS No. 141 and SFAS No. 142 did not have a material effect on its financial position or results of operations. Teledyne Technologies completed the initial step of the goodwill impairment test required by SFAS No. 142 and concluded that no adjustment to goodwill at the date of adoption was required. Had the non-amortization provisions of SFAS No. 142 been in effect in 2001, the impact on the net income and earnings per share is shown in the following table (amounts in millions, except per-share data):
| 2001 | |||||||||
| Third Quarter | Nine Months | ||||||||
Reported net income | $ | 5.7 | $ | 0.1 | |||||
| Add back: goodwill amortization | 0.1 | 0.5 | |||||||
| Tax benefit | — | (0.2 | ) | ||||||
| Adjusted net income | $ | 5.8 | $ | 0.4 | |||||
Basic earnings per share | |||||||||
| Reported net income | $ | 0.18 | $ | — | |||||
| Adjusted net income | $ | 0.18 | $ | 0.01 | |||||
Diluted earnings per share | |||||||||
| Reported net income | $ | 0.18 | $ | — | |||||
| Adjusted net income | $ | 0.18 | $ | 0.01 | |||||
In August 2001, the FASB issued SFAS No. 144—“Accounting for the Impairment or Disposal of Long-Lived Assets,” which addresses financial accounting and reporting for impairment or disposal of long-lived assets. It supersedes SFAS No. 121—“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and supersedes certain provisions of APB Opinion No. 30—“Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” and amends Accounting Research Bulletin No. 51—Consolidated Financial Statements. Teledyne Technologies’ initial adoption of SFAS No. 144, effective January 1, 2002, did not have a material effect on its financial position or results of operations.
In June 2001, the FASB issued SFASStandards (SFAS) No. 143—“Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Teledyne Technologies must implementTechnologies’ initial adoption of SFAS No. 143, by the first quarter ofeffective January 1, 2003, and doesdid not currently expect that its implementation will have a material impacteffect on the Company’sits financial position or results of operations.
18In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is generally effective for contracts entered into or modified after June 30, 2003 and is not expected to have a material impact on Teledyne Technologies’ financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34.” FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year end. The Company adopted the initial recognition and initial measurement provisions in the first quarter of 2003. The adoption of FIN 45 had no impact on Teledyne Technologies’ financial position or results of operations.
Outlook
Teledyne Technologies maintains a balanced portfolio of approximately 45% government and 55% commercial businesses. The Company’s 2003 outlook reflects anticipated growth in the Company’s defense electronics and instrumentation businesses, but no recovery in the Company’s commercial aviation and certain short cycle markets. In its government and defense businesses as a whole,Systems Engineering Solutions segment, while the Company expects modest revenue growthanticipates receiving government award and incentive fees under certain contracts in 2002 compared2003, there is no assurance that such award and incentive fees will be equal to 2001, primarily driven by demand for defense electronics products and systems engineering services. Given the current state of the commercial aviation market, Teledyne expects sales of avionics equipment to declinesimilar fees received in 2002 compared to 2001. However, the Company expects revenue growth in its commercial instrumentation businesses to offset the sales decline in avionics.
Orders and sales for several of the Company’s short cycle electronics product lines, which include relays sold to the semiconductor and communications markets, were flat in the third quarter of 2002 compared to the second quarter of 2002. Teledyne Technologies currently expects orders and revenues in these businesses to be flat in the fourth quarter of 2002, compared with the third quarter of 2002.
GivenFurthermore, given the current state of the economy, rising insurance premiums, the increasingly litigious product liability claims environment, and the Company’s dependence on aftermarket aviation sales, the Company expects 2002does not expect a recovery in 2003 operating profit for the Aerospace Engines and Components segment to decrease significantly relative to 2001, despite an2002. The Company’s existing aircraft product liability policy expires in May 2003, and the Company is currently evaluating options relating to its insurance coverage. The Company’s current total cost for its aircraft product liability insurance is approximately $1.4 million per month, and the Company’s management had previously anticipated a 40% increase in revenues.cost for its aircraft product liability insurance after May 2003. However, based on recent discussions with several insurance carriers, the Company expects the total monthly cost of its aircraft product liability insurance to increase between approximately 70% and 85% after May 2003. The Company continues to explore strategic alternatives for its Aerospace Engines and Components segment.
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Although 2003 earnings visibility is limited, based on its current outlook, the product linesCompany’s management believes that second quarter and full year 2003 earnings per share will be in this segment,the range of approximately $0.17 to $0.19 and $0.62 to $0.72, respectively, including a possible divestiturethe higher insurance costs noted above and approximately $0.13 per share of one or more product lines.non-cash pension expense for the full year 2003.
Full year 20012002 earnings included $9.5$2.3 million or $0.18$0.04 per share in non-cash pension income. The Company currently expects approximately $2.3$7.0 million or $0.04$0.13 per share of non-cash pension incomeexpense in 2002.2003. The reduction in non-cash pension income reflected the completion of income associated with SFAS No. 87 transition asset amortization, as well as the decline in the value of the Company’s pension assets during 2000 and 2001.
Based on its current outlook, the Company estimates that fourth quarter and full year 2002 earnings per share will be in the range of approximately $0.20 to $0.22 and $0.76 to $0.78, respectively, including approximately $0.04 per share of non-cash pension income for the full year 2002. Full year 2001 earnings per share from continuing operations of $0.69 (excluding asset impairment, restructuring and other charges) would have been $0.51 per share, excluding $0.18 per share in non-cash pension income.
Givenreflects the continued decline in the value of the Company’s pension assets during 2002 and an anticipated reductionreductions in the expected rate of return and discount rate assumptions for the Company’s defined benefit plan, non-cash pension expense in 2003 is projected to be approximately $8.0 million, compared with non-cash pension income of $2.3 million in 2002. By December 29, 2002, the Company will likely lower itsplan. The Company’s assumed expected rate of return fromis currently 8.5%, compared to 9.0% to 8.5%in 2002, and its assumed discount rate fromis currently 7.0%, compared to 7.5% in 2002. Based on the Company’s current pension assumptions and the value of its pension assets as of March 31, 2003, the Company expects that non-cash pension expense in 2004 will be in the range of approximately $10.0 million to 7.0%.$12.0 million or $0.18 to $0.22 per share. Currently, Teledyne Technologies does not anticipate making a cash contributioncontributions to theits pension plan until 2004. UnderAlso, under one of its spin-off agreements, the earliestafter November 29, 2004 the Company will be able to billcharge pension costs to the U. S.U.S. Government under its various government contracts will be November 29, 2004.
SFAS No. 87 requires that a minimum pension liability be recorded if the value of pension assets is less than the accumulated pension benefit obligation (ABO) at the end of the year. If this condition exists as of December 29, 2002, the Company would record a non-cash charge to stockholders’ equity equal to the value of the prepaid pension asset currently recognized on the balance sheet and the required minimum pension liability, both net of deferred taxes. The effect of such a non-cash charge would be a reduction in stockholders’ equity and would not affect earnings. If the performance of the equity markets does not improve relative to September 29, 2002, the Company may record such a non-cash charge to stockholders’ equity of approximately $30 million.
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Although earnings visibility into 2003 is limited, the Company’s management estimates that full year 2003 earnings per share will be in the range of approximately $0.60 to $0.70, including approximately $0.15 per share of non-cash pension expense. Excluding pension expense, management believes that 2003 earnings per share will be in the range of approximately $0.75 to $0.85. The Company’s 2003 outlook reflects anticipated growth in the Company’s defense electronics and instrumentation businesses, and no recovery in the Company’s short cycle electronics and commercial aviation markets. In addition, in its government engineering services businesses, there can be no assurance that recent government award and incentive fees based on collective performance achievements will continue in 2003.
EARNINGS PER SHARE SUMMARY(Diluted earnings per common share from continuing operations)contracts.
| 2003 Full Year Outlook | 2002 Full Year Outlook | 2001 Results | 2003 Full Year Outlook | 2002 Results | 2001 Results | |||||||||||||||||||||||||||||||||
| Low | High | Low | High | Actual | Low | High | Actual | Actual | ||||||||||||||||||||||||||||||
| Earnings per share (excluding net pension income (expense) and asset impairment, restructuring and other charges) | Earnings per share (excluding net pension income (expense) and asset impairment, restructuring and other charges) | $ | 0.75 | $ | 0.85 | $ | 0.72 | $ | 0.74 | $ | 0.51 | Earnings per share (excluding net pension income (expense) and asset impairment, restructuring and other charges) | $ | 0.75 | $ | 0.85 | $ | 0.73 | $ | 0.51 | ||||||||||||||||||
| Net pension income (expense) | (0.15 | ) | (0.15 | ) | 0.04 | 0.04 | 0.18 | Net pension income (expense) | (0.13 | ) | (0.13 | ) | 0.04 | 0.18 | ||||||||||||||||||||||||
| Earnings per share (excluding asset impairment, restructuring and other charges) | Earnings per share (excluding asset impairment, restructuring and other charges) | 0.60 | 0.70 | 0.76 | 0.78 | 0.69 | Earnings per share (excluding asset impairment, restructuring and other charges) | 0.62 | 0.72 | 0.77 | 0.69 | |||||||||||||||||||||||||||
| Asset impairment, restructuring and other charges | — | — | — | — | (0.48 | ) | Asset impairment, restructuring and other charges | — | — | — | (0.48 | ) | ||||||||||||||||||||||||||
| Earnings per share | Earnings per share | $ | 0.60 | $ | 0.70 | $ | 0.76 | $ | 0.78 | $ | 0.21 | Earnings per share | $ | 0.62 | $ | 0.72 | $ | 0.77 | $ | 0.21 | ||||||||||||||||||
Safe Harbor Cautionary Statement Regarding Outlook and Forward-Looking Information
From time to time the Company makes, and this report contains, forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, relating to orders, sales, operating profit, earnings, per share, cost-savings, growth opportunities, capital expenditures, pension matters and strategic plans. Actual results could differ materially from these forward-looking statements. Many factors, including changes in demand for products sold to the semiconductor, communications and commercial aviation markets, timely development of acceptable and competitive fuel cell products and systems, funding, continuation and award of government programs, receipt of (or failure to receive) government award and incentive fees based on collective performance achievements, of multiple contractors, the terms of the Company’s renewal of its current aircraft product liability insurance policy, customers’ acceptance of piston engine insurance-related price increases or surcharges, continued liquidity of our customers (including commercial airline customers) and economic and political conditions, could change the anticipated results.
Global responses to terrorism and other perceived threats increase uncertainties associated with forward-looking statements about our businesses. Various responses could realign government programs, and affect the composition, funding or timing of our programs. As happened after the September 11th terrorist attacks, reinstatement of flight restrictions would negatively impact the market for general aviation aircraft piston engines and components.
17
September 11th and various public company governance issues have had adverse impacts on the insurance markets greatly increasing insurance costs. The Company’s existing aircraft product liability insurance policy expires in May 2003 and our directors and officers policy expires in November 2003. In addition, the continuing downturn in the stock market has negatively affected the value of the Company’s pension assets. Absent improved market conditions, the Company will be required to make a contribution to its pension plan in 2004.
The Company continues to take action to assure compliance with the internal controls, disclosure controls and other requirements of the Sarbanes-Oxley Act of 2002. While the Company believes its 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 Teledyne Technologies’ growth strategy includes possible acquisitions, the Companywe cannot provide any assurance as to when, if or on what terms any acquisitions will be made. Acquisitions, including the recent acquisition of Monitor Labs Incorporated, involve various inherent risks, such as, among others, the Company’sour ability to integrate acquired businesses and to achieve identified financial and operating synergies. Also, the Companywe may not be able to sell or exit timely or on acceptable terms itsour remaining non-core or under-performing product lines, particularly given the current economic environment.
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’ 2001periodic filings with the Securities and Exchange Commission, including its 2002 Annual Report on Form 10-K under the caption “Risk Factors; Cautionary Statement as to Forward Looking Statements”.10-K. The Company assumes no duty to update forward-looking statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
There were no material changes in the information provided under “Item 7A, Quantitative and Qualitative Disclosure About Market Risk” included in Teledyne Technologies’ 20012002 Annual Report on Form 10-K. At September 29, 2002,March 30, 2003, there were no hedging contracts outstanding.
Item 4. Controls and Procedures
Teledyne Technologies’ disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that it files or submits, under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Within 90 days prior to the filing of this report, the Company’s Chairman, President and Chief Executive Officer and Senior Vice President and Chief Financial Officer, with the participation and assistance of other members of management, have reviewed the effectiveness of the Company’s disclosure controls and procedures and have concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in its SEC periodic filings.
Subsequent to that evaluation, there were no significant changes in our internal controls or in other factors that could significantly affect these controls. There also were no significant deficiencies or material weaknesses identified for which corrective actions needed to be taken.
The methods and processes utilized to evaluate and certify the Company’s financial and other information in this filing include, but are not limited to, the following:
2118
In September 2002, the Company formally constituted the Sarbanes-Oxley Disclosure Committee. Initial members include:
Robert J. Naglieri, Senior Vice President and Chief Financial OfficerJohn T. Kuelbs, Senior Vice President, General Counsel and SecretaryDale A. Schnittjer, Vice President and ControllerIvars R. Blukis, Chief Business Risk Assurance Officer (Internal Audit)Robyn E. Choi, Vice President of Administration and Assistant SecretaryMelanie S. Cibik, Vice President, Associate General Counsel and Assistant SecretaryShelley D. Green, TreasurerBrian A. Levan, Assistant ControllerJason VanWees, Director of Corporate Development and Investor Relations
Among its tasks, the Sarbanes-Oxley Disclosure Committee will vet disclosure issues to help the Company fulfill its disclosure obligations on a timely basis in accordance with SEC rules and regulations and is intended to be used as an additional resource for employees to raise questions regarding accounting, auditing, internal controls and disclosure matters. Our toll-free Corporate Ethics Help Line (1-877-666-6968) continues to be an alternative means to communicate concerns to the Company’s management.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Teledyne Technologies’ 2003 Annual Meeting of Stockholders (the “Annual Meeting”) was held on April 23, 2003. The following actions were taken at the Annual Meeting, for which proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended:
| 1. | The three nominees proposed by the Board of Directors were elected as Class I directors for a three-year term expiring at the 2006 Annual Meeting by the following votes: |
| Name | For | Withheld | ||||||
| Diane C. Creel | 28,116,636 | 800,760 | ||||||
| Paul D. Miller | 28,600,282 | 317,114 | ||||||
| Charles H. Noski | 28,597,911 | 319,485 | ||||||
| Other continuing directors of Teledyne Technologies include (1) Class II directors, Charles Crocker, Robert Mehrabian and Michael T. Smith, whose terms expire at the 2004 Annual Meeting, and (2) Class III directors, Robert P. Bozzone and Frank V. Cahouet whose terms expire at the 2005 Annual Meeting. Charles J. Queenan, Jr. is a Class III director whose term expires at the 2004 Annual Meeting in accordance with an extension granted under the Directors’ Retirement Policy. | |||
| 2. | A proposal to approve an amendment to the 1999 Non-Employee Director Stock Compensation Plan to increase the available shares of Teledyne Technologies Incorporated Common Stock by 200,000 shares to 400,000 shares was approved by a vote of 25,015,475 for versus 3,615,384 against. There were 286,537 abstentions and no broker non-votes with respect to this action. | ||
| 3. | A proposal to ratify the selection of Ernst & Young LLP as Teledyne Technologies’ independent public auditors for 2003 was approved by a vote of 28,216,436 for versus 659,972 against. There were 40,988 abstentions and no broker non-votes with respect to this action. |
Item 6. Exhibits and Reports on Form 8-K
| (a) | Exhibits |
| Exhibit 4 | Third Amendment to Credit Agreement | ||
| Exhibit 99.1 | 906 Certification — Robert Mehrabian | ||
| Exhibit 99.2 | 906 Certification — Robert J. Naglieri |
| (b) | Reports on Form 8-K | ||
| Teledyne Technologies filed no Reports on Form 8-K during the quarter ended | |||
| Teledyne Technologies filed a Current Report on Form 8-K on April 23, 2003, for the purpose of reporting, under Item 9 and Item 12, Teledyne Technologies results of operations for the first quarter ended March 30, 2003. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TELEDYNE TECHNOLOGIES INCORPORATED | |||||
| DATE: | May 14, 2003 | By: | /s/ Robert J. Naglieri | ||
| Robert J. Naglieri, Senior Vice President and Chief Authorized Officer) | |||||
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CERTIFICATION
I, Robert Mehrabian, Chairman, President and Chief Executive Officer of Teledyne Technologies Incorporated (the “registrant”), certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarterly period ended | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—14 and 15d—14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is prepared; | ||
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Date: November 12, 2002
/s/ Robert Mehrabian
CERTIFICATION
I, Robert J. Naglieri, Senior Vice President and Chief Financial Officer of Teledyne Technologies Incorporated (the “registrant”), certify that:
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| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and | ||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: November 12, 2002
May 14, 2003
| /s/ Robert Mehrabian Robert Mehrabian Chairman, President and Chief Executive Officer |
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/s/CERTIFICATION
I, Robert J. Naglieri,
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| 1. | I have reviewed this quarterly report on Form 10-Q for the quarterly period ended March 30, 2003 of Teledyne Technologies Incorporated; | |
| 2. | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a — 14 and 15d — 14) for the registrant and we have: |
| a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is prepared; | ||
| b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and | ||
| c) | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
| a) | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weakness in internal controls; and | ||
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and |
| 6. | The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Date: May 14, 2003
| /s/ Robert J. Naglieri Robert J. Naglieri Senior Vice President and Chief Financial Officer |
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Teledyne Technologies Incorporated
Index to Exhibits
| Exhibit Number | Description | |
| 4 | Third Amendment to Credit Agreement | |
| 99.1 | 906 Certification — Robert Mehrabian | |
| 99.2 | 906 Certification — Robert J. Naglieri |