OF THE SECURITIES EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 200230, 2003
OR
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 [X] No [ ]
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 March | |||
| 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 | 4 | |||||||||||
| Notes to Consolidated Condensed Financial Statements | 5 | |||||||||||
| Management’s Discussion and Analysis of | 12 | |||||||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 18 | ||||||||||
| Item 4. | Controls and Procedures | 18 | ||||||||||
| Part II | Other Information | 19 | ||||||||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 19 | ||||||||||
| Item 6. | Exhibits and Reports on Form 8-K | 19 | ||||||||||
| Signatures and Certifications | 20 | |||||||||||
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 200230, 2003 AND DECEMBER 30, 200129, 2002
(Amounts in millions, except share amounts)
| March 31, | December 30, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
Assets | ||||||||||
Current Assets | ||||||||||
| Cash and cash equivalents | $ | 7.0 | $ | 11.9 | ||||||
| Receivables, net | 120.1 | 108.7 | ||||||||
| Inventories, net | 55.0 | 56.1 | ||||||||
| Deferred income taxes, net | 15.4 | 18.4 | ||||||||
| Prepaid and income taxes receivable | 5.6 | 5.8 | ||||||||
| Prepaid expenses, note receivable and other | 9.1 | 8.4 | ||||||||
Total Current Assets | 212.2 | 209.3 | ||||||||
| Property, plant and equipment, at cost, net of accumulated depreciation and amortization of $117.3 at March 31, 2002 and $113.2 at December 30, 2001 | 79.1 | 80.2 | ||||||||
| Deferred income taxes, net | 7.5 | 7.9 | ||||||||
| Prepaid pension cost | 6.1 | 5.2 | ||||||||
| Goodwill, net | 26.2 | 26.2 | ||||||||
| Other assets | 20.1 | 20.5 | ||||||||
Total Assets | $ | 351.2 | $ | 349.3 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||
Current Liabilities | ||||||||||
| Accounts payable | $ | 42.4 | $ | 36.9 | ||||||
| Accrued liabilities | 58.7 | 57.1 | ||||||||
Total Current Liabilities | 101.1 | 94.0 | ||||||||
| Long-term debt | 19.5 | 30.0 | ||||||||
| Accrued postretirement benefits | 28.4 | 29.0 | ||||||||
| Other | 23.4 | 23.3 | ||||||||
Total Liabilities | 172.4 | 176.3 | ||||||||
Stockholders’ Equity | ||||||||||
| Common stock, $0.01 par value; outstanding shares 31,973,556 at March 31, 2002 and 31,859,839 at December 30, 2001 | 0.3 | 0.3 | ||||||||
| Additional paid-in capital | 128.5 | 128.0 | ||||||||
| Retained earnings | 49.7 | 44.5 | ||||||||
| Accumulated other comprehensive income | 0.3 | 0.2 | ||||||||
Total Stockholders’ Equity | 178.8 | 173.0 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 351.2 | $ | 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 INCOME
FOR THE THREE MONTHS ENDED MARCH 30, 2003 AND MARCH 31, 2002 AND APRIL 1, 2001
(Unaudited — Amounts in millions, except per-share amounts)
| First Quarter | |||||||||
| 2002 | 2001 | ||||||||
Sales | $ | 183.3 | $ | 189.7 | |||||
Costs and expenses | |||||||||
| Cost of sales | 139.0 | 146.3 | |||||||
| Selling, general and administrative expenses | 35.7 | 35.3 | |||||||
| 174.7 | 181.6 | ||||||||
Operating profit | 8.6 | 8.1 | |||||||
| Interest and debt expense, net | 0.3 | 0.3 | |||||||
| Other income | 0.2 | 0.1 | |||||||
Income before income taxes | 8.5 | 7.9 | |||||||
| Provision for income taxes | 3.4 | 3.1 | |||||||
Net Income | $ | 5.1 | $ | 4.8 | |||||
| Diluted earnings per common share | $ | 0.16 | $ | 0.15 | |||||
| Weighted average diluted common shares outstanding | 32.5 | 32.5 | |||||||
| 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 THREE MONTHS ENDED MARCH 30, 2003 AND MARCH 31, 2002 AND APRIL 1, 2001
(Unaudited — Amounts in millions)
| First Quarter | |||||||||||
| 2002 | 2001 | ||||||||||
| CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||
| Net income from continuing operations | $ | 5.1 | $ | 4.8 | |||||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Depreciation and amortization | 5.1 | 5.4 | |||||||||
| Deferred income taxes | 3.4 | 5.0 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Increase in accounts receivables | (11.4 | ) | (2.4 | ) | |||||||
| (Increase) decrease in inventories | 1.1 | (16.1 | ) | ||||||||
| Increase in prepaid expenses and other assets | (0.7 | ) | (0.5 | ) | |||||||
| Increase (decrease) in accounts payable | 5.5 | (2.0 | ) | ||||||||
| Increase (decrease) in accrued liabilities | 1.6 | (2.5 | ) | ||||||||
| (Increase) decrease in prepaid income taxes, net | 0.2 | (12.3 | ) | ||||||||
| Increase (decrease) in other long-term liabilities | 0.6 | (2.2 | ) | ||||||||
| Decrease in accrued pension obligation | (0.9 | ) | (2.5 | ) | |||||||
| Decrease in accrued postretirement benefits | (0.6 | ) | (0.5 | ) | |||||||
| Other operating, net | — | 0.8 | |||||||||
| Net cash flow from continuing operations | 9.0 | (25.0 | ) | ||||||||
| Net cash flow from discontinued operations | (0.5 | ) | (0.9 | ) | |||||||
| Net cash provided (used) by operating activities | 8.5 | (25.9 | ) | ||||||||
| CASH FLOW FROM INVESTING ACTIVITIES | |||||||||||
| Purchases of property, plant and equipment | (3.5 | ) | (9.4 | ) | |||||||
| Other investing, net | — | (3.6 | ) | ||||||||
| Net cash used by investing activities | (3.5 | ) | (13.0 | ) | |||||||
| CASH FLOW FROM FINANCING ACTIVITIES | |||||||||||
| Net proceeds from (repayments of) long-term debt | (10.5 | ) | 27.7 | ||||||||
| Proceeds from exercise of stock options and other, net | 0.6 | 0.9 | |||||||||
| Net cash provided (used) by financing activities | (9.9 | ) | 28.6 | ||||||||
| Decrease in cash and cash equivalents | (4.9 | ) | (10.3 | ) | |||||||
| Cash and cash equivalents—beginning of period | 11.9 | 14.9 | |||||||||
| Cash and cash equivalents—end of period | $ | 7.0 | $ | 4.6 | |||||||
| 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 STATEMENTS
March 31, 200230, 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 March | ||
| 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). | ||
| In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) |
5
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| 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 | ||
| 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 |
| 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 | |
| On September 27, 2002, Teledyne Technologies acquired Monitor Labs Incorporated from Spirent plc for | ||
| 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 | ||
| In December 2000, Teledyne Technologies sold the assets of |
6
| Asset Impairments | ||||||||||||||||||||||||||||||||
| Property, | Restructuring | Inventory | ||||||||||||||||||||||||||||||
| Plant and | Discontinued | |||||||||||||||||||||||||||||||
| Equipment | Goodwill | Other | Terminations | Other | Write-down | Operations | Total | |||||||||||||||||||||||||
| Second quarter 2001 charge | $ | 1.9 | $ | 1.8 | $ | 3.7 | $ | 6.1 | $ | 2.6 | $ | 10.0 | $ | 0.3 | $ | 26.4 | ||||||||||||||||
| Fourth quarter change in estimate | — | — | 0.1 | (0.4 | ) | 0.5 | (0.2 | ) | — | — | ||||||||||||||||||||||
| Total charge — fiscal year 2001 | 1.9 | 1.8 | 3.8 | 5.7 | 3.1 | 9.8 | 0.3 | 26.4 | ||||||||||||||||||||||||
| Assets disposed at March 31, 2002 | (1.5 | ) | (1.8 | ) | (3.6 | ) | — | — | (8.1 | ) | — | (15.0 | ) | |||||||||||||||||||
| Assets to be disposed | (0.4 | ) | — | — | — | — | (1.7 | ) | — | (2.1 | ) | |||||||||||||||||||||
| Cash payments | — | — | — | (5.0 | ) | (2.2 | ) | — | (0.3 | ) | (7.5 | ) | ||||||||||||||||||||
| Liability as of March 31, 2002 | $ | — | $ | — | $ | 0.2 | $ | 0.7 | $ | 0.9 | $ | — | $ | — | $ | 1.8 | ||||||||||||||||
| 3. | Comprehensive Income | |
| Teledyne Technologies’ comprehensive income is composed of net income, foreign currency translation adjustments and the unrealized gain or loss on marketable equity securities. Teledyne Technologies’ total 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 | |||||
| 4. | Earnings Per Share | |
| Basic and diluted earnings per share were computed based on net earnings. The weighted average number of common shares outstanding during the period was used in the calculation of basic earnings per share, 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): |
| First Quarter | First Quarter | |||||||||||||||
| 2002 | 2001 | 2003 | 2002 | |||||||||||||
BASIC EARNINGS PER SHARE | ||||||||||||||||
| Net income/earnings applicable to common stock | $ | 5.1 | $ | 4.8 | $ | 5.5 | $ | 5.1 | ||||||||
| Weighted average common shares outstanding | 32.0 | 31.6 | 32.2 | 32.0 | ||||||||||||
| Basic earnings per common share | $ | 0.16 | $ | 0.15 | $ | 0.17 | $ | 0.16 | ||||||||
DILUTED EARNINGS PER SHARE | ||||||||||||||||
| Earnings applicable to common stock | $ | 5.1 | $ | 4.8 | $ | 5.5 | $ | 5.1 | ||||||||
| Weighted average common shares outstanding | 32.0 | 31.6 | 32.2 | 32.0 | ||||||||||||
| Dilutive effect of exercise of options outstanding | 0.5 | 0.9 | 0.3 | 0.5 | ||||||||||||
| Weighted average diluted common shares outstanding | 32.5 | 32.5 | 32.5 | 32.5 | ||||||||||||
| Diluted earnings per common share | $ | 0.16 | $ | 0.15 | $ | 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. |
8
| 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 | March 31, 2002 | December 30, 2001 | March 30, 2003 | December 29, 2002 | ||||||||||||
| Raw materials and supplies | $ | 23.9 | $ | 24.3 | $ | 24.2 | $ | 23.7 | ||||||||
| Work in process | 53.4 | 52.0 | 72.0 | 65.7 | ||||||||||||
| Finished goods | 9.4 | 8.8 | 9.3 | 8.5 | ||||||||||||
| 86.7 | 85.1 | 105.5 | 97.9 | |||||||||||||
| Progress payments | (4.8 | ) | (1.9 | ) | (4.9 | ) | (4.9 | ) | ||||||||
| LIFO reserve | (26.9 | ) | (27.1 | ) | (26.3 | ) | (26.2 | ) | ||||||||
| Total inventories, net | $ | 55.0 | $ | 56.1 | $ | 74.3 | $ | 66.8 | ||||||||
| 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 | ||
| 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 |
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| likely that adjustments in the Company’s accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company’s results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, 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 March | ||
| 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. | ||
| 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 with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the |
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| 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 |
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| operations for that period. | ||
| Industry Segments | ||
| The following table presents Teledyne Technologies’ interim industry segment disclosures (amounts in millions): |
| First Quarter | ||||||||||||
| 2002 | 2001 | |||||||||||
Sales: | ||||||||||||
| Electronics and Communications | $ | 90.5 | $ | 91.8 | ||||||||
| Systems Engineering Solutions | 46.9 | 55.2 | ||||||||||
| Aerospace Engines and Components | 41.9 | 38.8 | ||||||||||
| Energy Systems | 4.0 | 3.9 | ||||||||||
Total sales | $ | 183.3 | $ | 189.7 | ||||||||
Operating Profit: | ||||||||||||
| Electronics and Communications | $ | 8.3 | $ | 6.2 | ||||||||
| Systems Engineering Solutions | 3.8 | 4.2 | ||||||||||
| Aerospace Engines and Components | 0.7 | 0.9 | ||||||||||
| Energy Systems | (0.3 | ) | 0.2 | |||||||||
Total segment operating profit | 12.5 | 11.5 | ||||||||||
| Corporate expense | 3.9 | 3.4 | ||||||||||
| Interest and debt expense, net | 0.3 | 0.3 | ||||||||||
| Other income | 0.2 | 0.1 | ||||||||||
Income before income taxes | 8.5 | 7.9 | ||||||||||
| Provision for income taxes | 3.4 | 3.1 | ||||||||||
Net income | $ | 5.1 | $ | 4.8 | ||||||||
| First Quarter | |||||||||
| 2003 | 2002 | ||||||||
Sales: | |||||||||
| Electronics and Communications | $ | 103.6 | $ | 90.5 | |||||
| Systems Engineering Solutions | 52.4 | 46.9 | |||||||
| Aerospace Engines and Components | 37.8 | 41.9 | |||||||
| Energy Systems | 3.4 | 4.0 | |||||||
Total sales | $ | 197.2 | $ | 183.3 | |||||
Operating Profit: | |||||||||
| Electronics and Communications | $ | 7.3 | $ | 8.3 | |||||
| Systems Engineering Solutions | 5.7 | 3.8 | |||||||
| Aerospace Engines and Components | 0.5 | 0.7 | |||||||
| Energy Systems | (0.5 | ) | (0.3 | ) | |||||
Total segment operating profit | 13.0 | 12.5 | |||||||
| Corporate expense | (3.8 | ) | (3.9 | ) | |||||
| 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 | |||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Teledyne Technologies’ first quarter 20022003 sales were $183.3$197.2 million, compared with sales of $189.7$183.3 million for the same period in 2001.2002. Net income for the first quarter of 20022003 was $5.1$5.5 million ($0.160.17 per diluted share), compared with net income of $4.8$5.1 million ($0.150.16 per diluted share) for the first quarter of 2001.2002.
The decrease in sales for the first quarter of 2002,2003, compared with the same period in 2001,2002, reflected significantly lower sales in the Systems Engineering Solutions segment as well as slightly lowerhigher sales in the Electronics and Communications segment and Systems Engineering Solutions segment, partially offset in part by higherlower sales in the Aerospace Engines and Components segment.and the Energy Systems segments.
The increase in earnings for the first quarter of 2002,2003, compared with the same period of 2001,2002, reflected higher operating profitimproved results in the Electronics and CommunicationsSystems Engineering Solutions segment, partially offset by lower operating profitresults in the Company’s other three segments. NetThe first quarter of 2003 included pretax non-cash pension expense of $1.7 million compared with pretax non-cash pension income wasof $0.6 million and $2.4 million forin the first quarter of 2002 and 2001, respectively. Earnings before interest, taxes, depreciation and amortization (EBITDA) were $13.9 million and $13.6 million for2002.
Cost of sales in total dollars was higher in the first quarter of 20012003, compared with the same period in 2002, which increased in line with higher sales and 2000, respectively.
also reflected higher pension expense as well as product mix differences. Cost of sales as a percentage of sales for the first quarter of 2003 was slightly higher, compared with the same period in 2002, waswhich primarily reflected higher pension expense. Selling, general and administrative expenses for the first quarter of 2003 as a percentage of sales were lower, compared with the same period in 2001 and2002, which reflected lower selling, general and administrative and research and development expenses. Selling, general and administrative expenses associated with growth initiatives of $4.4 million partially offset by mix and volume differences forin total dollars were higher in the first quarter of 2002. Selling, general and administrative expense for the first quarter of 2002 was higher2003, compared with the same period in 2001 both2002. This increase was in total dollarsline with higher sales and as a percentage of sales which reflected higher aircraft product liability reservesalso included selling, general and crankshaft litigation costs of $1.8 millionadministrative expenses from Monitor Labs, acquired in September 2002, and higher corporate expenses primarily drivenseverance costs, offset in part, by higher professional service fees.lower research and development expenses. The first quarter of 2003 includes a $0.3 million charge, in other expense, related to the partial write-down of the Company’s $2.3 million cost-based investment in a private company engaged in manufacturing and development of micro optics and microelectromechanical devices. The Company’s effective tax rate for the first quarter of 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, 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. Teledyne Technologies also is planning to exit certain environmental programs within this same segment. Annual sales for these non-core product lines were approximately $10.0 million in 2000. At December 30, 2001, the projected charges remained at $26.4 million. While the total amount remained the same, there were some changes in estimates as noted in the following paragraph and table.2002.
The pretax charges of $26.4 million as of December 30, 2001 were comprised of the following items. Teledyne Technologies recorded pretax restructuring charges of $8.8 million, of which $5.7 million was for employee termination benefits. Teledyne Technologies reduced its total workforce by approximately 14% during 2001. The plan for consolidation and downsizing of manufacturing operations included actions in the Electronics and Communications segment’s domestic locations as well as in a United Kingdom facility. The remaining $3.1 million of the restructuring charges were for consolidation expenses of $1.6 million; non-cancelable lease expenses of $0.6 million; and $0.9 million of transaction costs associated with the formation of Teledyne Energy Systems, Inc. The Company recorded pretax asset impairment charges of $7.5 million 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 for $9.8 million in cost of sales for the write off of inventory from discontinued product lines ($4.4 million) and the write down of excess inventory ($5.4 million) resulting from reduced customer demand. Total charges by segment were as follows: $15.6 million in the Electronics and Communication segment; $5.5 million in the Energy Systems segment; $4.5 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 March 31, 2002, Teledyne Technologies has a reserve of approximately $1.8 million for future amounts to be spent in connection with the second quarter charge of $26.4 million.
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| Asset Impairments | ||||||||||||||||||||||||||||||||
| Property, | Restructuring | Inventory | ||||||||||||||||||||||||||||||
| Plant and | Discontinued | |||||||||||||||||||||||||||||||
| Equipment | Goodwill | Other | Terminations | Other | Write-down | Operations | Total | |||||||||||||||||||||||||
| Second quarter 2001 charge | $ | 1.9 | $ | 1.8 | $ | 3.7 | $ | 6.1 | $ | 2.6 | $ | 10.0 | $ | 0.3 | $ | 26.4 | ||||||||||||||||
| Fourth quarter change in estimate | — | — | 0.1 | (0.4 | ) | 0.5 | (0.2 | ) | — | — | ||||||||||||||||||||||
| Total charge — fiscal year 2001 | 1.9 | 1.8 | 3.8 | 5.7 | 3.1 | 9.8 | 0.3 | 26.4 | ||||||||||||||||||||||||
| Assets disposed at March 31, 2002 | (1.5 | ) | (1.8 | ) | (3.6 | ) | — | — | (8.1 | ) | — | (15.0 | ) | |||||||||||||||||||
| Assets to be disposed | (0.4 | ) | — | — | — | — | (1.7 | ) | — | (2.1 | ) | |||||||||||||||||||||
| Cash payments | — | — | — | (5.0 | ) | (2.2 | ) | — | (0.3 | ) | (7.5 | ) | ||||||||||||||||||||
| Liability as of March 31, 2002 | $ | — | $ | — | $ | 0.2 | $ | 0.7 | $ | 0.9 | $ | — | $ | — | $ | 1.8 | ||||||||||||||||
Review of Operations:
The following table sets forth the sales and operating profit for each segment (amounts in millions):
| First Quarter | ||||||||||
| 2002 | 2001 | |||||||||
Sales: | ||||||||||
| Electronics and Communications | $ | 90.5 | $ | 91.8 | ||||||
| Systems Engineering Solutions | 46.9 | 55.2 | ||||||||
| Aerospace Engines and Components | 41.9 | 38.8 | ||||||||
| Energy Systems | 4.0 | 3.9 | ||||||||
Total sales | $ | 183.3 | $ | 189.7 | ||||||
Operating Profit: | ||||||||||
| Electronics and Communications | $ | 8.3 | $ | 6.2 | ||||||
| Systems Engineering Solutions | 3.8 | 4.2 | ||||||||
| Aerospace Engines and Components | 0.7 | 0.9 | ||||||||
| Energy Systems | (0.3 | ) | 0.2 | |||||||
Total segment operating profit | $ | 12.5 | $ | 11.5 | ||||||
| First Quarter | |||||||||
| 2003 | 2002 | ||||||||
Sales: | |||||||||
| Electronics and Communications | $ | 103.6 | $ | 90.5 | |||||
| Systems Engineering Solutions | 52.4 | 46.9 | |||||||
| Aerospace Engines and Components | 37.8 | 41.9 | |||||||
| Energy Systems | 3.4 | 4.0 | |||||||
Total sales | $ | 197.2 | $ | 183.3 | |||||
Operating Profit: | |||||||||
| Electronics and Communications | $ | 7.3 | $ | 8.3 | |||||
| Systems Engineering Solutions | 5.7 | 3.8 | |||||||
| Aerospace Engines and Components | 0.5 | 0.7 | |||||||
| Energy Systems | (0.5 | ) | (0.3 | ) | |||||
Total segment operating profit | 13.0 | 12.5 | |||||||
| Corporate expense | (3.8 | ) | (3.9 | ) | |||||
| 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 | |||||
Electronics and Communications
The Electronics and Communications segment’s first quarter 2003 sales were $90.5$103.6 million, compared with 2001 first quarter sales of $91.8 million. Operating income for the first quarter 2002 sales of $90.5 million. First quarter 2002 operating profit was $8.3$7.3 million, compared with operating incomeprofit of $6.2$8.3 million in the first quarter of 2001.2002.
First quarter 20022003 sales, compared with the same period of 2001,2002, reflected revenue growth in electronic manufacturing services, electronic instruments, defense electronic products and commercial lighting products. The revenue growth in electronic manufacturing services was primarily driven by increased sales to military and medical microelectronics.markets. The revenue growth in electronic instruments was partially driven byresulted from the acquisition of Advanced Pollution Instrumentation Inc. inMonitor Labs Incorporated at the fourthend of the third quarter of 2001. First quarter 2002, stronger demand for geophysical sensors for the petroleum exploration market and stronger demand for other electronic measuring equipment. These sales and operating profit, compared with the same period of 2001,increases were negatively impactedpartially offset by reduced sales of relays used in semiconductor test equipment and communications applications and a decrease in electronic manufacturing services, as well ascontinued weakness in the commercial aviation market. The significant improvement inSegment operating profit despitewas 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 $1.2 million reduction in non-cash pension income, reflected reduced workforcethe Company’s commercial broadband communications investments and decreased administrative expenses, as well as lower expenses in the company’s broadband growth initiatives.an improved cost structure.
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Systems Engineering Solutions
The Systems Engineering Solutions segment’s first quarter 20022003 sales were $46.9$52.4 million, compared with first quarter 20012002 sales of $55.2$46.9 million. First quarter 20022003 operating profit was $3.8$5.7 million, compared with operating profit of $4.2$3.8 million in the first quarter of 2001.2002.
First quarter 20022003 sales, compared with the same period of 2001,2002, reflected flat revenue growth in core aerospacedefense and defenseaerospace programs and were negatively impacted by reducedincreased work forin environmental programs, primarily chemical weapons demilitarization.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. Additionally, segment operating profit was negativelyunfavorably impacted by a $0.2pension expense of $0.1 million reduction in non-cashthe first quarter of 2003 compared with no pension income.cost in 2002.
Aerospace Engines and Components
The Aerospace Engines and Components segment’s first quarter 20022003 sales were $41.9$37.8 million, compared with first quarter 20012002 sales of $38.8$41.9 million. First quarter 20022003 operating profit was $0.7$0.5 million, compared with operating profit of $0.9$0.7 million in the first quarter of 2001.2002.
First quarter 20022003 sales, compared with the same period of 2001,2002, reflected revenue growth in OEM piston engines which was more than offset by reduced sales of aftermarket products and aftermarket products.services. Operating profit in the piston engine business increased due to higher revenues but was positively impacted by an improved cost structure, productivity improvements and lower requirements for product liability reserves partially offset by higher aircraft product liability reserves and crankshaft litigation costs of $1.8 million.insurance premium costs. Sales in thefrom turbine engine businessengines were negativelyunfavorably impacted by reduced development phase work and no shipments of HARPOON cruise missile engines, partially offset by higher revenues oflower 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 was negativelyunfavorably impacted by apension expense of $0.3 million reduction in non-cashthe first quarter of 2003 compared with pension income.income of $0.1 million in the first quarter of 2002.
Teledyne Energy Systems
The Energy Systems segment’s first quarter 20022003 sales were $4.0$3.4 million, compared with first quarter 20012002 sales of $3.9$4.0 million. The first quarter 20022003 operating loss was $0.3$0.5 million, compared with an operating profitloss of $0.2$0.3 million in the first quarter of 2001.2002.
First quarter 20022003 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 phase of the contract came to conclusion. Commercial sales were consistentrelatively flat in the first quarter of 2003 compared with the same periodfirst quarter of 2001. First2002.
The first quarter 20022003 operating profit reflected additional researchloss included charges for contract claims, offset in part by lower manufacturing overhead and development expenditures for fuel cell programs. In addition, operating profit was lower due to a $0.1 million reduction in non-cash pension income.general administrative expenses.
Financial Condition, Liquidity and Capital Resources
Teledyne Technologies’ net cash providedused by operating activities from continuing operations was $9.0$1.7 million for the first three months of 2002,2003, compared with net cash usedprovided from continuing operations of $25.0$9.0 million for the same period of 2001. Increase2002. The net usage of cash in cash flow in 2002,the first quarter of 2003, compared with 2001, reflected an inventory increase in 2001 resulting from the market downturncash provided in the Company’s short cycle electronics businesses and higher income tax payments in 2001 for the final required tax payment for the twelve monthsfirst quarter of 2000. This increase2002, was partially offsetprimarily driven by the effect of an increase in accounts receivable duringinventories from year-end 2002 compared with a much lower increasedue to purchases of long lead-time items in accounts receivable in 2001. In addition, the increase in cash flow in 2002, reflected an increase in accounts payable in 2002, compared with a decrease 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 $111.1$107.2 million at March 31, 2002,30, 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 balances and lower cash balances, partially offset by higher accounts receivable balances.the increase in inventory 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 $3.5$3.1 million and $13.0 million for the first three months of 2002 and 2001, respectively, and was primarily for capital expenditures. Capital expenditures were $3.5 million for the first three months of 2003 and 2002, compared with $9.4respectively and was primarily for capital expenditures.
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 same perioddetection, measurement, and reporting of 2001. Forair pollutants with locations in Englewood, Colorado and Gibsonia, Pennsylvania. The excess of the first three monthspurchase price over the fair value of 2001, capital spending included $5.3 million of expenditures committednet assets acquired has been allocated to identifiable intangible assets including goodwill in 2000. In 2001, Teledyne Technologies invested $2.5 million in a manufacturer of micro lenses for optical data recording and optical communications.accordance with SFAS No. 141.
Financing activities usedprovided net cash of $9.9$1.3 million in the first three months of 2002,2003, compared with cash providedused of $28.6$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 $20 million to $21 million in 2002. In April 2002, Teledyne Technologies received a federal income tax refund of $5.7 million.2003.
A $200$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 March 31, 2002,30, 2003, Teledyne Technologies had $15.0 millionno 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 $185.0$200.0 million at March 31, 2002, compared with $170 million30, 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 (which was $12.4($18.9 million as of March 31, 2002)30, 2003) after the effective date of the credit agreement. The
In March 2003, Teledyne Technologies announced that its Board of Directors authorized the Company also had $4.5to purchase from time to time up to one million outstanding under an uncommitted and unsecured bank facility atshares of its Common Stock in open market or privately negotiated transactions through March 31, 2002.2004. 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 reserve.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 StatementsStatements. included in Teledyne Technologies’ Annual Report on Form 10-K for the 2001fiscal year ended December 29, 2002 (2002 Form 10K.10-K).
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Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141—“Business Combinations,” which changes the accounting for business combinations. This statement supersedes 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 Accounting
14
Principles Board (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, 1999 and the first quarter of 2001 was $0.6 million, $0.8 million, $0.7 million and $0.2 million, respectively. The requirements of SFAS No. 141 were effective for any business combination that is completed after June 30, 2001. SFAS No. 142 was effective January 1, 2002, except for certain provisions that apply to goodwill and intangible assets acquired after June 30, 2001. Teledyne Technologies’ adoption of SFAS No. 141 and SFAF 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 the balance of goodwill at the date of adoption was required. If the non-amortization provisions of SFAS 142 been in effect in 2001, first quarter 2001 net income would have increased by $0.1 million to $4.9 million. Reported basic and diluted earnings per share would not have changed.
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 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, effective January 1, 2003, did not have a material effect on its financial position or results of operations.
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 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 and has not yet made a determination2003. The adoption of itsFIN 45 had no impact on theTeledyne Technologies’ financial statements.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, the Company expects modest revenue growth in 2002, primarily driven by demand for defense electronics products. Given the current state of the commercial aviation market, Teledyne Technologies expects sales of avionics equipment to decline in 2002; 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, increased slightly compared to the fourth quarter of 2001. Teledyne Technologies currently expects orders and revenues in these businesses to be flat in the second quarter of 2002, relative to the first quarter 2002. However,Systems Engineering Solutions segment, while the Company anticipates receiving government award and incentive fees under certain contracts in 2003, there is no assurance that orderssuch award and revenuesincentive fees will improve slightlybe equal to similar fees received in the second half of 2002.
A weak economic environment and temporary restrictions on general aviation airspace significantly impacted the 2001 performance of the Company’s Continental Motors aircraft piston engine business. However, orders and sales of aftermarket aviation products increased in the first quarter of 2002 relative to the first and fourth quarters of 2001. Nonetheless,Furthermore, given the current state of the economy, rising fuel and insurance costs,premiums, the increasingly litigious product liability claims environment, and the Company’s dependence on aftermarket aviation sales, the Company expects 2002 salesdoes not expect a recovery in 2003 operating profit for the Aerospace Engines and Components segment to be flat relative to 2001. In addition, as Teledyne Technologies continues2002. The Company’s existing aircraft product liability policy expires in May 2003, and the Company is currently evaluating options relating to pursueits insurance coverage. The Company’s current total cost for its aircraft product liability insurance is approximately $1.4 million per month, and the crankshaft litigation against certain suppliers,Company’s management had previously anticipated a 40% increase in cost for its aircraft product liability insurance after May 2003. However, based on recent discussions with a trial currently in progress,several insurance carriers, the Company expects the total monthly cost of its aircraft product liability insurance to incur additional legal expenses in 2002. Given the more stable market outlook inincrease between approximately 70% and 85% after May 2003. The Company continues to explore strategic alternatives for its Aerospace Engines and Components segment, the Company is exploring strategic alternatives for the product lines in this segment.
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Although 2003 earnings visibility is limited, based on its current outlook, the Company’s management believes that second quarter and full year 2003 earnings per share will be in the range of approximately $0.17 to $0.19 and $0.62 to $0.72, respectively, including the higher insurance costs noted above and approximately $0.13 per share of 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 reflectedreflects the completion of income associated with FAS 87 transition asset amortization as well as thecontinued decline in the value of the Company’s pension assets during 20002002 and 2001.reductions in the expected rate of return and discount rate assumptions for the Company’s defined benefit plan. The Company continuesCompany’s assumed expected rate of return is currently 8.5%, compared to anticipate approximately $10 million of additional cost savings9.0% in 2002, relativeand its assumed discount rate is currently 7.0%, compared to 2001, which should offset the reduction7.5% in non-cash pension income.2002. Based on the Company’s current pension forecast,assumptions and the value of its pension assets as of March 31, 2003, the Company expects that non-cash pension expense in 2003 is projected to be $3.6 million, compared with non-cash pension income of $2.3 million in 2002. At the present time, based on current assumptions including some improvement in market conditions, Teledyne Technologies anticipates that it will not have to make cash contributions to the pension plan until 2004.
Based on its current outlook, the company estimates that second quarter and full year 2002 earnings per share2004 will be in the range of approximately $0.15$10.0 million to $12.0 million or $0.18 and $0.66 to $0.78, respectively, including approximately $0.04$0.22 per shareshare. Currently, Teledyne Technologies does not anticipate making cash contributions to its pension plan until 2004. Also, under one of non-cashits spin-off agreements, after November 29, 2004 the Company will be able to charge pension income forcosts to 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.U.S. Government under various government contracts.
| 2003 Full Year Outlook | 2002 Results | 2001 Results | |||||||||||||||
| Low | High | Actual | Actual | ||||||||||||||
| 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) | (0.13 | ) | (0.13 | ) | 0.04 | 0.18 | |||||||||||
| 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 | ) | ||||||||||||
| 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, contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, relating to earnings, 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 communicationscommercial 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 the collective performance achievements, of multiple contractors, the outcometerms of the crankshaft litigation,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.
The September 11 terrorist attacksGlobal responses to terrorism and subsequent eventsother perceived threats increase uncertainties associated with forward-looking statements about our businesses. Various responses could realign government programs, and affect the Company’s business. For example,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 engineengines and components.
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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, reduced shipmentsthe continuing downturn in the stock market has negatively affected the value of commercial aviation aircraft, as well as the liquidity of major airlines, could negatively affect the Company’s Electronicspension 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 Communications segment.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 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 March 31, 2002,30, 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.
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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 | |||
| 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 March | |||
| 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 Financial Officer (Principal Financial Officer and 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 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 Mehrabian Robert Mehrabian Chairman, President and Chief Executive Officer |
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CERTIFICATION
I, Robert J. Naglieri, Senior Vice President and Chief Financial 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 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 |
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