SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

For the quarterly period ended March 30,September 28, 2003

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

For the transition period from ___________ to ___________

Commission file number 1-15295

_____________________

TELEDYNE TECHNOLOGIES INCORPORATED

(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]x No    [   ]o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yesx Noo

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 30,SEPTEMBER 28, 2003 AND DECEMBER 29, 2002
(Amounts in millions, except share amounts)

The accompanying notes are an integral part of these financial statements.

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TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED MARCH 30,SEPTEMBER 28, 2003 AND MARCH 31,SEPTEMBER 29, 2002
(Unaudited — Amounts in millions, except per-share amounts)

The accompanying notes are an integral part of these financial statements.

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TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREENINE MONTHS ENDED MARCH 30,SEPTEMBER 28, 2003 AND MARCH 31,SEPTEMBER 29, 2002
(Unaudited — Amounts in millions)

					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.

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TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

March 30,September 28, 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 29, 2002 (2002 Form 10-K).

		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 30,September 28, 2003, and the consolidated results of operations for the three and nine months then ended and the cash flows for the threenine months then ended. The results of operations and cash flows for the periodperiods ended March 30,September 28, 2003, are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year.

		Certain financial statements and notes for the prior year have been changed to conform to the 2003 presentation.

		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).
		Recent Accounting Pronouncements

In June 2001,May 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143—“Accounting150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (SFAS No. 150). This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. It represents a significant change in practice in the accounting for a number of financial instruments, including mandatorily redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. SFAS No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the first interim financial reporting period beginning after June 15, 2003, except for noncontrolling interests of a limited-life subsidiary which has been deferred indefinitely. As Teledyne Technologies currently has no financial instruments that would be subject to SFAS No. 150, the adoption will have no impact on the Company.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 requires companies to evaluate variable interest entities to determine whether to apply the consolidation provisions of FIN 46 to those entities. Companies must apply FIN 46 to entities created after January 31, 2003, and to variable interest entities in which a company obtains an interest after that date. In October 2003, the FASB deferred the effective date to the first fiscal year or interim period ending after December 15, 2003, to variable interest entities in which a company holds a variable interest that is acquired before February 1, 2003. Teledyne Technologies’ adoption of FIN 46 will have no impact on the Company’s consolidated results of operations or financial position.

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		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.costs (SFAS No. 143). Teledyne Technologies’ 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.”Activities” (SFAS No. 149). 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 materialhad no 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.”34” (FIN 45). FIN

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		45 elaborates ondescribes 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.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):

2.

Business Combinations and Discontinued Operations

On June 27, 2003, Teledyne Technologies acquired from Spirent plc its Aviation Information Solutions businesses (collectively “AIS”), which include Spirent Systems Wichita, Inc., Spirent Systems — Aerospace Solutions (Ottawa) Limited and assets of United Kingdom-based The Flight Data Company Limited, for $6.85 million in cash. AIS designs and manufactures aerospace data acquisition devices, networking products and flight deck and cabin displays. The acquisition of AIS provides Teledyne Technologies with advanced airborne file servers, data analysis software and information displays that are highly synergistic with Teledyne Controls’ data acquisition and communication systems that enhance flight safety and maintenance efficiency for airline and airfreight customers.

On May 16, 2003, Teledyne Technologies acquired Tekmar Company, a wholly owned subsidiary of Emerson Electric Co., for $13.5 million in cash. Tekmar Company, also known as Tekmar-Dohrmann, is a premier manufacturer of gas chromatography introduction systems and automated total organic carbon analyzers. Tekmar Company, located in Mason, Ohio, became a business unit of Teledyne Instruments, a group of electronic instrumentation businesses within Teledyne Technologies’ Electronics and Communications business segment. Tekmar Company’s product lines include a portfolio of front-end instruments that handle the sample preparation and treatment of volatile organic compounds analyzed in gas chromatographs. Tekmar Company also provides complete analytical systems for laboratory and industrial testing of total organic carbon.

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On September 27, 2002, Teledyne Technologies acquired Monitor Labs Incorporated 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. In November 2001,Monitor Labs became a business unit of Teledyne Technologies acquired Advanced Pollution Incorporated (API) for $25 million in cash. API is a designerInstruments.

		The results of Tekmar Company, Monitor Labs and manufacturer of advanced air quality monitoring instruments, based in San Diego, California. Monitor Labs’ and API’s resultsAIS are included in the Company’s consolidated financial statements sincefrom the date of each respective acquisition. Both API and Monitor Labs are part of Teledyne Instruments, a group of electronic instrumentation businesses within Teledyne’s Electronic and Communications business segment. In bothall acquisitions, the excess of the purchase price over the fair value of net assets acquired has been allocated to identifiable intangible assets including goodwill in accordance with SFAS No. 141.
		In July 2001, Teledyne Technologies combined its Energy Systems business unit with assets The allocations of Florida-based Energy Partners, Inc., to create majority-owned (86%) Teledyne Energy Systems, Inc. This transaction wasthe purchase price for the acquisitions of Tekmar Company and AIS are preliminary as they were recently acquired. The preliminary amount of goodwill 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 generatorsSeptember 28, 2003 for the Tekmar Company and thermoelectric power systems, as well as commercialization of proton exchange membrane (PEM) fuel cell stacks, test stands and systems.AIS acquisitions is $18.4 million.

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 reportedPayment made against reserves recorded as part of the Aerospace Engines and Components segment.sale are shown in the discontinued operation caption of the cash flow statement.

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3.		Comprehensive Income

Teledyne Technologies’ comprehensive income is composedcomprised of net income, foreign currency translation adjustments and the unrealized gain or loss on marketable equity securities. Teledyne Technologies’ total comprehensive income for the third quarter and first threenine months of 2003 and 2002 consist of the following:

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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):

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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.employees. Teledyne Technologies accounts for its stock option plans in accordance with APB Opinion No. 25—“Accounting25, “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 basedfair-value-based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of StatementSFAS No. 123 to require interim and annual disclosures about the method of accounting for stock basedstock-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.

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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 usingunder the SFAS No. 123 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):

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 $9.6$22.3 million and $15.4 million at March 30,September 28, 2003 and December 29, 2002, respectively.

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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):

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8.		Supplemental Balance Sheet Information

Goodwill primarilyThe increase in goodwill in 2003 includes goodwill acquired as part of the Tekmar Company and AIS acquisitions of APIas described in 2001 and Monitor Labs in 2002.Note 2. Accrued liabilities included salaries and wages of $25.6$32.4 million and $27.8 million at March 30,September 28, 2003 and December 29, 2002, respectively. Other long-term liabilities included reserves for self-insurance, deferred compensation liabilities and environmental reserves.

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):

9.

Income Taxes

The Company’s effective tax rate for the third quarter and the first nine months of 2003 was 19.2% and 31.3%, respectively, compared with an effective tax rate of 39.7% for the same periods of 2002. The third quarter and first nine months of 2003 reflected an income tax benefit of $2.4 million due to the reversal of an income tax contingency reserve which was determined to be no longer needed during the third quarter of 2003. Excluding this benefit, the Company’s effective tax rate for the third quarter and the first nine months of 2003 would have been 39%.

10.		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 2002 Form 10-K, environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable. In many cases, however, investigations are not yet at a stage where the Company has been able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss, or certain components thereof. Estimates of the Company’s liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required, and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceeds, it is likely that adjustments in the 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

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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,

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		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 30,September 28, 2003, the Company’s reserves for environmental remediation obligations totaled approximately $2.2$1.9 million, of which approximately $0.6$0.3 million were included in current liabilities. The Company periodically evaluates whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties other than participating potentially responsible parties.

		The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and willexpects to 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. Although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to result in suspension or debarment of the Company, or that is otherwise likely to have a material adverse effect on the Company’s financial condition or liquidity. The resolution in any reporting period of one or more of these matters, however, could have a material adverse effect on the Company’s results of operations for that period.

		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 informed that the U.S. Government has declined to intervene in a civil lawsuit filed under seal more than four years ago. The Company continuesWhile the court granted the Company’s motion to defend vigorouslydismiss the on-going civil lawsuit.lawsuit, the decision has been appealed.

		The Tax Sharing and Indemnification Agreement between ATI and Teledyneentered into with Allegheny Technologies Incorporated (ATI), in connection with the November 29, 1999 spin-off, 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.

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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 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 liquidity. The resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of

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operations for that period.

10.11.		Industry Segments

The following table presents Teledyne Technologies’ interim industry segment disclosures (amounts in millions):

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Teledyne Technologies’ firstthird quarter 2003 sales were $197.2$215.7 million, compared with sales of $183.3$191.8 million for the same period in 2002. Net income for the third quarter of 2003 was $9.9 million ($0.30 per diluted share), compared with net income of $6.9 million ($0.21 per diluted share) for the third quarter of 2002. Sales for the first nine months of 2003 were $618.3 million, compared with sales of $563.1 million for the same period in 2002. Net income for the first quarternine months of 2003 was $5.5$21.9 million ($0.170.67 per diluted share), compared with net income of $5.1$18.2 million ($0.160.56 per diluted share) for the first nine months of 2002. Net income for the third quarter and first nine months of 2003 included a $2.4 million one-time income tax benefit, resulting from the reversal of an income tax contingency reserve in the third quarter of 2002.2003.

The third quarter and the first quarternine months of 2003, compared with the same periodperiods in 2002, primarily reflected higher sales in the Electronics and Communications segment and Systems Engineering Solutions segment, partially offset by lowernotwithstanding a difficult environment in the some of the companies commercial markets. The higher sales in the Aerospace EnginesElectronics and ComponentsCommunications segment resulted from both organic growth and the Energy Systems segments.strategic acquisitions, including Monitor Labs, acquired in September 2002, Tekmar Company, acquired in May 2003, and Spirent’s Aviation Information Solutions businesses, acquired in June 2003.

The increase in earnings for the firstthird quarter of 2003, compared with the same period of 2002, reflected improved results in the Electronics and Communications and Energy Systems Engineering Solutions segment,segments, partially offset by lower results in the Company’s otherSystems Engineering Solutions and the Aerospace Engines and Components segments. The firstthird quarter of 2003 included pretax non-cash pension expense of $1.7 million compared with pretax non-cash pension income of $0.6$0.5 million in the third quarter of 2002. The increase in earnings for the first nine months of 2003, compared with the same period of 2002, reflected improved results in the Systems Engineering Solutions, Aerospace Engines and Components and Energy Systems segments, partially offset by lower results in the Electronics and Communications and Aerospace Engines and Components segments. The first nine months of 2003 included pretax non-cash pension expense of $5.1 million compared with pretax non-cash pension income of $1.5 million in the first quarternine months of 2002.

Cost of sales in total dollars was higher in both the third quarter and the first quarternine months of 2003, compared with the same periodperiods in 2002, which increased2002. The increase was in line with higher sales and also reflected higher pension expense, as well aspartially offset by product mix differences. Cost of sales as a percentage of sales for the third quarter and first quarternine months of 2003 was slightly higher compared with the same period inof 2002 which primarilyand reflected higher pension expense. expense and sales mix differences, partially offset by a favorable LIFO adjustment. The first nine months of 2003 also reflected an improvement in cost of sales as a percentage of sales due to finalization of negotiations of award and incentive fees for work performed on certain contracts in prior years and higher year over year award and incentive fees for certain contracts in the Systems Engineering Solutions segment. Additionally, the first nine months of 2002 reflect the revised income statement classification of the restructuring and other charges originally recorded in the second quarter of 2001. The classification revision increased cost of sales by $0.6 million and decreased restructuring and other charges by $0.6 million but had no impact on income before taxes in 2002.

Selling, general and administrative expenses, for the first quarter of 2003 as a percentage of sales were lower, compared with the same period in 2002, which reflected lower selling, general and administrative andincluding research and development expenses. Selling, general and administrative expensesbid and proposal expense, in total dollars were higher in the third quarter and the first quarternine months of 2003, compared with the same periodperiods in 2002. This increase was in line with higher sales which resulted from organic growth and also included selling,acquisitions. The increased bid and proposal expense was primarily driven by bidding opportunities in the Systems Engineering Solutions segment. Selling, general and administrative expenses from Monitor Labs, acquiredfor the third quarter and the first nine months of 2003, as a percentage of sales were slightly lower, compared with the same periods in September 2002, which reflected the benefit of higher sales combined with the effect of continued cost control over general and higher severance costs, offset in part, by lower research and developmentadministrative expenses.

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The first quarternine months of 2003 includes a $0.3$2.3 million charge in other expense related to the partial write-downwrite-off of the Company’s $2.3 millionremaining 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 third quarter and the first quarternine months of 2003 was 39.0%19.2% and 31.3%, respectively, compared with an effective tax rate of 39.7% for the same periods of 2002. The third quarter and first nine months of 2003 reflected an income tax benefit of $2.4 million due to the reversal of an income tax contingency reserve which was determined to be no longer needed during the third quarter of 2002.

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2003. Excluding this benefit, the Company’s effective tax rate for the third quarter and the first nine months of 2003 would have been 39%.

Review of Operations:

The following table sets forth the sales and operating profit for each segment (amounts in millions):

Electronics and Communications

The Electronics and Communications segment’s firstthird quarter 2003 sales were $103.6$115.8 million, compared with firstthird quarter 2002 sales of $90.5$92.6 million. FirstThird quarter 20022003 operating profit was $7.3$9.7 million, compared with operating profit of $8.3$8.9 million in the firstthird quarter of 2002. Sales for the first nine months of 2003 were $329.0 million, compared with $277.3 million for the same period of 2002. Operating profit for the first nine months of 2003 was $24.6 million, compared with $26.2 million for the same period in 2002.

FirstThe third quarter and the first nine months of 2003 sales, compared with the same periodperiods of 2002, reflected revenue growth in electronic manufacturing services, electronic instruments, defense electronic products and commercial lighting products. The revenue increase for the first nine months of 2003 also included growth in electronic manufacturing services, which was primarily driven by increased sales to military and medical markets. The revenue growth in electronic instruments resulted from the acquisitionacquisitions of Monitor Labs Incorporated at the end of the third quarter of 2002, Tekmar Company on May 16, 2003, stronger demand for geophysical sensors for the petroleum exploration market and stronger demand for

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improved sales of other environmental monitoring equipment. The revenue growth in defense electronic measuring equipment. These sales increases wereproducts was driven by traveling wave tubes and military microelectronics products. Third quarter revenue growth in avionics products resulted from the acquisition of the Aviation Information Solutions businesses on June 27, 2003, partially offset by continued weakness in the commercial aviation market. Segment operating profit was 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, operatingOperating profit was favorably impacted by increased sales, a reduction in the Company’s commercial broadband communications investments and an improved cost structure.

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structure, partially offset by changes in product mix and higher selling expenses. Additionally, segment operating profit was negatively impacted by pension expense of $1.2 million in the third quarter of 2003 and $3.7 million for the first nine months of 2003, compared with pension income of $0.5 million in the third quarter of 2002 and $1.5 million for the first nine months of 2002.

Systems Engineering Solutions

The Systems Engineering Solutions segment’s firstthird quarter 2003 sales were $52.4$53.2 million, compared with firstthird quarter 2002 sales of $46.9$54.8 million. FirstThird quarter 2003 operating profit was $5.7$6.0 million, compared with operating profit of $3.8$7.0 million in the firstthird quarter of 2002. Sales for the first nine months of 2003 were $160.2 million, compared with $153.2 million for the same period of 2002. The first nine months of 2003 operating profit was $19.8 million, compared with operating profit of $16.5 million for the same period in 2002.

FirstThird quarter 2003 sales, compared with the same period of 2002, reflected a reduction in revenue growth infor core defense and aerospace programs, andpartially offset by increased work in environmental programs. Operating profit, reflectedcompared to the third quarter of 2002, was unfavorably impacted by lower sales and reduced award fees related to the Ground-based Midcourse Defense contract and a reduction in the mix and timing of certain government programs, profit improvement due to the close out of a number of contracts and improvedspace station hardware sales which resulted in lower margins for environmental programs.the quarter. Additionally, segment operating profit was unfavorably impacted by pension expense of $0.1 million in the firstthird quarter of 2003 compared with no pension costincome or expense in the third quarter of 2002.