Teledyne Annual Report 2006

Plain-text annual report

Teledyne Technologies Incorporated 2006 Annual Report Sales (in millions) Diluted Earnings per Share Operating Margin $1,433 $1,207 $1,017 $ 841 $ 773 $2.26 $1.85 $1.24 $0.91 $0.77 8.7% 8.3% 6.6% 5.6% 16.7% 2002 2003 2004 2005 2006 30.9% 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2 0 0 6 F I N A N C I A L H I G H L I G H T S Selected Consolidated Financial Data (In millions, except per-share data) Summary Financial Information Sales Net income 2006 2005 2004 2003 2002 $ 1,433.2 $ 1,206.5 $ 1,016.6 $ 840.7 $ 772.7 $ 80.3 $ 64.2 $ 41.7 $ 29.7 $ 25.4 Diluted earnings per share $ 2.26 $ 1.85 $ 1.24 $ 0.91 $ 0.77 Weighted average diluted common shares outstanding 35.5 34.7 33.7 32.7 32.9 Summary Balance Sheet Data Cash and cash equivalents $ 13.0 $ 9.3 $ 11.4 $ 37.8 $ 19.0 2006 2005 2004 2003 2002 Working capital Total assets Long-term debt and $ 216.4 $ 154.0 $ 124.4 $ 129.5 $ 102.6 $ 1,061.4 $ 728.2 $ 624.8 $ 433.6 $ 398.9 capital lease obligations $ 230.7 $ 47.0 $ 74.4 $ — $ — Stockholders’ equity $ 431.8 $ 326.0 $ 262.1 $ 221.0 $ 176.8 See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Notes to Consolidated Financial Statements” in this 2006 Annual Report on Form 10-K for additional information regarding Teledyne Technologies Incorporated ﬁ nancial data. Teledyne Technologies Incorporated Annual Report Page 1 Sales by Segment OPERATIONS AT A GLANCE 2% 63% 20% 15% Electronics and Communications Systems Engineering Solutions Aerospace Engines and Components Energy Systems Defense Electronics Overview Selected Products / Services 24% Through our defense electronics businesses, Teledyne provides a wide array of highly specialized components, subsystems and engineering resources to our government, as well as to other defense contractors (cid:129) Integrated microwave assemblies (cid:129) Infrared and visible light imaging sensors (cid:129) High-voltage connector assemblies (cid:129) Government funded applied research (cid:129) Defense electronics manufacturing services Electronic Instrumentation 24% Teledyne’s instruments detect trace contaminants in air and water, help locate and retrieve new energy reserves, are used in drug discovery and assist with industrial process control applications (cid:129) Ambient air monitoring instruments (cid:129) Acoustic Doppler water current proﬁ lers (cid:129) Hydrophones and streamer cables (cid:129) Continuous emissions monitoring systems (cid:129) Subsea wet-mateable connectors (cid:129) Flash chromatography systems Other Commercial Electronics Our aircraft information management solutions are designed to increase the reliability and efﬁ ciency of aircraft transportation. In addition, alongside our defense electronics, we produce precision electronics for other markets, including implantable medical devices, commercial aviation and wireless communication 15% (cid:129) Wireless aircraft data acquisition systems (cid:129) Electromechanical relays and coaxial switches (cid:129) Tranceivers for cellular infrastructure (cid:129) Medical device electronics manufacturing Systems Engineering Solutions and Energy Systems 2% 20% Our government engineering services are focused on protecting the United States, expanding national interests in space, and improving environmental safety. We also provide long-life power systems for government applications, as well as high purity hydrogen gas generation systems (cid:129) Missile defense systems engineering (cid:129) Space hardware and engineering services (cid:129) Chemical weapons demilitarization services (cid:129) Power systems for deep space probes (cid:129) Hydrogen gas generators Aerospace Engines and Components In business for over 100 years, Teledyne Continental Motors currently provides piston engines for a number of today’s most popular general aviation aircraft, including models from Cirrus, Raytheon, Columbia and Liberty (cid:129) Aircraft piston engines and spare parts (cid:129) Small turbine engines for military applications (cid:129) Gill brand general aviation batteries (cid:129) Digital electronic engine control systems 15% To Our Stockholders Robert Mehrabian Chairman, President and Chief Executive Ofﬁ cer In 2006, Teledyne achieved a number of milestones: • Sales increased 18.8% to over $1.43 billion, from approximately $1.21 billion in 2005 • Earnings per share increased 22.2% to $2.26 compared to $1.85 in 2005 • Market value of Teledyne’s common stock increased 37.9% from year-end 2005 to year-end 2006 • We closed ﬁ ve acquisitions, including our largest to date For the last ﬁ ve years, we have been successfully executing a strategy to strengthen our core businesses, improve operational eﬃ ciency and grow both organically and by acquisition. We have focused primarily on two of our core markets, defense electronics and instrumentation, both of which require specialized technology and have high barriers to entry. Teledyne is now a much stronger competitor in each of those markets, with a much greater breadth and depth of products, and the ability to provide integrated solutions to our customers. As a result of this focused strategy and our continuous emphasis on operational excellence, our sales have grown by about 85% from $773 million in 2002 to over $1.43 billion in 2006, or at a compound annual growth rate of 16.7%. Over the same timeframe, our earnings per share have improved from $0.77 to $2.26, or at a compound annual growth rate of over 30.9%. Our operating margin has increased 318 basis points since 2002 due to a combination of improved Teledyne Technologies Incorporated Annual Report Page 3 operational performance and the acquisition of complementary higher- margin product lines in our core markets. In 2006, we continued our strong financial performance and made ﬁ ve acquisitions, including our largest and most strategic to date, the Cumulative Total Stockholder Return The graph set forth below shows the cumulative total stockholder return (i.e., price change plus reinvestment of dividends) on our common stock from our fiscal year end December 30, 2001 through our fiscal year end December 31, 2006, as compared to the Standard & Poor’s 500 Composite Index, the Russell 2000 Index and the Dow Jones World Aerospace & Defense Index. The graph assumes that $100 was invested on December 28, 2001. In accordance with the rules of the Securities and Exchange Commission, this presentation is not incorporated by reference into any of our registra- tion statements under the Securities Act of 1933. 250 200 150 100 50 Rockwell Scientiﬁ c Company. Th is acquisition provides Teledyne a greatly expanded base of technology and highly-skilled scientists and engineers, enabling us to accelerate the pace of product development in our current markets and giving us the resources to become a signiﬁ cant competitor in adjacent markets. Gaining Scale Our strategy for making Teledyne Technologies a stronger, more competitive corporation has evolved progressively. Early on, we focused on manufacturing, updating our factories and 12/30/01 12/29/02 12/28/03 01/02/05 01/01/06 12/31/06 training our workforce in lean 12/30/01 12/29/02 12/28/03 01/02/05 01/01/06 12/31/06 Teledyne Technologies 100 91 117 177 175 242 Dow Jones World Aerospace & Defense Russell 2000 S&P 500 Composite 100 100 100 87 79 77 112 115 98 136 137 110 165 143 115 204 170 134 manufacturing techniques that both reduce defects and improve manufacturing cycle times. By continually reducing the cost of rework, scrap and warranty expense, we have not only improved our operating margins, but have also enhanced our reputation as a high-quality supplier with the ﬂ exibility to respond quickly to the changing needs of our customers. Teledyne Technologies Incorporated Annual Report Page 4 Eyes Wide Open Teledyne’s high performance infrared and visible light imaging sensors have been selected for the most demanding appli- cations including the new James Webb Space Telescope, and very high resolution military surveillance applications. Illustration courtesy of Northrop Grumman Corporation Monitoring the Environment Teledyne RD Instruments provides highly sensitive ocean and inland waterway current measurement devices. Th ese instruments are used for a number of applications, including monitoring the health of river deltas and assisting in tsunami detection. Th e next step in our strategy was to build a stronger position in our core markets by acquiring attractive businesses with products that were complementary to our existing lines. Since our ﬁ rst acquisition of an environmental instrumentation business in 2001, we have acquired 14 additional defense electronics and instrumentation businesses. Our defense electronics revenues have grown from approximately $110 million in 2001, to a run-rate of approximately $400 million at year-end 2006. We have acquired seven defense electronics companies, bringing us an ever-broader range of specialized products. Such products include traveling wave tubes, solid-state microwave components and subsystems, very high-speed mixed signal semiconductors, electromechanical and solid-state relays, high voltage connectors and cables, and infrared and visible light focal plane arrays. With the new capabilities gained through our acquisitions, ﬁ ve of which had expertise in specialized defense microwave technologies, we are now one of a very limited number of companies that are able to develop highly integrated microwave assemblies that combine multiple functions into a single unit. During 2006, we delivered prototypes of several new integrated assemblies, including a broadband data link for an unmanned aerial vehicle and frequency converters for four new customers for military satellite communications systems. Noting that Teledyne is a key supplier to the Air Force for aircraft such as the F-15, F-16, B-52 and C-130, the Air Force Materials Command awarded a Teledyne company a ten year contract worth up to $370 million for parts and assemblies. Teledyne is also a signiﬁ cant supplier to many defense industry prime contractors. During 2006, one of our ﬁ rst tier customers reduced its supplier base for outsourced manufacturing and chose all three relevant Teledyne business units as approved suppliers. Teledyne Technologies Incorporated Annual Report Page 7 Our instrumentation revenues have also grown signiﬁ cantly, from $45 million in 2001 to approximately $350 million in 2006. Starting with a base in industrial gas analysis, we acquired ﬁ ve companies that added closely-related products, ﬁ rst in environmental gas analysis, then in laboratory organic and inorganic pollution analysis, and subsequently in instrumentation for wastewater collection and ﬂ ow measurement. In 2005, we embarked on a signiﬁ cant expansion in the marine instrumentation market with the acquisition of RD Instruments, Inc., a company which applies acoustic Doppler technology to the measurement of the speed of ocean and river currents and the speed of surface and underwater vehicles. Th is product line was very complementary to Teledyne’s existing geophysical instrumentation business, which manufactures arrays of acoustic sensors, or hydrophones, used in oﬀ shore oil and gas exploration. Next, in January of 2006, we acquired Benthos, Inc., a manufacturer of hydrophones, underwater acoustic communication equipment, sonar systems and remotely operated vehicles. In August of 2006, we acquired a majority interest in Ocean Design, Inc. (ODI), a leading manufacturer of subsea interconnect systems. ODI’s largest market is oﬀ shore oil and gas production where its unique wet- mateable electrical and ﬁ ber-optic connectors and cables are installed at wellheads on the ocean bottom by remotely operated vehicles. During 2006, all of our marine instrumentation businesses experienced strong demand for products for oﬀ shore oil and gas exploration and production. New orders at Ocean Design continued at a record pace subsequent to the acquisition, resulting in signiﬁ cant growth in year-end backlog. Th e growth in oﬀ shore production also enhanced sales of our Acoustic Doppler Current Proﬁ lers, which the Department of Interior mandates for safety on mobile oﬀ shore drilling units operating in the Teledyne Technologies Incorporated Annual Report Page 8 Discovering Resources During oﬀ shore oil and gas exploration, hydrophones from Teledyne Benthos and streamer cables from Teledyne Geophysical Instruments help ﬁ nd new energy reserves. ODI connectors deliver electrical power to subsea oil production systems, as well as transmit sensor data from the well to the rig. Return to Space Teledyne Brown Engineering captured NASA’s highest honor for excellence and quality in 2006 - Th e George M. Low Award. Presented by NASA annually, the Low Award is bestowed upon a contrac- tor that has demonstrated excellence and outstanding technical and managerial achievements in quality and performance. Illustration courtesy of NASA Gulf of Mexico. To accommodate the strong demand for our ﬂ uid-free hydrophone streamer arrays, we increased manufacturing capacity at our operations in Houston, Texas and Gloucester, England and added a repair facility in Singapore to support the Asian market. Today, the combined revenue run-rate of our marine instrumentation businesses represents over 40% of our overall instrumentation sales. All four business units serve three of the primary segments of the undersea market: petroleum exploration, oceanography and defense. Th is provides both strong brand recognition for Teledyne Marine Instruments businesses and the opportunity for joint product development. Greater Technical Strength and a New Base in Imaging Th e next step in the evolution of Teledyne’s capabilities is exempliﬁ ed by the acquisition in September of Rockwell Scientiﬁ c Company LLC, now known as Teledyne Scientiﬁ c & Imaging, LLC. For over four decades Rockwell Scientiﬁ c Company was a premiere research and development organization, serving the critical future technology needs of the Department of Defense, NASA, and several major companies. It also has a long track record of transitioning cutting-edge technology into successful products and businesses. Teledyne Scientiﬁ c & Imaging has a collection of innovative technology and intellectual property. Th ese technologies are a valuable source for building new, high-margin products and enhancing the performance of existing Teledyne products. A few examples of many technologies that are closely related to Teledyne’s core businesses include millimeter-wave semiconductors and very high-speed signal processing devices that are expected to enhance our integrated microwave products, advanced materials with applications such as marine instrumentation and turbine engines, optical devices for Teledyne Technologies Incorporated Annual Report Page 11 military ﬁ ber optic communication systems and software algorithms for autonomous vehicle systems. Th e acquisition of Rockwell Scientiﬁ c Company also provides us an important foothold in high performance infrared and visible imaging for astronomy, space surveillance and battleﬁ eld applications. Th e imaging sensors business has already made a successful transition from research to production, and like other Teledyne defense electronics business units, provides highly-engineered components and subsystems. We believe that Teledyne Imaging Sensors, with a state-of- the-art manufacturing facility, will beneﬁ t from Teledyne’s corporate- wide focus on operational excellence as well as our extensive channels to defense industry prime contractors. Th e infrared and visible light sensors complement our existing analog, digital, microwave and optoelectronic products, allowing us to be the supplier of choice for very diversiﬁ ed products to our key customers. Looking Ahead Our strong ﬁ nancial performance since 2002 is a credit to the performance and quality of our products and the hard work of our skilled employees. I believe that Teledyne Technologies will continue to grow and prosper by building on our strategy of focusing on technologically-demanding regulated niche markets, working relentlessly to reduce cost and cycle time in our operations and achieving critical mass in our core markets via complementary acquisitions. While we have become a superior player in our niche markets, we are now more aggressively seeking ways to expand the size of our addressable markets, but without reaching beyond our core competencies or losing management focus. Teledyne Technologies Incorporated Annual Report Page 12 System Engineering Strength CollaborX became part of Teledyne Brown Engineering this year, adding new customers and allowing us to support systems from concept development to sustainment and support. Photo courtesy of the Department of Defense Flying High For over 75 years, Teledyne Continental Motors has been a leader in reciprocating engines for general aviation. Innovations like our PowerLinkTM electronic engine control and maintenance system continue to advance engine technology for modern general aviation aircraft, such as the twin turbocharged Adam A500. As we continue to grow and to expand into adjacent markets, the perceptive advice and counsel provided by the broad spectrum of industry leaders who constitute our board of directors will be ever more valuable. Our board, which has been a critical factor in Teledyne’s success to date, was further strengthened in 2006 by the addition of Kenneth C. Dahlberg, chairman and CEO of Science Applications International Corporation (SAIC), Wesley W. von Schack, chairman, president and CEO of Energy East Corporation, and Roxanne S. Austin, former president and chief operating oﬃ cer of DIRECTV, who bring to us extensive experience in markets that are important to the future of Teledyne. Chairman, President and Chief Executive Oﬃ cer, Teledyne Technologies Incorporated February 28, 2007 Teledyne Technologies Incorporated Annual Report Page 15 Executive Management Left to right DALE A. SCHNITTJER* Senior Vice President and Chief Financial Ofﬁ cer IVARS R. BLUKIS Chief Business Risk Assurance Ofﬁ cer ALDO PICHELLI* Senior Vice President and Chief Operating Ofﬁ cer, Electronics and Communications Segment JASON VANWEES Vice President, Corporate Development and Investor Relations JOHN T. KUELBS* Executive Vice President, General Counsel and Secretary ROBERT MEHRABIAN* Chairman, President and Chief Executive Ofﬁ cer SUSAN L. MAIN* Vice President and Controller ROBERT W. STEENBERGE Vice President, Chief Technology Ofﬁ cer ROBERT L. SCHAEFER Associate General Counsel, Electronics and Communica- tions General Counsel and Assistant Secretary SHELLEY D. GREEN Treasurer MELANIE S. CIBIK Vice President, Associate General Counsel and Assistant Secretary ROBYN E. MCGOWAN Vice President of Administra- tion, Human Resources and Assistant Secretary KEVIN J. RILEY President, Teledyne Scientiﬁ c & Imaging, LLC * Section 16 Ofﬁ cer Teledyne Technologies Incorporated Annual Report Page 16 Segment Executives Stockholder Information BRYAN L. LEWIS President, Aerospace Engines and Components Segment JAMES M. LINK President, Systems Engineering Solutions Segment ALDO PICHELLI Senior Vice President and Chief Operating Ofﬁ cer, Electronics and Communications Segment RHETT C. ROSS President, Energy Systems Segment CORPORATE OFFICES Teledyne Technologies Incorporated 1049 Camino Dos Rios Thousand Oaks, CA 91360 Telephone: (805) 373-4545 Fax: (805) 373-4775 www.teledyne.com TRANSFER AGENT AND REGISTRAR Mellon Investor Services LLC P.O. Box 3315 South Hackensack, NJ 07606 (800) 356-2017 STOCKHOLDER PUBLICATIONS - FORM 10-K Annual reports (including Form 10-K) and proxy statements are mailed to all stockholders of record. Copies of our SEC periodic reports, corporate governance guidelines, code of ethics and committee charters are also available on our web site at www.teledyne.com. For additional information, contact Corporate Communications or Investor Relations. STOCK EXCHANGE LISTING The common stock of Teledyne Technologies Incorporated is traded on the New York Stock Exchange (symbol TDY). ANNUAL MEETING The annual meeting of stockholders will be held on Wednesday, April 25, 2007, at 9:00 a.m., at Teledyne Technologies Incorporated, 1049 Camino Dos Rios, Thousand Oaks, CA 91360. INDEPENDENT AUDITORS Ernst & Young LLP Los Angeles, California CURRENT NEWS AND GENERAL INFORMATION Information about Teledyne is available at www.teledyne.com. Teledyne Technologies Incorporated Annual Report Page 17 Directors ROXANNE S. AUSTIN (1)(2) Former President and Chief Operating Ofﬁ cer DIRECTV, Inc. ROBERT P. BOZZONE (1)(3) Former Chairman, Allegheny Technologies Incorporated FRANK V. CAHOUET (1)(2) Retired Chairman and Chief Executive Ofﬁ cer, Mellon Financial Corporation CHARLES CROCKER (2)(3) Chairman, Crocker Capital and Retired Chairman and CEO, BEI Technologies, Inc. MICHAEL T. SMITH (2)(3) Retired Chairman and Chief Executive Ofﬁ cer, Hughes Electronics Corporation WESLEY W. VON SCHACK (2)(3) Chairman, President and Chief Executive Ofﬁ cer Energy East Corporation (1) Audit Committee (2) Nominating and Governance Committee (3) Personnel and Compensation Committee KENNETH C. DAHLBERG (1)(3) Chairman of the Board and CEO of Science Applications International Corporation (SAIC) SIMON M. LORNE (1)(2) Vice Chairman and Chief Legal Ofﬁ cer Millennium Partners, L.P. ROBERT MEHRABIAN Chairman, President and Chief Executive Ofﬁ cer, Teledyne Technologies Incorporated PAUL D. MILLER (1)(2) Retired Chairman, Alliant Techsystems, Inc. Forward-Looking Statements Cautionary Notice Th is annual report contains forward- looking statements as deﬁ ned in the Private Securities Litigation Reform Act of 1995, relating to earnings, growth opportunities, capital expenditures, pension matters, stock option expense and strategic plans. Actual results could diﬀ er materially from these forward-looking statements. Many factors, including changes in demand for products sold to the defense electronics, instrumentation, energy exploration and production, commercial aviation, semiconductor, and communications markets, funding, continuation and award of government programs, continued liquidity of our customers (including commercial aviation customers) and economic and political conditions, could change the anticipated results. In addition, stock market ﬂ uctuations aﬀ ect the value of the Company’s pension assets. Global responses to terrorism and other perceived threats increase uncertainties associated with forward-looking statements about our businesses. Various responses could realign government programs, and aﬀ ect the composition, funding or timing of our programs. Flight restrictions would negatively impact the market for general aviation aircraft piston engines and components. Recent changes in the leadership of the U.S. Congress could result over time in reductions in defense spending and further changes in programs in which the Company participates. Th e Company continues to take action to assure compliance with the internal controls, disclosure controls and other requirements of the Sarbanes-Oxley Act of 2002. While the Company believes its control systems are eﬀ ective, there are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected. While Teledyne’s growth strategy includes possible acquisitions, the Company cannot provide any assurance as to when, if, or on what terms, any acquisitions will be made. Acquisitions, involve various inherent risks, such as, among others, our ability to integrate acquired businesses and to achieve identiﬁ ed ﬁ nancial and operating synergies. Additional information concerning factors that could cause actual results to diﬀ er materially from those projected in the forward-looking statements is contained in Teledyne’s periodic ﬁ lings with the Securities and Exchange Commission, including its 2006 Annual Report on Form 10-K. Forward looking statements are generally accompanied by such words as “estimates”, “project”, “predict”, “believes” or “expect”, that convey the uncertainty of future events or outcomes. Th e Company assumes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or otherwise. s e t a i c o s s A n g i s e D e i b o R s e m a J : n g i s e D 1049 Camino Dos Rios • Th ousand Oaks, California 91360 • 805.373.4545 • fax 805.373.4775 • www.teledyne.com

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