1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-15295
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TELEDYNE TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 25-1843385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2049 CENTURY PARK EAST, SUITE 1500
LOS ANGELES, CALIFORNIA 90067-3101
(Address of principal executive offices) (Zip Code)
(310) 277-3311
(Registrant's telephone number, including area code)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [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 July 2, 2000
-------------------------------------- ---------------------------
Common Stock, $.01 par value per share 26,801,505 shares
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TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Consolidated Condensed Balance Sheets --
July 2, 2000 and January 2, 2000 2
Consolidated Condensed Statements of Income --
Three and six months ended July 2, 2000 and July 4, 1999 3
Consolidated Condensed Statements of Cash Flows --
Six months ended July 2, 2000 and July 4, 1999 4
Notes to Consolidated Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II OTHER INFORMATION 16
Item 4. Submission of Matters to a Vote of Security-Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
AT JULY 2, 2000 and JANUARY 2, 2000
(Amounts in millions, except share data)
July 2, January 2,
2000 2000
========= =========
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3.2 $ 7.1
Receivables, net 123.4 109.1
Inventories, net 57.4 51.4
Deferred income taxes, net 20.2 21.7
Prepaid expenses, income taxes and other 8.6 4.5
------ ------
TOTAL CURRENT ASSETS 212.8 193.8
Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $119.3 at July 2, 2000
and $116.7 at January 2, 2000 58.5 56.0
Deferred income taxes, net 31.6 25.6
Cost in excess of net assets acquired, net 7.8 8.2
Other assets 19.4 16.9
Net assets of discontinued operation 12.4 12.9
------ ------
TOTAL ASSETS $342.5 $313.4
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54.6 $ 44.2
Accrued liabilities 61.6 47.3
Income taxes payable -- 3.8
------ ------
TOTAL CURRENT LIABILITIES 116.2 95.3
Long-term debt 91.0 97.0
Net unrecognized actuarial gains on pension obligation 10.0 14.7
Accrued postretirement benefits 32.5 33.6
Other 34.5 28.3
------ ------
TOTAL LIABILITIES 284.2 268.9
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value; outstanding -- --
shares - none Common stock, $0.01 par
value; outstanding shares 26,801,505 at 0.3 0.3
July 2, 2000 and 26,687,002 at January 2, 2000
Additional paid-in capital 38.9 37.9
Retained earnings 18.9 5.6
Accumulated other comprehensive income 0.2 0.7
------ ------
TOTAL STOCKHOLDERS' EQUITY 58.3 44.5
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $342.5 $313.4
====== ======
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 SIX MONTHS ENDED JULY 2, 2000 AND JULY 4, 1999
(Unaudited - Amounts in millions, except per-share amounts)
Second Quarter First Six Months
---------------------- ----------------------
2000 1999 2000 1999
======== ======== ======== ========
SALES $ 202.3 $ 184.4 $ 397.7 $ 375.4
COSTS AND EXPENSES
Cost of sales 146.9 133.3 287.4 275.3
Selling, general and administrative expenses 49.3 35.3 85.4 65.0
-------- -------- -------- --------
196.2 168.6 372.8 340.3
-------- -------- -------- --------
OPERATING PROFIT 6.1 15.8 24.9 35.1
Interest and debt expense, net 1.8 -- 3.6 --
Other income 0.3 0.2 0.4 0.5
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 4.6 16.0 21.7 35.6
Provision for income taxes 1.8 6.6 8.6 14.7
-------- -------- -------- --------
Income from continuing operations 2.8 9.4 13.1 20.9
Discontinued operations, net of tax 0.3 0.8 0.2 1.2
-------- -------- -------- --------
Net income $ 3.1 $ 10.2 $ 13.3 $ 22.1
======== ======== ======== ========
BASIC AND DILUTED EARNINGS PER
COMMON SHARE:
Income from continuing operations $ 0.10 $ 0.34 $ 0.48 $ 0.76
Discontinued operations 0.01 0.03 0.01 0.04
-------- -------- -------- --------
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.11 $ 0.37 $ 0.49 $ 0.80
======== ======== ======== ========
Weighted average diluted common shares outstanding 27.6 27.5 27.3 27.6
======== ======== ======== ========
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 SIX MONTHS ENDED JULY 2, 2000 AND JULY 4, 1999
(Unaudited - Amounts in millions)
2000 1999
======= =======
CASH FLOW FROM OPERATING ACTIVITIES
Net income from continuing operations $ 13.1 $ 20.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7.8 5.9
Deferred income taxes (4.4) --
Changes in operating assets and liabilities:
Increase in accounts receivables (14.3) (9.4)
Increase in inventories (6.0) (.7)
Increase in accounts payable 10.4 6.0
Increase in accrued liabilities 14.3 0.4
Decrease in current income taxes payable (6.9) --
Increase in other long-term assets (1.4) --
Increase (decrease) in other long-term liabilities 4.7 (2.6)
Decrease in net unrecognized actuarial gains on pension obligation (4.7) --
Increase (decrease) in accrued postretirement benefits (1.1) 0.2
Other operating, net (1.3) (1.1)
------- -------
10.2 19.6
Net cash flow from discontinued operations 1.9 0.2
------- -------
Net cash provided by operating activities 12.1 19.8
------- -------
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (9.3) (6.4)
Disposals of property, plant and equipment 0.1 --
Other investing, net (0.5) (0.1)
------- -------
(9.7) (6.5)
Investing cash flow from discontinued operations (1.1) (1.1)
------- -------
Net cash used by investing activities (10.8) (7.6)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Net payment on revolving credit agreement (6.0) --
Proceeds from issuance of common stock 0.8 --
Net advances with Allegheny Technologies Incorporated -- (12.2)
------- -------
Net cash provided (used) by financing activities (5.2) (12.2)
------- -------
Decrease in cash and cash equivalents (3.9) --
Cash and cash equivalents--beginning of period 7.1 --
------- -------
Cash and cash equivalents--end of period $ 3.2 $ --
======= =======
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
July 2, 2000
1. General
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 generally
accepted accounting principles 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 January 2, 2000 (1999 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
Teledyne Technologies' consolidated financial position as of July 2,
2000, and the consolidated results of operations for the three and six
months then ended and the consolidated cash flows for the six months
then ended. The results of operations and cash flows for the period
ended July 2, 2000, are not necessarily indicative of the results of
operations or cash flows to be expected for the full fiscal year.
Certain financial statements and notes for the prior year have been
changed to conform to the 2000 presentation.
Effective November 29, 1999 (the Distribution Date), 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).
The consolidated financial statements for periods prior to the spin-off
included certain expenses (primarily corporate expense) based on an
allocation of the overall expense of ATI. ATI's historical cost basis of
assets and liabilities has been reflected in the Teledyne Technologies'
financial statements. The financial information in these financial
statements is not necessarily indicative of results of operations,
financial position and cash flows that would have occurred if Teledyne
Technologies had been a separate stand-alone entity during the periods
presented or of future results. The consolidated financial statements
included herein do not reflect changes that occurred in the
capitalization and operations of Teledyne Technologies as a result of,
or after, the spin-off other than for the periods following the
spin-off.
The following unaudited pro forma financial information is presented for
informational purposes only and may not reflect the results of
operations or financial position of Teledyne Technologies that would
have occurred had Teledyne Technologies operated as a separate,
independent company for the 1999 periods presented. The pro forma
financial information should not be relied upon as being indicative of
future results. Pro forma adjustments reflect the estimated expense
impacts (primarily interest expense and corporate expenses) that would
have been incurred had Teledyne Technologies been operated as a separate
company as of the beginning of the year and as capitalized at the time
of the spin-off. As part of the spin-off, Teledyne Technologies assumed
$100 million of long-term debt incurred by ATI. Pro forma income
includes pro forma interest expense on the long-term debt as if it had
been outstanding for all periods presented. Pro forma income adjusts
corporate expenses to an annual level of $15 million from the amount
previously allocated, which was lower.
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The following is Teledyne Technologies unaudited pro forma financial
information for the second quarter and first six months of 1999,
compared with the actual results for the same periods of 2000 (amounts
in millions, except per share data):
Second Quarter First Six Months
---------------------- ----------------------
2000 1999 2000 1999
======== ======== ======== ========
SALES $ 202.3 $ 184.4 $ 397.7 $ 375.4
COSTS AND EXPENSES
Cost of sales 146.9 133.3 287.4 275.3
Selling, general and administrative
expenses 49.3 37.2 85.4 68.7
-------- -------- -------- --------
196.2 170.5 372.8 334.0
-------- -------- -------- --------
OPERATING PROFIT 6.1 13.9 24.9 31.4
Interest and debt expense, net 1.8 2.0 3.6 4.0
Other income 0.3 0.2 0.4 0.5
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 4.6 12.1 21.7 27.9
Provision for income taxes 1.8 5.0 8.6 11.5
-------- -------- -------- --------
Income from continuing operations 2.8 7.1 13.1 16.4
Discontinued operations, net of tax 0.3 0.8 0.2 1.2
-------- -------- -------- --------
Net income $ 3.1 $ 7.9 $ 13.3 $ 17.6
======== ======== ======== ========
BASIC AND DILUTED EARNINGS PER
COMMON SHARE:
Income from continuing operations $ 0.10 $ 0.26 $ 0.48 $ 0.60
Discontinued operations 0.01 0.03 0.01 0.04
-------- -------- -------- --------
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.11 $ 0.29 $ 0.49 $ 0.64
======== ======== ======== ========
Weighted average diluted common shares
outstanding 27.6 27.5 27.3 27.6
======== ======== ======== ========
2. Discontinued Operations
In the second quarter of 2000, Teledyne Technologies' Board of Directors
authorized the divestiture of the assets of Teledyne Cast Parts, a
provider of sand and investment castings to the aerospace and defense
industries and was previously reported as part of the Aerospace Engines
and Components segment. Accordingly, the consolidated financial
statements have been restated to reflect Teledyne Cast Parts as a
discontinued operation. The operating assets and liabilities of Teledyne
Cast Parts have been reclassified as net assets of discontinued
operations on the balance sheet and primarily consist of net accounts
receivables of $7.2 million, inventory of $3.1 million, property, plant
and equipment of $6.7 million and liabilities of $4.6 million at July 2,
2000. Net assets of discontinued operations at January 2, 2000 primarily
consist of net accounts receivables $8.5 million, inventory of $2.2
million, property, plant and equipment of $6.1 million and liabilities
of $3.9 million. Sales for Teledyne Cast Parts were $16.4 million and
$22.0 million for the first six months of 2000 and 1999, respectively.
The results of Teledyne Cast Parts were net of income taxes of $141
thousand and $811 thousand for the first six months of 2000 and 1999,
respectively.
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3. Comprehensive Income
Teledyne Technologies' comprehensive income is composed primarily of net
income and foreign currency translation adjustments. Teledyne
Technologies comprehensive income was $12.8 million and $22.1 million
for the first six months of 2000 and 1999, respectively. Teledyne
Technologies' comprehensive income was $2.9 million and $10.2 million
for the second quarter of 2000 and 1999, respectively.
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):
Second Quarter First Six Months
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
BASIC EARNINGS PER SHARE
Income from continuing operations applicable to
common stock $ 2.8 $ 9.4 $ 13.1 $ 20.9
Discontinued operations, net of tax 0.3 0.8 0.2 1.2
-------- -------- -------- --------
Net income applicable to common stock $ 3.1 $ 10.2 $ 13.3 $ 22.1
======== ======== ======== ========
Weighted average common shares outstanding 26.9 27.5 26.9 27.6
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE
Income from continuing operations $ 0.10 $ 0.34 $ 0.48 $ 0.76
Discontinued operations 0.01 0.03 0.01 0.04
-------- -------- -------- --------
Basic Earnings per common share $ 0.11 $ 0.37 $ 0.49 $ 0.80
======== ======== ======== ========
DILUTED EARNINGS PER SHARE
Income from continuing operations applicable to
common stock $ 2.8 $ 9.4 $ 13.1 $ 20.9
Discontinued operations, net of tax 0.3 0.8 0.2 1.2
-------- -------- -------- --------
Net income applicable to common stock $ 3.1 $ 10.2 $ 13.3 $ 22.1
======== ======== ======== ========
Weighted average common shares outstanding 26.9 27.5 26.9 27.6
Dilutive effect of exercise of options outstanding 0.7 -- 0.4 --
-------- -------- -------- --------
Weighted average diluted common shares outstanding 27.6 27.5 27.3 27.6
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE
Income from continuing operations $ 0.10 $ 0.34 $ 0.48 $ 0.76
Discontinued operations 0.01 0.03 0.01 0.04
-------- -------- -------- --------
Diluted earnings per common share $ 0.11 $ 0.37 $ 0.49 $ 0.80
======== ======== ======== ========
5. 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.
There were no cash equivalents at July 2, 2000. Cash equivalents totaled
$5.5 million at January 2, 2000.
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6. Inventories
Inventories are primarily valued under the LIFO method. The valuation of
LIFO inventory for interim periods is based on management's estimates of
year-end inventory levels and costs. Inventories consist of the
following (amounts in millions):
Balance at July 2, 2000 January 2, 2000
------------ ---------------
Raw materials and supplies $ 24.9 $ 23.6
Work in process 64.6 59.4
Finished goods 9.2 9.1
------- -------
98.7 92.1
Progress payments (6.2) (5.3)
LIFO reserve (35.1) (35.4)
------- -------
Total inventories, net $ 57.4 $ 51.4
======= =======
7. Supplemental Balance Sheet Information
Accrued liabilities included salaries and wages of $27.2 million and
$23.9 million at July 2, 2000 and January 2, 2000, respectively, and
$9.0 million at July 2, 2000 for product recall reserves. Other
long-term liabilities included reserves for self-insurance and the
long-term portion of product recall reserves.
8. 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 1999 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 proceed, it is likely that
adjustments in the Company's accruals will be necessary to reflect new
information. The amounts of any such adjustments could have a material
adverse effect on the Company's results of operations in a given period,
but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available
information, however, management does not believe that future
environmental costs in excess of those accrued with respect to sites
with which the Company has been identified are likely to have a material
adverse effect on the Company's financial condition or liquidity.
However, there can be no assurance that additional future developments,
administrative actions or liabilities relating to environmental matters
will not have a material adverse effect on the Company's financial
condition or results of operations.
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At July 2, 2000, the Company's reserves for environmental remediation
obligations totaled approximately $1.4 million, of which approximately
$960 thousand were included in other current liabilities. The Company is
evaluating whether it may be able to recover a portion of future costs
for environmental liabilities from its insurance carriers and from third
parties 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 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. While 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. Generally, since such cases are under seal, the Company does not in
all cases 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.
In connection with the spin-off, ATI received a tax ruling from the
Internal Revenue Service stating, in principle, that the spin-off will
be tax free to ATI and ATI's stockholders. The continuing validity of
the IRS tax ruling is subject to the completion of a public offering of
Teledyne Technologies' Common Stock by November 29, 2000 and use of the
anticipated gross proceeds for research and development and related
capital projects, for the further development of manufacturing
capabilities and for acquisitions and/or joint ventures. Pursuant to the
Separation and Distribution Agreement, Teledyne Technologies agreed with
ATI to undertake such a public offering. The Internal Revenue Service
agreed to a modification of the tax ruling issued in connection with the
spin-off of Teledyne Technologies from ATI. The revised ruling requires
Teledyne Technologies to complete a smaller public offering of 15 to 18
percent of its outstanding common stock. On July 21, 2000, Teledyne
Technologies filed a registration statement to register 4.1 million
shares of its common stock with the Securities and Exchange Commission
to further this public offering requirement.
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 (such as completing the public offering) 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.
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 product liability, patent infringement,
commercial, employment and employee benefits. While the outcome of
litigation cannot be predicted with
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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,
however, could have a material adverse effect on the Company's results
of operations for that period.
9. Income Taxes
The provision for taxes based on income for the 2000 and 1999 interim
periods was computed in accordance with Interpretation No. 18 of APB
Opinion No. 28 on reporting taxes for interim periods and was based on
projections of total year pretax income in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standards
No. 109--"Accounting for Income Taxes."
10. Industry Segments
The following table presents Teledyne Technologies' interim industry
segment disclosures (amounts in millions):
Second Quarter First Six Months
----------------------- -----------------------
2000 1999 2000 1999
======== ======== ======== ========
SALES:
Electronics and Communications $ 91.4 $ 87.3 $ 177.1 $ 170.5
Systems Engineering Solutions 61.0 52.8 118.2 112.4
Aerospace Engines and Components(a) 49.9 44.3 102.4 92.5
-------- -------- -------- --------
TOTAL SALES $ 202.3 $ 184.4 $ 397.7 $ 375.4
======== ======== ======== ========
OPERATING PROFIT (LOSS):
Electronics and Communications $ 10.9 $ 10.7 $ 20.4 $ 19.2
Systems Engineering Solutions 4.8 4.5 10.4 9.4
Aerospace Engines and Components(a,b) (5.6) 2.5 2.0 10.5
-------- -------- -------- --------
SEGMENT OPERATING PROFIT 10.1 17.7 32.8 39.1
Corporate expense (4.0) (1.9) (7.9) (4.0)
Interest and debt expense, net (1.8) -- (3.6) --
Other income 0.3 0.2 0.4 0.5
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 4.6 16.0 21.7 35.6
Provision for income taxes 1.8 6.6 8.6 14.7
-------- -------- -------- --------
Income from continuing operations 2.8 9.4 13.1 20.9
Discontinued operations, net of tax 0.3 0.8 0.2 1.2
-------- -------- -------- --------
NET INCOME $ 3.1 $ 10.2 $ 13.3 $ 22.1
======== ======== ======== ========
(a) Restated to reflect Teledyne Cast Parts as a discontinued operation.
(b) Includes pretax charges of $12 million and $3 million in the second
quarters of 2000 and 1999, respectively, for product recall reserves.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Teledyne Technologies' sales from continuing operations for the second quarter
of 2000 were $202.3 million, compared with sales of $184.4 million for the same
period in 1999. Net income from continuing operations was $2.8 million ($0.10
per diluted share) for the second quarter of 2000, compared with pro forma net
income of $7.1 million ($0.26 per diluted share) for the same period of 1999.
Sales from continuing operations for the first six months of 2000 were $397.7
million, compared with sales of $375.4 million for the same period in 1999. Net
income from continuing operations was $13.1 million ($0.48 per diluted share)
for the first six months of 2000, compared with pro forma net income of $16.4
million ($0.60 per diluted share) for the same period of 1999.
In the second quarter of 2000, Teledyne Technologies' Board of Directors
authorized the sale of the assets of Teledyne Cast Parts, which provides sand
and investment castings to the aerospace and defense industries and was
previously reported as part of the Aerospace Engines and Components segment.
Accordingly, the consolidated financial statements have been restated to reflect
Teledyne Cast Parts as a discontinued operation. No loss on disposal is
anticipated.
The second quarters of 2000 and 1999 included pretax charges of $12 million and
$3 million, respectively, for piston engine product recall reserves. Excluding
these reserves, net income from continuing operations was $10.1 million ($0.36
per diluted share) for the second quarter of 2000, compared with pro forma net
income of $8.9 million ($0.32 per diluted share) for the second quarter of 1999.
Excluding these reserves, net income from continuing operations was $20.4
million ($0.75 per diluted share) for the first six months of 2000, compared
with pro forma net income of $18.2 million ($0.66 per diluted share) for the
same period of 1999. For the second quarter of 2000 and pro forma 1999, net
income including discontinued operations was $3.1 million ($0.11 per diluted
share) and $7.9 million ($0.29 per diluted share), respectively. For the first
six months of 2000 and pro forma 1999, net income including discontinued
operations was $13.3 million ($0.49 per diluted share) and $17.6 million ($0.64
per diluted share), respectively.
Teledyne Technologies was spun off from Allegheny Teledyne Incorporated, now
known as Allegheny Technologies Incorporated (ATI), effective November 29, 1999.
Pro forma adjustments in 1999 reflect the estimated expense impacts (primarily
interest expense and corporate expenses) that would have been incurred had
Teledyne Technologies operated as a separate company and as capitalized at the
time of the spin-off for the 1999 period presented. Net income, before pro forma
adjustments, was $10.2 million ($0.37 per diluted share) for the second quarter
of 1999 and $22.1 million ($0.80 per diluted share) for the first six months of
1999.
The increase in sales for both the 2000 second quarter and year to date periods,
compared with the same 1999 periods, reflected higher sales in each operating
segment
The increase in earnings, excluding product recall reserves, for both the second
quarter and year to date periods, compared with the pro forma earnings for the
same periods in 1999, reflected higher operating profit in each operating
segment. Net pension income for the first six months of 2000 was $4.4 million,
compared with net pension income of $3.2 million for the same period of 1999.
Net pension income for the second quarter of 2000 was $2.2 million, compared
with net pension income of $1.6 million for the same period of 1999. Prior to
the product recall reserves, earnings from continuing operations before
interest, taxes, depreciation and amortization (EBITDA) for the first six months
of 2000 were $45.1 million, compared with pro forma EBITDA of $40.8 million for
the same period of 1999.
Gross profit from continuing operations, on a historical basis was higher in the
second quarter and the first six months of 2000, compared with the same periods
in 1999, while net income, prior to product recall reserves, decreased due to
interest expense on the debt assumed as part of the spin-off, higher research
and development spending and higher administrative expense compared with the
allocation from ATI which was based on sales. The lower gross margins for the
second quarter of 2000 and the higher gross margins for the first six months of
2000, compared with the same periods of 1999, were attributable to changes in
product mix within the operating segments
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and reduced margins on electronic manufacturing services. The Company's
effective tax rate for the first six months of 2000 was 39.6 percent and was
41.3 percent for the same period of 1999.
REVIEW OF OPERATIONS:
The following table sets forth the sales and operating profit for each segment
(amounts in millions):
Second Quarter First Six Months
--------------------- --------------------
2000 1999 2000 1999
======= ======= ======= =======
SALES:
Electronics and Communications $ 91.4 $ 87.3 $ 177.1 $ 170.5
Systems Engineering Solutions 61.0 52.8 118.2 112.4
Aerospace Engines and Components(a) 49.9 44.3 102.4 92.5
------- ------- ------- -------
Total sales $ 202.3 $ 184.4 $ 397.7 $ 375.4
======= ======= ======= =======
OPERATING PROFIT (LOSS):
Electronics and Communications $ 10.9 $ 10.7 $ 20.4 $ 19.2
Systems Engineering Solutions 4.8 4.5 10.4 9.4
Aerospace Engines and Components(a,b) (5.6) 2.5 2.0 10.5
------- ------- ------- -------
TOTAL SEGMENT OPERATING PROFIT $ 10.1 $ 17.7 $ 32.8 $ 39.1
======= ======= ======= =======
(a) Restated to reflect Teledyne Cast Parts as a discontinued operation.
(b) Includes pretax charges of $12 million and $3 million in the second
quarters of 2000 and 1999, respectively, for product recall reserves.
ELECTRONICS AND COMMUNICATIONS
The Electronics and Communications segment second quarter sales were $91.4
million, up 4.7 percent from 1999 second quarter sales of $87.3 million. Second
quarter operating profit rose 1.9 percent to $10.9 million, from $10.7 million
in the second quarter of 1999. Sales for the first six months of 2000 were
$177.1 million, up 3.9 percent from $170.5 million for the same period of 1999.
Operating profit for the first six months of 2000 rose 6.3 percent to $20.4
million, from $19.2 million for the same period of 1999.
For the second quarter and first six months of 2000, compared with the same
periods of 1999, sales grew significantly in electronic manufacturing services,
relay products, business and commuter aircraft communications equipment and
microwave products. Sales from electronic manufacturing services and microwave
products grew as a result of new orders from military and commercial customers.
Relay products reported improved sales based on demand from the communications
and semiconductor test equipment markets. Sales of medical and military
microelectronics were down from the same periods last year. Segment operating
profit improved due to growth in sales, partially offset by reduced margins on
electronic manufacturing services and increased spending in optoelectronics and
broadband wireless initiatives.
SYSTEMS ENGINEERING SOLUTIONS
The Systems Engineering Solutions segment second quarter sales were $61.0
million, up 15.5 percent from 1999 second quarter sales of $52.8 million.
Operating profit for the second quarter improved 6.7 percent to $4.8 million,
from $4.5 million in the same period last year. Sales for the first six months
of 2000 were $118.2 million, up 5.2 percent from $112.4 million for the same
period of 1999. Operating profit for the first six months of 2000 rose 10.6
percent to $10.4 million, from $9.4 million for the same period of 1999.
The results for the second quarter and first six months of 2000, compared with
the same periods in 1999, reflect strong sales growth in environmental programs,
systems engineering and integration, information technology and space programs.
Sales for the first six months of 2000 were negatively impacted by the
significant decline in demand for our marine products for the petroleum
exploration market, which has been very weak since the second quarter of
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1999. Operating results reflected increased revenue, partially offset by mix
differences in systems engineering and integration and environmental sales.
Lower general and administrative expenses reflect a first quarter 2000 benefit
of $1.4 million related to chemical weapon demilitarization reserves no longer
needed due to additional program funding, which was partially offset by lower
gross profit due to a writedown of approximately $0.9 million in the Company's
process control software business.
AEROSPACE ENGINES AND COMPONENTS
The Aerospace Engines and Components segment second quarter sales were $49.9
million, up 12.6 percent from $44.3 million in the 1999 second quarter.
Excluding piston engine product recall reserves taken in the second quarters of
2000 and 1999, operating profit in 2000 was $6.4 million, compared with
operating profit of $5.5 million in the second quarter of 1999. Including
product recall reserves, the Aerospace Engines and Components segment incurred
an operating loss of $5.6 million for the second quarter 2000, compared with
operating profit of $2.5 million in the same period of 1999.
Sales for the first six months of 2000 were $102.4 million, up 10.7 percent from
$92.5 million in the same period of 1999. Excluding piston engine product recall
reserves taken in the second quarters of 2000 and 1999, operating profit for the
first six months of 2000 was $14.0 million, compared with operating profit of
$13.5 million for the same period of 1999. Including product recall reserves,
operating profit was $2.0 million for the first six months of 2000, compared
with operating profit of $10.5 million in the same period of 1999.
Increased sales for piston engines in the second quarter and first six months of
2000 were driven by aftermarket new engine sales and overhaul services. In the
second quarter of 2000 sales and operating profit in the turbine engine business
grew due to an increase in military spare parts sales compared with the second
quarter of 1999. For the first six months of 2000, sales and operating profit in
the turbine engine business were flat compared with the same period of 1999. In
the second half of 1999, sales of new J69 turbine engines totaled $5.3 million,
whereas no J69 turbine engine sales are expected during the latter half of 2000.
The Company expects that military spare parts sales will decrease since such
parts are no longer on the military critical shortage list. Additionally,
reduced foreign demand for HARPOON missiles is expected to create a break in
production during 2001. Under the agreement with Lockheed Martin Corporation to
supply turbine engines for the Joint Air-to-Surface Standoff Missile (JASSM)
program, engineering development is expected to continue through the second
quarter of 2001, with production deliveries not scheduled to begin until
mid-2002. These developments will negatively impact the 2001 results for the
Aerospace Engines and Components segment.
In the second quarter of 2000, Teledyne Technologies initiated a recall program
to inspect up to 3,000 general aircraft engines to investigate possible
metallurgical flaws in engine crankshafts. The Company recorded a $12 million
pre-tax charge in the second quarter of 2000 for estimated costs associated with
this program including the replacement of affected crankshafts. The Company is
reviewing its options with regard to cost recovery and has commenced legal
action against certain suppliers.
Improved gross profit for the second quarter and the first six months of 2000
compared to the same periods of 1999, reflects favorable product mix which was
offset by higher general and administrative expenses resulting from increased
research and development spending, selling expense and the product recall
reserve.
The results of the Aerospace Engines and Components segment have been restated
to reflect Teledyne Cast Parts as a discontinued operation.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Teledyne Technologies net cash provided by operating activities from continuing
operations was $10.2 million for the first six months of 2000, compared with
$19.6 million for the same period of 1999. The $9.4 million decrease in cash
provided from operations in 2000, compared with 1999, reflected an increase in
prepaid and deferred income taxes.
Working capital was $96.6 million at the end of the first six months of 2000,
compared with $98.5 million at the end of 1999. The higher balances in accounts
receivable, inventory and accounts payable were due to higher sales
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in the later part of the second quarter of 2000 relative to the fourth quarter
of 1999. The higher balance in accrued liabilities reflect the current portion
of the product recall reserve and increases in advances from customers, as well
as insurance and payroll accruals.
Teledyne Technologies' net cash used by investing activities for continuing
operations was primarily for capital expenditures and was $9.7 million for the
first six months of 2000 compared with $6.5 million for the same period of 1999.
Capital spending was $9.3 million for the first six months of 2000, compared
with $6.4 million for the same period of 1999.
Financing activities used net cash of $5.2 million in the first six months of
2000, compared with cash used of $12.2 million for the same period of 1999. The
2000 amount primarily reflected net payments of $6.0 million for the revolving
credit agreement. The 1999 amount represents net transaction with ATI.
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 2000. Teledyne Technologies currently expects to spend
approximately $40 million on its capital spending program in 2000.
A $200 million five-year revolving credit agreement that terminates in November
2004 was arranged with a syndicate of banks in connection with the spin-off. ATI
drew $100 million under the facility prior to the assumption of the facility by
Teledyne Technologies. Teledyne Technologies assumed the repayment obligation
for the amount drawn by ATI. At July 2, 2000 Teledyne Technologies had $91.0
million outstanding under the facility, compared with $97.0 million at January
2, 2000. Excluding interest and fees, no payments are due under the credit
facility until the facility terminates. Available borrowing under the credit
facility was $109.0 million at January 2, 2000, compared with $103.0 million at
year end 1999.
In connection with the spin-off, ATI received a tax ruling from the Internal
Revenue Service stating in principle that the spin-off will be tax free to ATI
and ATI's stockholders. The continuing validity of the IRS tax ruling is subject
to the completion of a public offering of Teledyne Technologies' Common Stock by
November 29, 2000 and use of the anticipated gross proceeds for research and
development and related capital projects, for the further development of
manufacturing capabilities and for acquisitions and/or joint ventures. Pursuant
to the Separation and Distribution Agreement, Teledyne Technologies agreed with
ATI to undertake such a public offering. On July 12, 2000 the Internal Revenue
Service agreed to a modification of the tax ruling issued in connection with the
spin-off of Teledyne Technologies from ATI. The revised ruling requires Teledyne
Technologies to complete a smaller public offering of 15 to 18 percent of its
outstanding common stock. On July 21, 2000, Teledyne Technologies filed a
registration statement to register 4.1 million shares of its common stock with
the Securities and Exchange Commission to further this public offering
requirement.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133--"Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that an
entity recognize all derivatives in the statement of financial position and
measure those instruments at fair value. In 1999, the FASB issued SFAS No.
137--"Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133--an amendment of FASB Statement No.
133," which defers the effective date of SFAS No. 133 for one year. In June
2000, the FASB issued SFAS No. 138--"Accounting for Certain Derivative
Instruments and Certain Hedging Activities--an amendment of SFAS No. 133," which
amends the accounting and reporting standards of SFAS No. 133 for certain
derivative and hedging activities. Teledyne Technologies must implement SFAS No.
133 by the first quarter of 2001 and has not yet made a final determination of
its impact on the financial statements. See Item 3, "Quantitative and
Qualitative Disclosures About Market Risk" below.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB No. 101). SAB
No. 101 provides the Commission's views in applying
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generally accepted accounting principles to selected revenue recognition issues.
The Company has reviewed the requirements of SAB No. 101 and has determined that
it is in compliance with SAB No. 101.
SAFE HARBOR STATEMENT REGARDING OUTLOOK AND FORWARD-LOOKING INFORMATION
From time to time the Company makes, and this report contains, forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995,
relating to earnings, sales, growth opportunities, capital investments and
strategic plans. Actual results could differ materially from these
forward-looking statements. Many factors, including the extent and timing of the
required public offering, market, economic and political conditions, and funding
and continuation of government programs, as well as the outcome of the
crankshaft investigation, could change the anticipated results. Also, any
disposition of Teledyne Cast Parts will depend on many factors, including the
terms and conditions of any definitive asset sale and purchase agreement, as
well as industry and business conditions. The Company cannot provide any
assurance as to when, if or on what terms Teledyne Cast Parts will be sold.
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' 1999 Annual Report on Form 10-K under the
caption "Risk Factors", as well as under the caption "Risk Factors" in the
Company's registration statement [NO. 333-41892] filed in connection with the
anticipated public offering. The Company assumes no duty to update
forward-looking statements.
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' 1999 Annual Report on Form 10-K. At July 2, 2000, there were no
hedging contracts outstanding.
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PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Teledyne Technologies' 2000 Annual Meeting of Stockholders (the "Annual
Meeting") was held on June 1, 2000. 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 2003 Annual
Meeting by the following votes:
Name For Withheld
- ------------------------- ------------------- -------------------
Thomas A. Corcoran 24,562,843 272,730
Diane C. Creel 24,557,398 278,175
C. Fred Fetterolf 24,555,363 280,210
Other continuing directors of Teledyne Technologies include (1) Class II
directors, Paul S. Brentlinger and Robert Mehrabian, whose terms expire
at the 2001 Annual Meeting, and (2) Class III directors, Robert P.
Bozzone, Frank V. Cahouet and Charles J. Queenan, Jr., whose terms
expire at the 2002 Annual Meeting.
2. The proposal to approve Teledyne Technologies Incorporated 1999
Incentive Plan, as amended (the "Plan"), was adopted by a vote of
15,628,352 for versus 3,598,760 against. There were 124,534 abstentions
and 5,483,927 broker non-votes with respect to this proposal.
3. A proposal to ratify the selection of Ernst & Young LLP as Teledyne
Technologies' independent public auditors for 2000 was approved by a
vote of 24,764,654 for versus 29,829 against. There were 41,090
abstentions and no broker non-votes with respect to this action.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4* Second Amendment to Credit Agreement dated as of July 28,
2000
27.1* Financial data schedule for the six month period ended
July 2, 2000 (included only in the copy of this report
filed electronically with the Securities and Exchange
Commission)
27.2* Restated financial data schedule for the year ended
January 2, 2000 and the six month period ended July 4,
1999 (included only in the copy of this report filed
electronically with the Securities and Exchange
Commission)
* Filed herewith
(b) Reports on Form 8-K
Teledyne Technologies filed no Reports on Form 8-K during the
quarter ended July 2, 2000.
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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: August 2, 2000 By: Dale A. Schnittjer
-------------------------------------------
Dale A. Schnittjer, Acting Chief Financial
Officer, Treasurer and Controller
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EXHIBIT INDEX
EXHIBIT No. Description
- ----------- -----------
4* Second Amendment to Credit Agreement dated as of July 28, 2000
27.1* Financial data schedule for the six month period ended July 2,
2000 (included only in the copy of this report filed
electronically with the Securities and Exchange Commission)
27.2* Restated financial data schedule for the year ended January 2,
2000 and the six month period ended July 4, 1999 (included only
in the copy of this report filed electronically with the
Securities and Exchange Commission)
* Filed herewith