acquisition proposal - teledyne technologies

7/30/2019 Acquisition Proposal - Teledyne Technologies

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Professor Francis MGT 405

Ariela Engber, Rachel Clark, Michael Samsel & Katie Presser

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Executive Summary

Based on the issues presented concerning IEs current position, Final Consulting Groupproposes a full acquisition of Teledyne Technologys.

Teledyne is a partially vertically integrated global conglomerate that operates four mainbusiness segments: Instrumentation, Digital Imaging, Aerospace and Defense, andEngineered Systems. Teledyne manufactures and designs industrial goods to several,including military, medical, industrial, manufacturing, marine, and space exploration.

Teledyne Instrumentation and Teledyne Digital Imaging represent the largest growthsegments, with 21% and 18.9% sales growth respectively in 2012. Fueling this growth is aseries of strategic acquisitions, with the addition of 9 Instrumentation and 5 Digital Imagingcompanies over the past five years. Beyond acquisitions, this growth stems from a series oftrends, among which are the alternative energy boom, increased demand for environmentalmonitoring and medical digital imaging, advances in technology, and the increasedapplications for digital imaging in manufacturing. These trends have increased demand forTeledynes environmental monitoring products - such as air quality and water quality monitors -as well as infrared sensing devices used for a variety of applications.

While Teledyne Aerospace and Defense and Teledyne Engineered Systems have notexperienced as much growth as the other segments, they have remained a stable source ofprofits over the years. This mixture between growth and stability diversifies Teledynes risk ofremaining to dependent on one segment or one customer segment for sales.

Due to its diversification, Teledyne has an attractive position in a market with high barriers toentry and virtually no substitutes. Competitors in this industry range widely, from large publiclytraded competitors such as Lockheed Martin, to much smaller firms that are privately owned.These competitors tend to be limited by reliance on either one customer such as the U.S.Government, or through offering narrowly specialized products that have specific applications.Conversely, Teledyne operates in several industries that overlap and serves a broad range ofproducts with many uses. This mitigates Teledynes overall risk by not overly relying on onesegment.

Teledynes products overlap with IEs Oil and Gas and Commodities businesses.Instrumentation has the largest amount of synergy, notably producing and designing oil andgas equipment as well as manufacturing and monitoring equipment for industrial applications.Teledyne Digital Imaging also has an overlap, producing systems and sensors for streamlinedmanufacturing and processes. Aerospace and Defense has some synergies with IE, producingLED devices and other electronic components for manufacturing. While Engineered Systemsdoes not have as much synergies with IE, the other segments produce equipment and

products that are in line with IE and could be integrated vertically and horizontally.

Teledyne has been pinpointed as an attractive target for acquisition for IE due to: (1) synergieswith IEs two largest segments that would allow for economies of scale and scope; (2)Teledyne has profitable business segments that are stable and have room for growth; (3) thefirm possesses strong management that has allowed it to expanded through strategicacquisition; and (3) Teledynes broad product offering and number of industries serveddiversifies the companys risk. In considering the size of IEs investment, Teledyne was chosendue to its overall stability and future profit potential that would strengthen and diversify IEsportfolio.


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Table of Contents

The Present Situation

Company Info

Companies, Products & Services 5

Competitive Strategy & Strengths 7

Value Chain 8

Risk Factors 13

The External Environment

Industry Definition 15

Porters 5 Forces 16

PEST Analysis 20

Competitors 29Competitive Analysis 40

Firm Analysis

Corporate Strategies 45

Assets 46

Financial Analysis 53

Segment Analysis 58

Opportunity Analysis

SWOT Analysis 70

BCG Matrix 75

Strategic Fit, Scope & Synergies 78

Acquisition Strategy

Execution 81

Financial Projections 82

References

Appendix

Appendix A 92

Appendix B 95

Appendix C 98

Appendix D 103

Appendix E 107


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The Present Situation

International Everything Inc.

While IE has experienced considerable growth as a supplier of business consultingservices and should continue to foster this growth over time, the more immediate issueconcerns the lack of growth within the two major industries that IE is involved in:commodities and off-site design/engineering for energy exploration. Considering that80% of the companys revenues stem from these two segments, it is vital that IEreassess its strategy regarding these principal businesses in order to remain financiallystable.


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Based on the facts listed below, IE has the option to either reinvest in commodities andoff-site design/engineering, or divest and focus solely on consulting services:

! Global distribution capabilities

! Business founded on commodities and energy design/engineering

! Excess cash

! Dropping IE stock prices

! Growth within financial consulting

! Rumors of corporate raiders trying to rally shareholders to split up thecompany

Beyond ensuring IEs financial stability and improving stock prices, investing incommodities and off-site design/engineering for energy exploration will: (1) decreasethe threat of being disbanded by corporate raiders, (2) benefit from synergism of

investing in industries that IE is already established in, and (3) demonstrate the firmsability to adapt over time, strengthening shareholder/stakeholder confidence in IE as awhole.


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Company Information

The information for the sections up until Value Chain has been provided byTeledynes company website.

Teledyne Technologies Inc.Headquartered in Thousand Oaks California, Teledyne is a conglomerate composedof four primary companies: Digital Imaging, Instrumentation, Aerospace and DefenseElectronics, and Engineered Systems. While the firm serves many markets andindustries, for the purposes of this report it has been classified as a manufacturerwithin the Industrial Equipment and Systems Design and Manufacturing industry.


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Company BackgroundFrom 400 employees in 1960, Teledyne has grown into a (partial) vertically integratedhigh-tech industrial conglomerate through continual acquisitions, and now employs9,630 people around the globe. Teledynes loose translation means Power ThroughCommunication, embodying co-founder George Kosmetsky and Henry Singletons

vision of a tech company that would revolutionize communication through technology.Due to the nature of Teledynes business, the U.S. government has long been amajor source of revenue for the company, though in recent years governmentdependence has been gradually declining.

Mission

Though Teledyne doesnt list an overarching mission statement, the company websiteidentifies that: Teledyne provides enabling technologies for industrial growthmarkets. While certain segments have their own specific mission statements, this

broadly summarizes the companys business and mission as a whole.


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Companies, Products & ServicesListed below are Teledynes four primary companies accompanied by their respectivecontribution to sales in 2012.

35% Instrumentation (TI)

Teledyne Instrumentation is a group of companies that provide monitoring,sensing and analytical instruments to a wide range of industries, including:energy, chemical, food/beverage, power utilities, marine and medical. Consistingof a total of 23 companies, Teledyne Instrumentation has 4 primary product andmarketing portals: Instruments, Marine, Water Quality, and Oil and Gas.

20% Digital Imaging (TDI )Teledyne Digital Imaging produces high performance sensors, cameras,

software, and infrared detectors for a variety of markets including: factories,laboratories, studios, hospitals and inspection stations. This segment alsoincludes state of the art research laboratories that facilitate major developmentefforts for the innovation of digital imaging products for government andcommercial purposes. Teledyne Digital Imaging is made up of sevencompanies: DALSA, Imaging Sensors, Judson Technologies, Optimum Optical,Scientific Company, Nova Sensors, and Optech.


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31% Aerospace & Defense (TAD)

Teledyne Aerospace and Defense produces high-end electronic componentsand communication systems and subsystems. TAD provides harsh environmentinterconnects, communication equipment for aircrafts, military applications,electronic manufacturing services, wireless and satellite communication systemsand data acquisition, and analysis electronics. Teledynes Aerospace andDefense sector has 21 businesses, seven of which operate through the singleproduct and marketing portal Teledyne Microwave.

14% Engineering Systems (TES)

Teledyne Engineered Systems segment provides technology development andmanufacturing solutions to several private businesses in addition to coregovernment sectors such as NASA, the U.S. Department of Defense, and the

U.S. Department of Energy. TES has two product and marketing portals -Nuclear and Space - and consists of three primary businesses: Energy Systems,

Brown Engineering, and Turbine Engines.


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Competitive Strategy & Strengths

Teledyne prides itself in being one of the leading developers of high technologyproduct applications for the industries we serve, and attributes its success to thefollowing corporate strategies and competitive strengths:

Strategy

! Invest in organic growth in imaging, instrumentation and electronicsmarkets

! Strengthen and expand core business with targeted acquisitions! Aggressively pursue operational excellence to continuously improve

margins and earnings one of the leading developers of high technologyproduct applications for the industries we serve.

Competitive Strengths! Markets with Significant Barriers to Entry! Product Innovation and Advanced Research and Development! Highly Sophisticated Engineering Capabilities! Widely-Recognized Name Brands! Advanced Manufacturing Capabilities! Established Customer and Regulatory Relationships! Technically-Sophisticated Workforce and Extensive Intellectual Property! Financial and Operating Discipline

The next section demonstrates the value that these competitive resources add inTeledynes value chain.


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Value Chain

As there is little information about the distribution and suppliers due to the natureof the industry, it must be noted that these sections of the value chain may bemissing information that are not available externally. The information for thissection has been provided by Teledynes 10K (unless cited otherwise).

Product R&D, Technology & System DevelopmentDue to the fast pace and highly technical nature of markets in which Teledyneoperates, ample investments in R&D to advance current ideas and pioneer newresearch are essential for company growth.

In 2012 Teledyne spent $364.2 million on R&D, roughly $50 million more than 2011.The U.S. Government funded research and development represented approximately64% of total research and development costs for 2012, compared with 68% in 2011and 81% in 2010. While government funding represents a large portion of TeledynesR&D expenditures, the company funded $131.6 million in 2012, and anticipatesspending an estimated $157.1 million in 2013, demonstrating a shift towards lessgovernment reliance in future R&D initiatives.The importance of R&D to Teledyne is illustrated by the Digital Imaging companyTeledyne Scientific and Imaging. R&D is described as the backbone of TeledyneScientific & Imaging, explaining that the only way to truly develop innovativetechnologies is through persistent and deep research driven by our world-classscientists and engineers, ("Teledyne technologies,"). While TSI is one of Teledynesmany companies, these statements are reflective of the importance of R&D to the firmas a whole.Though Teledyne keeps product design and processes confidential due toinfringements and rights, they explain that while we own and control variousintellectual property rights that are of material importance to our business, webelieve that our business as a whole is not materially dependent upon any oneintellectual property or related group of such properties. In addition to the severalhundred active patents owned and licensed by Teledyne, the company also licensesother companys intellectual property for design and engineering purposes.


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Supply Chain ManagementTeledyne is a global company that operates in 4 foreign countries and 17 states, with atotal of 65 operating facilities.

Teledyne describes its manufacturing process, explaining that: we use our ownproduction capabilities and also third party suppliers and subcontractors, includinginternational sources. This partial vertical integration enables the company to providebetter value to customers. Several key components that cannot be produced internallywith efficiency and must be procured from third parties include: gyro components,magnets and helix wires, infrared detectors substrates, and scintillator materials.Teledyne continues to provide value to customers by constantly working to improveoperation efficiency. For example, in January 2013 Teledyne Oil and Gas reportedcost savings of $40,000+ by recycling components to reduce waste at their DaytonaBeach (FL) research and development center (Hussein, 2013). By cutting back onthese unnecessary costs and implementing lean manufacturing, Teledyne hasimproved production and is able to create more job opportunities.Teledyne benefits from economies of scale in many of its segments, enabling forhigher value provided to customers. For example, Teledyne Analytical Instruments

standard analyzer platform allows TAI to maximize its economies of scale wherePCBs, power supplies and housings are concerned. This streamlined manufacturingcapability results in quick deliveries and competitive product pricing -- not to mentionthe ease in field commissioning and servicing, ("Teledyne technologies,").


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MarketingTeledyne highlights the value of the Teledyne brand by emphasizing the ability toprovide superior products and technical solutions in addition to competitive pricing,("Teledyne technologies,"). However, due to the broad range of products and marketsserved around the globe, Teledynes marketing varies by segment.

An integral part of Teledynes marketing - especially considering the business-2-

business nature of its products - is the Teledyne corporate website. Teledyne employsproduct and marketing portals, providing value to customers by allowing them to findwhat they are looking for quickly and easily. This is important due to the complexdecision making process for those investing in high-tech products and systems.Teledyne increases the ease of decision making for customers is through promoting theidea of a one-stop shopping experience by offering a wide breadth and depth ofcompatible products across their various brands. Another way that Teledyne promotesitself as a brand name is through continually cultivating strong ties with distributors andcustomers through customer oriented direct selling.Beyond personal selling, Teledyne promotes its products and capabilities throughindustry trade journals and trade shows and through maintaining a presence onindustry websites. For example, Teledynes Air Quality Monitoring products are listedfirst on the leading industry website Environmental Expert. This website caters toTeledynes target audiences across various industries, with customers such as NASA,Shell and Unilever ("Teledyne equipment,").


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DistributionThe products and capabilities of Teledyne are distributed globally. By directlycontracting with the government, Teledyne is able to cut distribution costs by reducingreliance on third party distributors. However, Teledyne does sell a portion of itsproducts through third parties such as distributors, value-added resellers and OEMs.


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Quality Assurance and Customer ServiceMeeting customer expectations with regard to quality and support is crucial within theIndustrial Equipment and System Design and Manufacturing. Considering the amountof money and time invested in making a purchasing decision - especially for the largerequipment and systems - customer support allows for a smooth transition to complexhigh-tech equipment. Similarly, quality assurance is vital to providing ROI to customers.Beyond providing value to customers, emphasizing quality and support acts to

strengthen the brand while increasing customer loyalty.

Quality assurance is provided through establishing safety, quality and performancestandards for each company and business. Teledyne ensures that these standards aremet through operating facilities such as Quality Management System of TeledyneControls, located in El Segundo. While exceeding customer expectations andcontinually improve quality is the goal outlined by Teledyne Controls Quality System,this goal reflects the numerous quality systems and standards implemented across thefirm as a whole ("Teledyne technologies,").

Beyond ensuring product quality, Teledyne also prides itself in providing service andsupport quality. An example of Teledynes commitment to customer support isTeledyne RD Instruments, which provides 24/7 customer support, extended warranties,training online and in specialized labs, as well as extensive information manualslocated online (Teledyne technologies,). In addition, RD Instruments recentlylaunched a new support program referred to as the Phoenix Program. This programcaters to customers who need immediate delivery, offering shipping of products andsystems to the nearest major port or staging area within 48 hours of request ("Teledynetechnologies,"). Lastly, extended warranties based on a percentage of the productpurchase price are available as well ("Teledyne technologies,").


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Risk FactorsSome of the risks outlined by Teledyne in their 2012 10K include:

! A new global recession, continued economic uncertainty in Europe or aneconomic downturn in China may adversely affect us.

! Our revenue from government contracts depends on the continued availability

of funding from the U.S. Government, and, accordingly, we have the risk thatfunding for our existing contracts may be canceled or diverted to other uses ordelayed.

! Our participation in government programs may decrease or be subject torenegotiation as those programs evolve over time.

! Our contracts with the U.S. Government are subject to termination rights thatcould adversely affect us.

! We may lose money or generate less than expected profits on our fixed-pricegovernment contracts and we may lose money if we fail to meet certain pre-specified targets in government contracts.

! Our business is subject to government contracting regulations and our failureto comply with such laws and regulations could harm our operating resultsand prospects.

! United States and global responses to terrorism, the end of the war in Iraqand the winding down of war in Afghanistan, continuing turmoil in MiddleEastern countries, Mexican border town violence, concerns regarding nuclearproliferation and the safety of nuclear energy, potential epidemics, financialissues facing airlines and volatile energy prices increase uncertainties withrespect to many of our businesses and may adversely affect our business and

results of operations.! Acquisitions involve inherent risks that may adversely affect our operating

results and financial condition.


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The External Environment

The products and services produced by Teledyne and its competitors are usedacross a wide range of industries, though for the purposes of this report theindustry has been classified as Industrial Equipment and Systems Design andManufacturing industry.


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Industry Definition

The products produced by the Industrial Equipment and Systems Design andManufacturing industry include: large and small manufacturing equipment andcomponents, engineering and system design, analyzers and sensors, engines andelectronic devices, and specialized vehicles. Consumers within this industry primarily

consist of government contractors and large firms.

The Industrial Equipment and Systems Design and Manufacturing industry producesproducts, systems and components that are used in various contexts for many uses.Industries served include:

Defense

Manufacturing

Medical

Scientific research

Exploration

Agriculture

Energy


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Porters 5 ForcesThe following is an assessment of the Industrial Equipment and Systems Deisgnand Manufacturing markets attractiveness.


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Power of SuppliersModerate/High

Though many of the firms in this industry are vertically integrated, companies aredependant upon a few suppliers of key components/raw materials. This renders firmssubject to the volatile pricing of the suppliers they depend on.The following statement from Lockheed Martins 10K outlines the risk of depending onsuppliers: We are the prime contractor on most of our contracts and if oursubcontractors, suppliers, or teaming agreement or joint venture partners fail to performtheir obligations, our performance and our ability to win future business could beharmed.

The above statement is reflective of the risks outlined by competing firms,demonstrating the power of suppliers within this industry. However, firms mitigate riskby vertically integrating as much as possible, decreasing dependency on suppliers.

Power of Buyers - HighThe power of buyers within this industry is high due to reliance on contracts with thegovernment and other large firms. Due to the fact that many of the components andsystems produced are highly specialized, pricing varies widely. Companies in thisindustry must often compete for contracts, allowing customers to choose the firm thatprovides the best value.

Another factor that contributes to the high power of buyers, is that there are a small

number of highly important buyers. Sustaining a long-term relationship is vital tosuccess within this industry, giving buyers sizable leverage in determining prices. Lastly, buyers in this industry are investing ample amounts of capital and are wellinformed in making their purchasing decision. Their expertise allows them to evaluatethe comparative value of products, giving them more freedom to command pricesbased upon their knowledge.The following excerpt from Northrop Grummans 10K was listed as a primary businessrisk: We depend heavily on a single customer, the U.S. Government, for a substantial

portion of our business. Changes in this customers priorities and spending could havea material adverse effect on our financial position, results of operations, or cash flows.Dependence on U.S. Government contracts is highly characteristic of the firms withinthis industry, though the amount of dependence varies by firm.


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Threat of New Entrants-Low

This industry has high barriers to entry, including:! Large cost of capital

! High government regulation

! Few competing firms that have large market share

Another factor that decreases the threat of new entrants is that competitors haveeconomies of scale through possessing:

! Vertical integration

! Highly valuable intellectual property

! Established relationships with key suppliers

! A strong network of distributors and contractors

! Large amounts of capital and investments in R&D

However, the more emerging markets that cater to niche segments within theseindustries will likely have more competition than the maturing markets.

Threat of Substitutes -LowDue to the nature of the products within this industry, no viable substitute products havebeen identified.

Competitive Rivalry - HighThe competitive rivalry within this industry is high due to the diversity of products soldand the number of industries served. Competitors have large amounts of capital,resources and connections that (1) provide sizable barriers to entry, and (2) makeconstant adaptation and innovation essential to capturing market share. In an industryso dependant on technological developments and innovation, firms require largeamounts of capital for acquisitions and R&D in order to maintain relevancy in thisvolatile market.Similar to the threat of new entrants section above, the specialized smaller firms withinrapidly growing segments will likely face more competitors than the larger firms in moremature industries with few competitors.


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Summary of 5 ForcesEntering this industry from the ground up is not attractive considering the high barriersto entry, the high competitive rivalry, as well as the high leverage of suppliers andbuyers. Due to the features that make it unattractive to enter, the likelihood of newentrants is low, leaving companies that are firmly positioned in this industry to dominatetheir segments without the threat of numerous competitors.Based on these qualities, this industry is attractive for acquisition but not to enter intoas a competitor.


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PEST AnalysisThe following domestic and global trends directly affect the Industrial Equipmentand Systems Deisgn and Manufacturing industry.


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Political & Economic

The political and economic sections have been combined due to theiroverlapping nature.

Environmental Regulation! Recently the Environmental Protection Agency (EPA) finalized emission

standards to limit leakage from natural gas operations. According to theNatural Resource Defense Council: these standards focus mainly on newequipment used in shale operations, (Gowrishankar, 2013).

! California has used hydraulic fracturing for natural gas extraction for over 60years virtually regulation free. However, due to increasing environmentalconcerns in the U.S., the local government is responding to public demand. Inaddition to the proposal of several laws - including a moratorium, permits anddisclosure policy, and increased taxation - Californias Department of

Conservation/Division of Oil, Gas and Geothermal Resources have proposedseveral regulations for storing and monitoring fracking fluids and water qualityfor contamination (Bruno, 2013).

! China is facing a pollution crisis in Beijing, with pollution levels 35 times theWorld Health Organization's recommended standard, (Burket & Spegele,2013). Currently the Chinese government is working to decrease pollutionthrough increased environmental regulation, and intends to expand thecurrent air-quality monitoring network into 190 Chinese cities in 2013 ("Chinato expand," 2013). It is estimated that roughly 440 new observatories will bebuilt next year in addition to the 496 erected in 2012.

! According to Environmental Expert, demand for water analytical instrumentsin India has grown rapidly over the past several years. In addition toheightening environmental concerns around the globe, changes in regulationcarried out by the Indian government and the increasing interest in wateranalytical instruments from chemical and pharmaceutical industries alsocontributed to the market growth, ("India water analytical," 2013).


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Foreign Policy, Political Stability & the Global Economy! Due to Chinas rapid growth as an emerging power and the U.S.s current

economic state, it is predicted that unless the Chinese development modelhits an impasse, China will likely catch up with the U.S. in terms of GDP thisdecade, and will become twice as big on an exchange-rate basis by the middleof the century, (Rogov, 2013). In preparation for the future, the government

has developed the idea for a Trans-Pacific Partnership that would set up a freetrade zone in the Asia-Pacific region. According to the Russia and IndiaReport: if the TTP becomes a reality, the US will account for three-fourths ofthe partnerships combined GDP, ensuring American dominance within thenew economic alliance,(Rogov, 2013). The success or failure of futureinitiatives such as this with foreign countries could affect the value of the dollaras well as relations with foreign countries, thus impacting the overall Americaneconomy.

! As one of the largest military powers and defense manufacturers in the world,foreign relations with other countries has a large impact on the Americandefense industry. For example, the U.S. government recently committed tohelping Israel preserve its military edge in the mideast by permitting thepurchase of certain American weapons and systems (Burns, 2013).

Agreements and partnerships with other countries could positively ornegatively influence the American defense industry.

! While GDP growth in the last half of 2012 surpassed predictions, economiessuch as Japan, the E.U., and even the U.S. are still fighting off the effects ofthe global downturn from 2008. The U.S. economy is anticipated to pick upover the next few years, as demonstrated by the recovering real estate market

and the energy boom that has doubled U.S. exports of crude in the last tenyears ("Update 2-as shale," 2013). However, while current projections remainpositive, if government policies fail to stimulate the U.S. economy, there is astill a risk returning to a state of recession.


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Budgetary Spending! Without coming to agreement in Congress by March 1, automatic budget

reductions known as sequestration have gone into effect (Pope, 2012). Thenew U.S. budget will cut defense spending by $150 billion over the nextdecade (Williams, 2013), along with cuts across the board from the sequester(Abrahamian, 2013). This will affect many different industries that rely on

government spending, such as the Defense Department, which is set to incurroughly $46 billion in spending reductions throughout 2013 Masters, 2013).

! While the United States has decreased its defense budget in response to thefragile state of the economy and the sequester (Robb, 2013), in 2012 Chinaand Russia, the second and third highest military spenders behind the US,both increased their outlays, (Bright, 2013). Last year, China increaseddefense spending by 7.8% to roughly $166 billion while Russia experienced a16% increase to $90.7 billion. Despite the sizable spending difference inrelation to the United States, whose defense budget dropped 6% to $682

billion in 2012. China and Russias increasing defense budgets demonstratethat this industry is experiencing significant changes that could shift thestrategy and global presence of firms within this market.

! As outlined by the previous section, China is currently attempting to combatthe hazardous pollution levels within large cities such as Beijing. The ChinaDaily recently reported that over the next three years, China will spend roughly$16 billion dollars in response to public outcries over current pollution levels.This budget is aimed to improve sewage disposal, garbage treatment and airquality, as well as crack down on illegal construction, (Jourdan, 2013).

! According to Environmental Expert, the Energy Department recently awarded$54 million to advance transformational technologies and materials that canhelp American manufacturers dramatically increase the energy efficiency oftheir operations and reduce cost, ("Energy department announces," 2012).This will improve manufacturers global and domestic competitiveness whilereducing the environmental impact through increased energy efficiency.


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Environmental

The following is a brief overview of some of the current environmental trends.

Pollution and Global Warming! While strategies to combat pollution have been instituted over the years,

pollution levels are still adversely impacting the environment and putting publichealth at risk. The World Health Organization estimates that globaltemperature increases led to approximately 150,000 deaths in 2000 alonewith rates expected to double by 2020, (Blumenthal, 2013). The impact ofglobal warming is widespread, and has contributed to diminishing water and airquality around the globe. For example, an article from the Global Times reportsthat in China groundwater quality in nearly 60 percent of monitoring sites in198 cities has been measured as poor, with 17% of sites exhibiting very poorquality (Yiwei, 2013). While some areas experience higher pollution levels thanothers - such as major cities - global warming presents a risk to public health,calling for increased investment in environmental monitoring and research.

! While concerns over global warming are not new, approaches to reducinggreenhouse gasses have increasingly focused on natural gasses in recentyears as estimates of shale gas levels have increased in the U.S. According toNobel prize winning physicist Carlo Rubbia, natural gas offers the fastestsource of clean energy while fulfilling public fuel demand (McMahon, 2013).While there are other economic factors influencing the fracking boom, theenvironmental benefits have contributed to its growth.

Green Manufacturing! Lean manufacturing - a strategy for increasing production efficiency - has long

been known for its economic benefits, though recently companies have beenrecognizing the environmental benefits. Beyond decreasing overall spending onwaste, increased efficiencies through lean manufacturing can decrease acompanys carbon footprint (Bredenberg, 2013). Taking this environmentalstance also sends a message to the public, as green manufacturing generatesgood will by demonstrating corporate values. According to the Economic Times,Understanding the urgent need for environmental reforms, businesses aroundthe world are increasingly adopting green initiatives,("Sustainable

development, energy," 2013).


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Natural Gas Deposits

! According to an article written in the Financial Times, many top chief executivesbelieve that lower energy prices and a flexible labour market were triggering apick-up in growth for the U.S. economy (Farchy, 2013). These executivesexpressed belief that the U.S. is at a competitive advantage compared to othercountries due to the investment opportunities for the commodities industry in

the U.S. thanks to the shale boom. The shale boom is the predicted expansionof mining shale for the natural oil produced from shale, with demand steadilyincreasing as more gas deposits are discovered. Natural gas production hasrisen 20% in five years to a record high, according to the Department of Energy(Farchy, 2013).

! According to Salon.com, the potential for fracking is huge in Europe, as thereare dozens of regions across Europe believed to be sitting on significantreserves of shale gas, (Ames, 2013). Due to the immense growth of the U.S.natural gas market and increasing discoveries of natural gas deposits aroundthe world, foreign countries are beginning to dabble in fracking. For example,

recently the Ukraine signed a $10 billion contract with Shell for shale gasdevelopment (Ames, 2013). Similarly, oil companies in Spain are planning tospend up to $1.3 billion to search for unconventional gas reserves estimated atover $900 billion, (Ames, 2013). According to the Global Times, Chinasnatural gas market will develop quickly as countries are beginning to realize theeconomic and environmental benefits that can stem from this cleaner andcheaper fuel source ("Natural gas industry," 2013).


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SocialWhile the Industrial Equipment and Systems Design and Manufacturing industry

primarily markets to business-to-business markets, social concerns and beliefs ofpeople around the globe directly influence the trends and demand within theindustries that these firms cater to.

Demography

! Due to the aging American population, there has been increased demand fromthe healthcare industry for high-tech imaging equipment and software thatenhance diagnosis capabilities. While this segment has been growing, doctorsare not familiar with the equipment yet and therefore there is a budding demandfor "manufacturers to provide innovative, accurate, reliable and patient-friendlyequipment," ("New analysis on," 2013).

Attitudes Toward the Economy

! According to a poll done by Gallup World: Although the height of the global

economic crisis has passed, world residents are still clearly feeling the effects,with many perceiving only modest improvements in their economies, (Marlar &Cimbaluk, 2013). While this has decreased overall consumer spending it hasbegun to pick up in recent years as the economy has slowly improved. Thisattitude impacts the U.S. economy directly, indirectly influencing the IndustrialEquipment and Systems Design and Manufacturing industry.

Environmental Sustainability! Public demand for pollution-control and environmental protection in the energy

exploration field are fueling the demand for environmental monitoring products.As the U.S. has increased domestic energy exploration, environmentalists haveraised concerns about the detrimental effects that the current hydraulic frackingsystems have upon groundwater and other resources. This concern hasbecome more widespread with the release of the documentary Gasland, whichoutline the current practices in place as well as the overall lack of regulationwith regards to the natural gas extraction process. This public outcry has leadto an increase in regulation, though many states are still in the legislationprocess (Ludwig, 2013).

! In response to a survey conducted by Stanford University, 74% of adultrespondents think that the government should regulate greenhouse gasemissions from power plants, cars and factories to combat global warming(Clemens, 2013). In recent years, there has also been a significant increase in

Americans who believe global warming is on the rise, and all political parties

agree that their is solid evidence of ort global warming.


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TechnologicalThe Industrial Equipment and Systems Design and Manufacturing industry islargely driven by technological change. While there are many trends, the onesoutlined below are relevant to this industry.

Analytical Instrumentation and Detectors

! According to an article published on the Herald Online, market researchanalysts at Technavio forecast the Global Liquid Analytical Instrument marketto grow at a CAGR of 6.39 percent over the period 2012-2016 ("Global liquidanalytical,"). The article continues, contributing market growth to the growingneed for better analysis, the increasing benefits of real-time data acquisition,and the adoption of analytical equipment in industrial manufacturing processes("Global liquid analytical,"). Manufacturers are beginning to implementanalytical instrumentation for improved precision and speed of measurements,reduction of unnecessary environmental error, decreased human error, andeasy monitoring and control capabilities.

! Infrared detectors will continue to grow at a significant rate driven by theconcern for energy savings. In the coming years, they will be increasingly usedto switch off/on automatically lighting and appliances such as HVAC, TVs,appliances and many more. The business is growing driven by interest in IRdetection: very robust non-contact measurement with a long lifetime. Thismarket has long been dominated by several main companies, yet smaller nicheplayers have started to emerge. Some of these specialized companies includeproducers of large MEMS. With the arrival of new players and the ability tomake large detector applications, the overall IR detector business will grow

immensely (Bombourg, 2013).

Digital Imaging! According to PR Newswire, advances in imaging technology have primed the

global medical imaging industry for significant growth through the next decade(Wood, 2013). Improved picture archiving and better data systems havecreated demand for 3-D imaging technology and better data storage.

! In recent years, technological advancements in digital imaging have stimulatedthe growth of machine vision technology. According to the Sacramento Bee:The technology is used in a variety of different industries to automate theproduction, increase production speed and yield, and to improve productquality, ("Machine vision systems," 2013). This recent growth has stemmedfrom improvements that have made the technology much more powerful andeasier to use, increasing the demand from industrial and nonindustrial sectors.


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Marine Oil and Gas! Technological changes are driving exploration within the oil and gas industry.

According to an article published in the Daily Reckoning, the momentum forthe offshore oil industry has been gaining, with spending on subseaequipment anticipated to grow 66% from last year to $13.9 billion in 2013(Insley, 2013). This growth has been attributed to new technological

capabilities that have allowed for enhanced exploration of resources that longremained untapped due to inaccessibility.

Drone Technology! In June of 2012 Boeing made a giant leap in drone technology by unveiling its

new hydrogen-powered super drone. They also developed a solar UAV, whichacts like low-altitude satellite. The craft is designed to have a 400-foot wingspan, carry a 1,000 pounds of sensors and payload, and remain at 65,000 feetfor five years. Boeing is not the only company developing new dronetechnology; British defense company QinetiQs solar-powered Zephyr broke

the world record for flying non-stop without refueling as it stayed airborne fortwo-straight weeks in Arizona. ("Top 10 unmanned," 2012). These advances intechnology are pushing government demand for drones.

! Universities are expanding the use of the drone technology. Researchers atthe University of Colorado and the University of Nebraska developed a UAV togo directly into tornadoes and measure air pressure, moisture, wind speed,and temperature so researchers could better understand these violent storms.The uses of drone technologies are limitless and markets such as agriculture,search and rescue, environmental surveying, weather monitoring, and military

are all responding to new advances in drone technology through increaseddemand ("Top 10 unmanned," 2012).


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CompetitorsFor the purposes of this report, the selected competitors focus on a few of thelarger competitors and a few of the smaller more specialized competitors. Manyof the firms listed are primarily within the aerospace and defense and engineeredsystems markets simply due to the fact that these two industries are moremature, with fewer players that have higher market share.

Considering that the digital imaging industry is still in its growth stage and thereare many competitors, the digital imaging companies below reflect how theindustry is currently very fragmented with many small specialized firms. Similarly,there the instrumentation and environmental monitoring industry has manydifferent firms that are specialized. The competitors below with regard to thesetwo growth segments is in no way a comprehensive list, but the firms chosen arereflective the other firms within the industry.

Small FirmsMany of the small firms listed below are not publicly traded companies, andtherefore, many of them do not provide financial information.

Fluid Imaging is a digital imaging instrumentation company that focuses on digitalimaging as a method for the automated analysis of microscopic particles in fluids,(Fluid imaging technologies). This includes the particle analyzers as well as theaccompanying software for analysis. Industries the Fluid Imaging serves includepharmeceuticals, food and beverage, chemicals, abrasives, and plastics, (Fluidimaging technologies,). The firm produces a variety of fluid digital imagingproducts that are specialized for a variety of different uses and needs.

*Financials unavailable


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Microwave Communications Laboratories Inc. is a microwave designer andmanufacturer company supplying products to the military and commercialcompanies. By supplying both domestic and international clients, MCLI has becomecompetent in providing efficient service and competing prices to establish a place inthe microwave manufacturing industry. ("Microwave communications laboratories,").

Their products include:

! Microwave components

! High power combiners! Dividers

! Electromagnetic switches

! Circulators

! RF amplifiers.

* Financials unavailable


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Raytek is a subsect of Fluke, which is a world leader in the manufacture, distributionand service of electronic test tools and software, ("Fluke,"). Raytek specializes insupplying infrared, noncontact, industrial temperature measurement instruments inthe world, ("Fluke,"). Rayteks products are primarily used for industrial, processcontrol and maintenance applications.

Raytek Produces:

! Fixed Infrared Sensors and Thermal Imagers

! Maintenance Systems

! Infrared Linescanners

! Infrared Process Imaging Systems

! Portable Thermometers

! List of Accessories & Calibration Tools* Financials unavailable


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Ecotech is an Australian based company that provides environmental monitoringservices, specializing in service, maintaining, designing, manufacturing, installing andcommissioning ambient air and emission monitoring systems around the world,("Environmental monitoring solutions,").

Ecotech manufactures:

! Ambient air analyzers

! Ambient air quality monitoring systems

! Trace/background Ncore ambient monitoring systems

! Greenhouse gas analyzers

! Blast monitoring systems

! Continuous emission monitoring systems

! Aurora integrating nephelometers

! High volume air samplers

! Gas dilution calibration systems

! Zero air generators

! Data acquisition systems

! Data collection, validation and reporting software



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YOUR STRATEGIC ALLYCIE Automotive is an industrial company specialized in managing high value-added

processes. They create components and subassemblies for the automotive marketand strive to be the leader in this niche market. Headquartered in Spain, CIE

Automotive has an international presence and operates in 15 countries ("Cieautomotive,").

Their principal areas of business include:! Automotive components

! Biofuels

! Technological solutions and services



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Located in the UK, Meggit PLC is an engineering firm who specializes in aerospaceand defense components. They employ around 10,000 people at manufacturingfacilities around the world. Meggit PLC states that they are able to be successfulthrough evolving group infrastructure with strong functional leadership, ("Meggit plc,").

This company is segmented into the following categories:! Aircraft Braking Systems - provides aircraft braking systems to a diverse

group of customers including airline operators, aircraft constructors, privateaircraft owners and charter operators, governments and military operationsand distributors and repair stations.

! Control Systems - supplier of pneumatic, fluid control, thermal managementand electro-mechanical equipment and sub-systems.

! Equipment Group - these business include IT, regional HR, strategicsourcing, operations excellence initiatives and trade compliance and ethicsand business conduct programmes.

! Polymers & Composites - These encompass seals for aircraft and oil

platforms; flexible fuel tanks and coatings; the composites that make up smartice protection systems and sub-assemblies; and helicopter interior panels andaccessories

! Sensing Systems - includes high technology products and systems for civiland military aerospace and the energy, power generation, nuclear, oil andgas, industrial, laboratory measurement, automotive and space markets.("Meggit plc,")

Meggitt PLCs market capitalization is $3.70 billion. The firm has been successful overthe last three years as revenues, net margin, return on assets, and equity have all

increased substantially from 2011 to 2012. Revenues have increased by $296 million to$1,455 million, net margin increased from 12.6 to 15.15, return on assets increasedfrom 4.18 to 4.61, and equity increased from 9.60 to 13.16. Meggitt PLC has aprice/earnings ratio just above 15, which is above average for the industry.


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Large FirmsMany of the larger firms operate primarily within the more established and mature defenseindustry.

Well known as one of the worlds largest defense contractors, Lockheed Martinengages in the research, design, development, manufacture, integration, andsustainment of advanced technology systems and products, (Lockheed martincorporation, 2012). While Lockheed Martin serves both domestic and internationalcustomers, the U.S. Government is its principal customer, constituting 82% of total

sales in 2012. Lockheed Martin focus remains on defense, space, intelligence,homeland security, and information technology, including cyber security, (LockheedMartin corporation, 2012). With roughly 25.2% market share, Lockheed Martin holdsthe largest market share within the Space Vehicle and Missile Manufacturing industry(Ibis world,). Lockheed Martin currently employs 120,000 people across the fivebusiness segments listed below:

! Aeronautics- with approximately $14.9 billion in 2012 sales which includestactical aircraft, airlift, and aeronautical research and development lines ofbusiness.

!

Information Systems & Global Solutions (IS&GS)- with approximately $8.8billion in 2012 sales that includes C4I, federal services, government andcommercial IT solutions.

! Missiles and Fire Control- with approximately $7.4 billion in 2012 sales thatincludes the Terminal High Altitude Area Defense System, Joint Light TacticalVehicle, PAC-3 Missiles as some of its high-profile programs.

! Mission Systems and Training- with approximately $7.5 billion in 2012 sales,which includes naval systems, platform integration, simulation and training andenergy programs lines of business.

! Space Systems- with approximately $8.3 billion in 2012 sales which includesspace launch, commercial satellites, government satellites, and strategicmissiles lines of business. ("Lockheed martin,")

Lockheed Martin is a huge market player, and is currently valued at $31.19 billion. Thefirms revenues have slightly increased over the last three years, while their debt toequity has increased drastically from 1.44 in 2011, to 6.45 in 2012. The firms inventoryturnover has also decreased from 14.64 in December 2012 to 17.19 in January 2012,a sign that defense cuts are impacting production.


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Northrop Grumman Corp. employs 68,100 employees around the world, with a missionto be at the forefront of technology and innovation, delivering superior capability intandem with maximized cost efficiencies, ("Northrop grumman,"). Northrop Grummanprovides the government and commercial customers with systems, products andsolutions in aerospace, electronics, information systems, and technical service areas,("Northrop grumman corporation,"). With 14.9% market share within the space vehicleand missile manufacturing industry, Northrop Grumman has the second largest marketshare.

The company operates four principal business segments:

! Aerospace Systems - a premier developer, integrator, and producer ofmanned and unmanned aircraft, space systems and advanced technologies.

! Electronic Systems - Systems include high performance sensors andintelligence processing and navigation systems operating in all environmentsfrom undersea to outer space.

! Information Systems - a leading global provider of advanced solutions thatdeliver timely, enabling information to where it is needed most for our military,

intelligence, civilian, state and local, and commercial customers.

! Technical Services - The sector's global customer base is engaged on the frontlines of domestic and regional security, irregular warfare, modernization throughsustainment, nuclear security and other activities. ("Northrop grumman,").

Northrop Grumman is currently valued at $17.10 billion. Their financial situation issimilar to Raytheon, as the two companies both generate revenues in the 24 billiondollar range. Northrop Grummans revenues declined by $400 million from 2011 to2012, though their net profit margin helped account for this decrease, increasing from6.77 to 7.90.


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Raytheon Company describes itself as a technology and innovation leader specializingin defense, security and civil markets throughout the world. Raytheon Co. has a globalpresence with 67,800 employees across a total of 19 countries, operating primarily outof Australia, Canada, Europe, the Middle East, and India. While much smaller than itscompetitors, Raytheon sustains roughly 6% of market share within the space vehicleand missile manufacturing industry. The firm is divided amongst four primary businesssegments: (1) Intelligence, Information and Services, (2) Integrated Defense Systems,(3) Missile Systems, and (4) Space and Airborne Systems ("Raytheon,).

Raytheon Companys capabilities include:

! Air and Missile Defense

! Command, Control, Communications, Computers and Intelligence

! Cybersecurity

! Electronic Warfare

! Intelligence, Surveillance and Reconnaissance

! Naval Solutions

! Radar! Space Solutions

Raytheons current market cap is $20.62 billion. It appears that the firm has struggledwith increased budgets cuts as revenues and inventory turnover have declined.Revenues decreased from $24.79 billion in 2011 to $24.36 billion in 2012, whileinventory turnover decreased from 59 to 50. However, the firms net margins haveincreased from 6.77% in 2011 to 7.27% in 2012, which has allowed them to remainfiscally healthy under challenging economic conditions.


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Headquartered in Wichita, KS, USA, Spirit AeroSystems is the largest non-OEMdesigner and manufacturer of aerostructures for commercial, military andbusiness/regional jets in the world ("Spirit aerosystems,"). Spirit AeroSystems is also aleader in manufacturing and designing complex assemblies. This company states thatthey stay a leader through their extensive dedication to research and development.They currently employ more than 15,000 people in the US, Asia and Europe.

Spirit AeroSystems is responsible for the following products: Airbus A320, A350XWB and A380

Boeing 737, 747, 767, 777 and 777 freighter and 787

Bombardier CSeries

Gulfstream G280 and G650

Mitsubishi Regional Jet (MRJ)("Spirit aerosystems,")

Spirit Aerosystems is valued close to Teledyne at $2.84 billion. The firm has struggledto keep net margins up, decreasing from 5.25% in 2011 to 3.90 in 2012. SpiritAerosystems has a lot of business tied to Boeing and Airbus, which means theyfluctuate with those businesses. However, the companys earnings have rebounded inthe first quarter of 2013, and investors have high expectations for the company, as theirprice/earnings ratio is currently at 92.


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Belden provides a comprehensive portfolio of connectivity and networking productsinto a variety of markets, including industrial, enterprise, and broadcast. ("Belden,")The company is structured around four primary connectivity platforms: industrialconnectivity, industrial IT, enterprise connectivity and broadcast.

The products that Belden manufactures include: Copper, fiber and coaxial cable solutions

Fiber and copper connectors

Industrial Ethernet switches and related equipment

Fiber optic interfaces

Media converters

Belden has a market cap of $2.29 billion, and brought in $1.84 billion in revenue lastyear. The company has had a volatile stock price over the last decade, but has beentrending upward in the fourth quarter of 2012 and the first quarter of 2013. The forwardP/E ratio is 12.97 and is reflective of the type of growth in their industry ("Beldenfinances,").


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Competitive AnalysisDue to wider availability of company and financial information provided by thelarger publicly traded firms, two small firms and two large firms have beenchosen in the competitive analysis below.

Key Performance IndicatorsConsidering the range of markets served and product offerings within this industry, thefollowing Key Performance Indicators have been identified. These KPIs are based onKey Success Factors from IBIS Worlds reports covering a range of industries,including: Laboratory Supply Wholesaling; Geophysical Services; NavigationalEquipment Manufacturing; Mining, Oil & Gas Machinery; and Pump & CompressorManufacturing ("Us industry report,").

Rank.15 Reliable network of suppliers, manufacturers, distributors and

customers: Maintaining close relationships through contracts and astrong network.

.25 Having a skilled workforce and technical knowledge: Knowledgeablestaff and management is required to liaise with clients, developinnovative products and make strategic decisions.

.30 Ability to adapt, develop or having access to the latest available andmost efficient technology and techniques:Companies should assesschanging market conditions to alter operations and product offerings tomeet demand and provide the latest most innovative technology.

.10 Economies of scale and scope:It is important for firms in the industryto be able to achieve a lower per unit cost to offer competitive pricing andbe diversified across equipment segments to reduce the impact ofcontracting segments and provide leverage.

.20 Effective performance monitoring and quality assurance: Industryfirms should offer quality support to customers while monitoring

performance to continually quality, track output efficiency and minimizethe release of faulty or potentially dangerous products.


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The larger firms have larger buyer power, explaining the discrepancy between the largeand smaller firms. All companies were ranked equally in having a skilled andknowledgeable workforce, as this is an essential component within this industry.Similarly, quality/quality assurance was ranked equally across firms, as customersupport and ensuring quality products is vital to retaining business and securing

contracts.

Teledyne was ranked slightly higher than the other companies on innovative technologysimple because its diversification across several industries and broad manufacturingcapabilities make it more flexible and able to adapt to changing preferences and needs.However, it must be noted that all of these firms still rank quite high on this aspect, asthe Industrial Equipment and Systems Design and Manufaturing industry is driven bytechnological advancement.

Economies of scale/scope were ranked equally across the companies because

continual improvement on manufacturing efficiency across the firm is essential toprovide competitive prices and secure contracts. While these companies are all rankedvery closely, it is important to note Teledynes unique position between the smallerfirms and the larger firms.


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Strategic Group MapWhile not all of the competitors are charted, the other small firms outside of theaerospace and defense industry would be similarly clustered toward the bottomleft-hand side.

Raytheon, and Lockheed Martin are government defense contractors, with over 80% oftheir sales stemming from U.S. government contracts. Meggett on the other hand hadonly 40% of sales to the government in 2012, with 14% from the energy and 46% fromthe civil aerospace. ("Meggit plc annual," 2011) Kratos is a defense firm that relies onthe government for 65% of sales ("Kratos defense &,"), and Spirit Aerosystems issolely an aircraft parts manufacturer that relies on defense contractors for 97% of itssales ("Spirit aerosystems holdings,").This leaves Teledyne in an interesting position, with risk diversified across 4 differentsegments that serve many industries, and 69% reliance on the government. While thisnumber is still quite high, overall firm dependence on government contracts isdecreasing, so over the next few years Teledynes position is likely to shift further to theleft.


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Summary of Strategic Group Map

This industry is composed many firms that serve a few primary industries. The smallermore specialized firms are not all that dependent on the government for sales, while thelarger companies that are almost entirely reliant on the government. Conversely,Teledynes risk of being overly dependent on the government is slowly becomingmitigated by the many industries the different segments serve, in addition to decreasing

government reliance for sales.


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Firm Analysis

The following analysis of Teledyne illustrates how the firm operates and succeedswithin the markets it is involved in.


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Corporate Strategies

Through utilizing economies of scale to cut costs, acquiring firms within their majorgrowth segments, and providing quality products and services, Teledyne is able toprovide a broad scope of quality products at prices that create value for theircustomers. Teledyne differentiates itself through offering a mixture of lower priced

functional products in addition to offering more highly specialized products andservices to NASA, energy production, environmental equipment, and many otherindustries. To continually expand and grow, Teledyne outlines that: We intend tostrengthen and expand our core businesses with targeted acquisitions and throughproduct development, (Teledyne technologies,).

The wide range of products offerings allows the company to have more flexibility, asmany of these products can be used in a variety of contexts and industries.Teledynes acquisition strategy facilitates rapid growth and the firm often benefitsfrom vertical integration of acquired companies. This all-encompassing corporate

strategy makes Teledyne a best-cost provider of materials and goods, andmaximizes their ability to grow in a multitude of industry segments.

However, it must be noted that this corporate strategy was deduced externally, ascompanies within this industry do not openly provide pricing information.


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AssetsThe following section outlines Teledynes tangible and intangible assets. Theinformation is based off of what was publicly available, so it must be noted thatthere may be other factors not included. The information for this section has been

provided by Teledynes 10K unless otherwise noted.

Tangible AssetsIntellectual Property

Teledyne owns and controls various intellectual property rights, including severalhundred patents, trade secrets, confidential information, trademarks, trade names,and copyrights.

Property, Plants, and Equipment

In 2012, Teledyne acquired $79.1 million in property plants and equipment fromacquisitions. Capital expenditures on property plants and equipment last year

accounted for $65.3 million.

Teledyne currently operates 65 facilities in 17 US states and four countries.22 are owned and the other 43 are leased.


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Acquisitions and Divestures

The following graph demonstrates company acquisitions (blue) and divestures (red)since 2008. While the financing information from these activities is unavailable, thegraph below demonstrates the assets acquired in 2012.

This graph from Teledynes 10K illustrates the money spent and the assets fromacquisition.

Research and Development

While there are several R&D facilities, Teledynes primary R&D operation takes placein Thousand Oaks, California. Last year, Teledyne spent $364.2 million, an increasefrom the $315.7 spent the previous year. 64% of Teledynes R&D in 2012 wasfunded by the government. While government funding is high for Teledynes R&D, itis a huge drop from 2010 and 2011, where government funding was 81% and 68%respectively.

Human Capital

Teledynes current workforce consists of approximately 9,630 employees around theglobe.


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Partnerships & Contracts

Teledyne is involved in multiple partnerships that gives Teledyne access toresources such as technology, patents, laboratory space, and intellectual property,which allows them to leverage additional resources to advance their market reach,and increase their product portfolio. In Nov. 2012, Teledynes subsidiary TeledyneBrown Engineering Inc. partnered with Dow Chemical Company, a leader inmanufacturing and supplying chemical products to consumer companies in multiple

industries. The partnership entailed a three year Lab and Office FacilityManagement contract for Research Services. This agreement gave Teledyne Brownthe advantage to provide advance strategic management services in laboratoryfacilities to Dow Chemical. Robert Mehrabian, CEO of Teledyne Technologies,stated: "This award complements our strategic thrust in test and measurement,broadens our overall market reach, and increases our commercial portfolio,"("Teledyne wins commercial," 2012).


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Intangible AssetsDynamic Management

To compete in an industry that is heavily competitive and extremely reliant onsuppliers, buyers and various trends in the external environment, Teledyne has beenable to manage risk over the years through dynamic management. Teledynesacquisitions and divestitures explain how the company has been able to sustain

growth in revenue and size through continually assessing trends and looking towardthe future.

Acquisitions, Divestments and DiversificationTeledynes management aims to invest in organic growth in imaging,instrumentation and electronics markets while aiming to strengthen andexpand core business with targeted acquisitions. As reflected by the financialanalysis, Teledynes areas of rapid growth are within the Digital Imaging andInstrumentation segments. The Instrumentation segment has acquired the mostfirms, constituting roughly 53% of acquisitions since 2008. Digital Imaging

represents 29% of acquisitions while Aerospace and Defense makes up only18%. Teledyne Engineered Systems has not acquired any new companiessince 2008, which is reflective of the slowing financial growth of this segment.

Acquisition by Segment

One of the most notable investments in recent years was the acquisition of thehigh-resolution digital imaging company, DALSA. According to Dr. RobertMehrabian, Chairman, President and Chief Executive Officer of Teledyne, thisdecision was made due to the synergism between the companies, as "Teledyneand DALSA are each acknowledged leaders in digital imaging technology butour product lines and customer bases are almost entirely complementary. Notonly has this acquisition has strengthened Teledynes international presence inCanada, but it has also played an integral role in fueling the growth of TeledyneDigital Imaging in recent years.


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Wide Customer Base

By having a wide customer base that is divided between commercial firms and theU.S. Government, Teledyne is able to diversify the risk of overly relying upon onecustomer for sales. This is especially significant, especially as compared to othermajor firms within the industry such as Lockheed Martin and Northrop Grumman thatderive 80%+ of their sales solely from the government.

GovernmentIn an industry that is highly dependant on government contracts and funding,Teledyne has slowly begun to wean itself off of the government to decreasereliance. Considering the volatility that the industry has experienced due to theweakened U.S. economy in recent years, the threat of budget cuts from thesequester, and a change in administration that decreased overall defensespending, decreasing reliance on the government is a strategic move thatmitigates risk. This is significant due to Teledynes relatively small size.

According to Congressman Jim Morgan, small defense firms are at risk due tobudget cuts as they are often dependent on two or three federal contracts, and

thats all they have, (Munsil, 2013).

Total U.S. Government sales, which include contracts with the Department ofDefense, were approximately 32% of total sales in 2012, 36% in 2011, and 44%of total sales in 2010.

This trend shows that Teledynes sales from the U.S. government havedecreased steadily over the past few years while sales to commercialcustomers have increased, therefore mitigating the impending risk of havinglarge amounts of revenue tied-up in government contracts.

Government Sales % of Sales by Segment

2012 2011 2010

Instrumentation 5.3% 6.3% 6.2%

Digital Imaging 31.0% 31.5% 76.2%

Aerospace and Defense 40.9% 45.3% 49.2%

Engineered Systems 81.4% 79.4% 88.7%


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Commercial

Missile defense and NASA programs use to make up over three-quarters ofTeledyne Engineerings work, but that number has decreased over the years to

just one-third. Teledyne has had to adapt to the decreasing budget like all othercompanies within its industry, and the companys focus is now on developingnew products for the commercial market, to go and try and create some of ownfuture, because the space industry cant afford to wait for the government tocome calling with new business (Morring, Jr.). Teledyne has done this bydeveloping new products such as the Multi-User System for Earth Sensing(MUSES) a digital imaging project that will expand the research capability ofthe space station and provide other commercial companies with a cost-effectivemeans to collect earth images. The earth observation platform was developedfor private commercial operation, and if the project succeeds, the company willmake more proposals for commercial space activities.

Brand Name

Teledyne has won numerous awards, though some of the most notable anddistinguished include:The 2011 Boeing Performance Excellence Award - Gold Levelawarded in 2012 to Teledyne Brown Engineering company ("Teledyne brownengineering,"). The Boeing Performance Excellence Award is an annual program torecognize superior performance. Boeing gives this award on behalf of its supplierperformance recognition program.

The 2011 NASA George M. Low Award was awarded in 2012 to Teledyne BrownEngineering company for Large Business/Service Category; NASA's highest honor

for quality and excellence ("Teledyne brown engineering,"). This award is dedicatedto their sub contractors those who have outstanding technical and managerialachievements ("Nasa,").

Intellectual Assets

Teledyne Technologies employs top performers in the industry to secure that theirbusinesses are being managed by leading professionals. For example, TeledyneBenthos Inc, a company that manufactures ocean instrumentation and underwatersurvey systems, recently employed Justin Manley for the position of Senior Directorof Business Management. Benthos VP Thomas W. Altshuler stated, His extensive

scientific, engineering and business development experience will play a pivotal rolein the continued development and expansion of the business in key and emergingmarkets, ("Teledyne benthos welcomes," 2011). The subsidiary Teledyne BrownEngineering recently announced its contract with NASA, providing them support ontheir ISS (International Space Station) and Marshall Space Flight Center missions(Teledyne technologies,). The experts working on these projects are described as:the link between scientists, the astronauts and experiments conducted on the ISSfurther proving that Teledyne has leading experts in the industries it serves(Teledyne brown engineering,).


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Total Current Assets


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Financial Analysis

The following sections analyze Teledyne and its competitors current andhistorical financials.

Teledynes Current FinancialsTeledyne Technologies market cap for the fiscal year ending in 2012 was 2.92 billiondollars. Revenues have increased 29% over the last three years, and 10% from 2011to 2012. Teledyne's earnings per share has had great growth as well, increasing over33% since 2010, and 12% from 2011 to 2012. Teledyne continues to experienceabove average industry growth due to a strong demand for the companys products,and future financial forecast predict that Teledyne will continue on this positive trend.

("Teledyne technologies everywhere," 2012)


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Teledyne Historical Analysis

After the financial crisis of 2008, Teledynes stock prices dropped sharply, but overthe past 5 years they have continued to rebound, and have surpassed their all-timehigh from 2008.

Teledyne has historically generated over 10% growth in earnings per share over thelast decade, and this trend has continued over the last three years as TeledynesEPS has grown 15% on average from 2010-2012. Besides a small dip after therecession in 2009 and 2010, Teledynes revenues have grown above 10% everyyear. Teledynes net and operating margins have continued to increase as well, whiletheir ROA and ROEs have slightly declined. This decline can be attributed to anincrease in assets, as Teledyne acquired multiple firms in 2012, and should reap thebenefits in 2013.


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Sales and net income from continuing operations increased by 9.5% and 13.9%,respectively over 2011 results. Earnings per share from continuing operations in2012 increased 13.6% over 2011. In 2012, sales totaled $2,127.3 million, comparedwith sales of $1,941.9 million in 2011. Net income for 2012, excluding ourdiscontinued operations, was $161.8 million or $4.33 per diluted share, comparedwith $142.1 million or $3.81 per diluted share in 2011. The increase in revenueincluded incremental sales from acquisitions of $180.7 million. Our 2012 net incomeincluding discontinued operations totaled $164.1 million or $4.39 per diluted share,

compared to $255.2 million or $6.84 per diluted share in 2011. In addition, eachbusiness segment experienced higher operating profit growth except for theAerospace and Defense Electronics segment. The operating profit decrease for theAerospace and Defense Electronics segment primarily reflected the impact of lowersales, as well as $1.7 million of severance and relocation costs, within certainelectronic manufacturing service products businesses.

With the recent acquisition of LeCroy in 2012 and DALSA in 2011, as well as growthin commercial markets, Teledynes business mix has continued to change, and for2012, Teledyne's sales were approximately 68% to commercial customers and 32%to the U.S. Government. This has changed from about 56% commercial and 44%government in 2010. Our international sales also increased to 39% of total sales in2012, compared to 29% in 2010. We have worked to transform our product portfoliointo that of a high technology industrial company that is less dependent on U.S.Government business.


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Current Competitive Financial Analysis

Teledynes trailing and forward price/earnings ratio is strong relative to itscompetitors, and shows that investors are confident in the firms ability to continue togrow. Teledynes ROA of 7.69% and ROE of 16.51% also show that investors aremaking substantial returns on their investment. Lastly, Teledynes low debt to equityratio shows that the company is financially sound - not taking on too much debt as

other competitors have.

This allows them to continue their market strategy of acquiring smaller firms that canstrengthen their core markets for continued market share improvement. Teledynes1.83 current ratio also signals the firms strength in not over-leveraging their debt.These competitive valuation measures demonstrate that while Teledyne is a smallfirm that does not bring in nearly as much revenue as its many of its competitors, thefirms smaller size allows the company to grow at a much faster rate. Presently, thefirm is financially healthy and projected to continue to grow.


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Historical Competitive Financial Analysis

Teledynes 33.23% growth in EPS from 2010 to 2012 is the highest rate of the sixcompanies we assessed. Their revenue growth from 2010 to 2012 was 29.38%,which is the third largest percentage of growth in our sample size for those years,only behind Kratos Defense and Meggitt PLC. The market price history of Teledynesindustry competitors shows a general trend of decline during the height of therecession, and a slow recovery over the next three years.

Teledyne has been able to achieve a higher growth rate in market price over thistime period by investing in high growth commercial industries such as digital imagingand instrumentation, and reducing their dependency on government contracts. Manyof the industrys competitors have struggled to earn pre-recession revenues as thedeclining federal budget has put greater stress on companies to search for businessin the private arena. Firms such as Kratos Defense were trading in the low twentiesin 2008 are now just above $5.00 a share. Spirit AeroSystems has also had a volatile5-year period, with a sharp decline in October of 2012, but have slightly recovered.Teledyne however has rebounded in the last five years through strong acquisition

and divestment policy. Their stock price has had the second greatest post-recessiongrowth, and is projected to continue growing at an annual rate of 7%-12%.

(Teledyne technologies inc. 2013)


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Segment Analysis

The following is an analysis of each of Teledynes business segment. Thefollowing information has been taken from Teledynes 10K unless otherwisenoted.

Segment Financial Performance

The following graph demonstrates the breakdown of sales by segment in 2012.

Sales by Segment



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Instrumentation

Teledyne Instrumentation is currently the largest source of sales for the firm overall,constituting roughly 32% of sales in 2012. Last year sales increased byapproximately 22%, from $616.6 million in 2011 to $749.4 million in 2012. Whilecontinual acquisitions have contributed to the increasing the rapid growth in saleswithin this segment - with $8 million stemming from the acquisition of PDMNepTech and $80.8 flowing in from last years acquisition of LecCroy - operating

profits alone grew by 10.9% in 2012 from $122.8 to $136.2 million. Thisdemonstrates that Teledyne Instrumentations growth is explained by thecombination of strategic acquisitions in addition to an overall increase in profit fromoperations. Specifically, increased demand within marine, test and measurement,and environmental instrumentation have contributed to the increasing operatingprofit and sales.

Teledyne Instrumentation is currently the largest source of sales for the firm overall,constituting roughly 32% of sales in 2012. Last year sales increased byapproximately 22%, from $616.6 million in 2011 to $749.4 million in 2012. Whilecontinual acquisitions have contributed to the increasing the rapid growth in saleswithin this segment - with $8 million stemming from the acquisition of PDMNepTech and $80.8 flowing in from last years acquisition of LecCroy - operatingprofits alone grew by 10.9% in 2012 from $122.8 to $136.2 million. Thisdemonstrates that Teledyne Instrumentations growth is explained by thecombination of strategic acquisitions in addition to an overall increase in profit fromoperations. Specifically, increased demand within marine, test and measurement,and environmental instrumentation have contributed to the increasing operating

profit and sales.

Capital expenditure for this segment has steadily increased to $13.2 million in2012, roughly double the $6.4 million in capital expenditures in 2010. While thisnumber is low compared to Digital Imaging, this moderately increasing number isreflective of the steady growth of the segment versus the rapid growth of DI.


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The last point of note with regard to the Instrumentation segment is thatgovernment percent of sales dropped by one percent this last year to 5.3. Whilethis is only a slight drop and the overall government percent of sales for thissegment is low, it is important to note that this indicates continually decreasinggovernment dependence across the entire firm.(Teledyne technologies incorporated, 2012)


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Digital Imaging

Teledynes Digital Imaging sector is the fastest growing segment in the company.From the years 2011 to 2012, digital imaging experienced an 18.9% growth

increase. Specifically, selling 349.9 million in 2011 to 415.9 million in 2012. Theiroperating profit has also seen an enormous increase of 54% from 2011 to 2012.The Digital Imaging segment has also increased their international sales from 7.1

in 2011, up to 46.1% in 2012. This shows a dramatic increase in only 2 years.

Another notable accomplishment of this sector is reducing their percentage ofgovernment sales significantly. In 2010, 76.2% of their sales were governmentreliant- taken down to 31% in 2012. This shows a success in strategically trying todecrease their government reliance.

The Digital Imagings capital expenditure have seen more than double the growthfrom 11.3% in 2010 to 23.5% in 2012. This means they are looking for ways to

further grow and invest in this section, as it has been producing extremely well inrecent years.

A majority of these extreme growth increase stem from acquisitions of related andprofitable companies. In particular, the acquisitions of DALSA, NovaSensors, andOPTA have been directly tied to 66.9 million in incremental revenue. Thesestrategic acquisitions have aided this segment tremendously in growth, along withthe growing industry overall.


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Aerospace and Defense

Aerospace and Defense has seen a fluctuation of sales, increasing from $614.7million in 2010 to $670.8 in 2011, and decreasing to $660.6 in 2012, resulting ina negative 1.5% decrease in sales. Due to this decrease in sales, this caused theoperating profit to decrease over the past three years, beginning at $105 millionin 2010 and ending with $90.3 million in 2012, resulting in a -3.8% decrease. Asfor government percent of sales, A&D has decreased each year by roughly 5%.

This is to be expected due to the external environment discussed in the PESTanalysis. Sales internationally have increased each year, beginning at 22.3% in2010, 25.1% in 2011, and 28.1% in 2012.

Over the past years, there has been a constant decrease in electronicmanufacturing service products. In 2011, the reduction of sales was 14.1 millionand in 2012, it was 37.8 million. This decreasing segment of A&D is offset by thesteady increases in avionic production and electronic relays, as well asmicrowave devices and interconnects. In 2011, $24.1 million increase in avionics,

and a $12.4 million in 2012. In 2011, microwave devices and interconnect saleswere at 46.1 million, and with the acquisition of Varisystems in 2012, theyincrease $25 million.

With a slight increase of capital expenditures in the A&D segment, Teledyne isstill showing confidence in this segment, but is placing more of their efforts in o

acquisition proposal - teledyne technologies

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