Teledyne Technologies Inc
Teledyne Technologies Inc.
Sales: $840.7 million (2003) Stock Exchanges: New York
Ticker Symbol: TDY
NAIC: 333319 Other Commercial and Service Industry Machinery Manufacturing; 334511 Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing; 335999 All Other Miscellaneous Electrical Equipment and Component Manufacturing; 336412 Aircraft Engine and Engine Parts Manufacturing; 541710 Research and Development in the Physical, Engineering, and Life Sciences
Teledyne Technologies Inc. owns a number of aerospace and electronics businesses. Its Continental Motors unit is as leading engine manufacturer for private planes. Spun off from Allegheny Teledyne in 1999, Teledyne Technologies has since sought to widen its focus by buying companies making such high tech products as fuel rods and environmental and industrial sampling equipment. However, the U.S. government continues to be an important customer, accounting for about 40 percent of sales in 2002.
Ever since he was a boy, Henry A. Singleton wanted to build a large corporation, declaring, "A company like GM, AT&T, Dupont—I want to build a company like that." In 1960, after earning three degrees from MIT and rising to vice-president and general manager of Litton, Singleton decided the time was right. He quit his $35,000 a year job and convinced his assistant and old friend, George Kozmetsky, who had earned a doctorate in commercial science from Harvard, to join him in a new business venture.
Singleton, who in five years had helped raise Litton Industries Inc.'s electronics equipment division to $80 million in sales, decided that success lay in the semiconductor business. Despite an already crowded market, he nevertheless believed that producing semiconductors, the "basic building block of electronics," would lead to other high-technology and high-growth inventions.
Using the money they earned from their Litton stock options, Singleton and Kozmetsky each invested $225,000 to start their business. Singleton became chairman and president of the company they named Teledyne, and Kozmetsky became executive vice-president. Their backgrounds in high technology and innovative ideas quickly paid off. The company achieved first year sales of $4.5 million and employed nearly 450 people. Second year sales of $10.5 million confirmed their success. Sales continued on an upward trend when the company embarked on a series of acquisitions, first in electronics and then in geophysics, to increase the company's strength in businesses related to semiconductors. In 1966, Teledyne bought Vasco Metals Corporation, which started a third wave of acquisitions, in specialty metals. Vasco, with sales of $43 million, specialized in titanium, molybdenum, beryllium, and vanadium alloys.
Later that year, Kozmetsky, whose 130,000 shares of Teledyne were by then worth well over $20 million, retired from the company to become dean of the College of Business Administration at the University of Texas. George A. Roberts, formerly president of Vasco, replaced him as president of Teledyne. Singleton continued on as chairman and chief executive officer. By the end of 1966, Teledyne broke into the 293rd spot in the Fortune 500 ranking with sales of more than $256 million—nearly triple the total of just one year before.
1960s–70s: Acquisitions and Growth
In 1967, Teledyne continued its impressive growth. The company's 16,000 employees were busily making microelectronic integrated circuits, microwave tubes, aircraft instruments, miniature television camera transmitters, hydraulic systems, computers, seismic measuring devices, specialty alloys, and a large variety of other sophisticated products. More good news arrived when the company bettered IBM and Texas Instruments in a government defense contract contest and became the prime contractor for the development of the Integrated Helicopter Avionics System (IHAS). The IHAS was a helicopter control system that used computers to provide "precise navigation, formation flight, terrain following, and fire control" in virtually any kind of weather. Also that year, in a move Business Week magazine called a "coup," Teledyne purchased the Wah Chang Corporation, a leading producer of tungsten and columbium and the world's top producer of hafnium, zirconium, and other exotic metals. In addition, to increase the company's assets and provide it with more leverage for future acquisitions, Teledyne moved into the insurance business by purchasing 21 percent of United Insurance Company for $40 a share.
In 1969, Teledyne's sales surpassed the $1 billion mark. The company subsequently stopped its aggressive acquisition program and paid off its short term debts. Wall Street analysts predicted that the acquisition phase was over and that Singleton was turning Teledyne into an operating company. Teledyne's financial condition was quite strong. For the ten years previous to 1971, the company led the Fortune 500 ranking in earnings and earnings per share growth. In the early 1970's, while many conglomerates were experiencing financial difficulties, Teledyne weathered the recession well. Sales increased somewhat with inflation, but net profits remained near $60 million.
In 1972, Argonaut, one of Teledyne's six financial companies, decided to expand from the worker's compensation field into the medical malpractice insurance business. At the same time, the frequency and size of malpractice claims were growing—but premiums did not keep pace. By 1974, Argonaut took a $104 million pretax write-off, resulting in a $31.2 million net loss in insurance operations and a reduction of Teledyne's net profit for the year to $31.5 million. Nine of Argonaut's 11 top officers were fired, and Singleton began running the operations from the company's headquarters in Los Angeles. Argonaut, one of the last large companies in the malpractice market, discontinued underwriting individual policies for the 20,000 physicians it covered. It continued to offer coverage to the 25 percent of the nation's hospitals it covered, but at higher rates and covering fewer risks. In the meantime, the company collected $170 million in reserves against malpractice cases.
Teledyne's problems were compounded in 1973 when the consumer products division lost $1.8 million, mostly because of its Packard-Bell television production unit's failure to capture a large enough share of the West Coast television market. Teledyne reduced production and narrowed the loss to $500,000 the next year.
With the insurance unit and consumer unit problems solved, Teledyne's outlook had improved markedly. Net income soared to $101.7 million on sales of $1.71 billion in 1974. The largest share of profit came from industrial products such as diesel and gasoline engines and machine tools. Insurance operations had improved and were contributing $19 million. The consumer products division showed a healthy profit of $13.1 million because of Water Pik, which had sold a million shower heads at $25 to $40 each. The closing of the Packard Bell television unit had little effect on earnings; it was accomplished so successfully that no final write-down was taken.
In 1976, the company attempted, for the sixth time since 1972, to buy back its stock in order to eliminate the possibility of a takeover attempt by someone eager for the cash reserves the company had accumulated. Altogether, Teledyne spent $450 million buying back its stock, leaving $12 million outstanding, compared to $37.4 million at the close of 1972. With many of the company's divisions showing stronger results and fewer shares outstanding, Teledyne's stock increased from a low of $9.50 per share to $45 per share, becoming the largest gainer on the New York Stock Exchange. Singleton was not content to buy back his own stock, however. Teledyne then purchased 12 percent of Litton's stock, becoming that company's largest shareholder.
By 1978, Singleton's strategy of bringing in new management to replace underachievers appeared to be working. Only one of the 130 profit centers into which the company was divided was losing money. Without a single acquisition, company sales had soared to $2.2 billion, the result of internal growth at an annual rate of 7 percent. Nearly all of Teledyne's units were reporting continued growth and strong positioning in the marketplace. Sales from the company's offshore drilling rig had grown to $80 million from $10 million in 1966. Water Pik's sales reached $130 million, up from $8 million in 1966. Teledyne had also become an important producer of specialty metal. Allvac, which vacuum-melts metals, had surpassed $40 million in sales compared with $1.5 million in 1964. Furthermore, Merla Manufacturing, purchased for only $80,000 with monthly sales of $30,000, had grown to $7 million in sales. Chang had grown from near bankruptcy in 1967 to over $100 million in sales in 1977, and Packard Bell's business was greater than when it sold televisions.
We serve niche market segments where performance, precision, and reliability are critical. Our customers include major industrial and communications companies, government agencies, aerospace prime contractors, and general aviation companies. We have developed strong core competencies in engineering, software development, and manufacturing that we can leverage both to sustain and grow our current niche businesses and to become an innovator in related higher-growth markets. We seek to grow in niche market segments where we have a strong competitive position, both by development of new products and services and by acquiring businesses that are highly complementary to our current product lines.
In the meantime, over a two-year period, Singleton took advantage of the company's regained financial strength and used $400 million of the company's earnings to purchase surprisingly large stakes in 11 companies. By 1978, through Teledyne, Singleton had gained effective control of five other companies, owning 22 percent of Litton's common stock, 28.5 percent of Curtiss-Wright, nearly 20 percent of Walter Kidde, 22 percent of Brockway Glass, and 20 percent of Reichhold Chemicals. In addition, he purchased 8 percent of GAF, 5.5 percent of Rexnord, 7 percent of Federal Paper Board, 5 percent of Colt Industries, and 8 percent of Eltra.
Most of the money for these purchases was funneled through Unicoa and Argonaut. Almost all insurance companies keep some of their assets in stock, but most have stock holdings less than their net worth. Argonaut, on the other hand, had accumulated seven times its net worth in stock holdings, which is very unusual in the insurance business. Singleton's action quickly caught the attention of the business press and of the management of the companies whose stock he purchased. Rumors abounded about his possible intentions, some of which speculated that he wanted to merge the companies into Teledyne, particularly his former employer, Litton.
In the end, the merger attempts never materialized. What soon became apparent was that Singleton had actually purchased a number of difficulties. As earnings were being channeled into the stock market, Teledyne was putting only 1.5 percent of manufacturing sales back into research and development and plant and equipment maintenance, more than 25 percent below the average industry investment. Manufacturing operations, cut off from corporate resources, started to lose competitiveness. As a result, Teledyne's divisions lost market shares, contracts, and technological advantages.
Trouble in the 1980s
One of the worst problems the company was confronted with occurred in 1980. Until then, its Continental Motors division in Muskegon, Michigan, supplied diesel engines to all U.S. military tanks, an important contributor to Teledyne's earnings. When the turbine-powered M1 was introduced that year, however, Continental was relegated to the replacement-engine market for existing tanks.
In addition, Wah Chang, which had once enjoyed a virtual monopoly on the free-world production of zirconium, a crucial metal in building nuclear reactors, had lost a large portion of its market share to French companies, which controlled 40 percent of the market. Moreover, Westinghouse Electric Corporation's completion of a new plant threatened to reduce Chang's market share to less than half of the $150 million free-world output. In 1981, the insurance operations, which contributed 25 percent of Teledyne's total revenue, were once again in trouble. These companies, which were not performing well within their industry, lost $79.2 million before taxes.
The stock portfolio, which had been built up at the expense of the rest of the company, was also in trouble during 1982. Overall, Teledyne's stock portfolios had dropped $380 million during the previous year. That unreported loss almost matched the company's earnings of $412 million on sales of $4.3 billion. Part of Teledyne's stock problems were due to its 16 percent investment in International Harvester, which over the previous year and a half had lost $100 million on paper.
The manufacturing plants and service companies continued to perform poorly in several important markets. Water Pik was showing a profit but only by reducing product development, advertising, and marketing expenditures drastically. Ryan Aeronautical, formerly the premier producer of robot aircraft used for military target practice and reconnaissance, lost most of its market share. Ryan's Firebee model controlled 75 percent of the market in the early 1970's, but Teledyne's emphasis on accumulating cash opened the field to more innovative competitors. Northrop Corporation, for instance, introduced less expensive and easier to launch alternatives that used sophisticated electronics to match the Firebee's capabilities.
With the company financially weakened, Teledyne management appeared to adopt a more aggressive strategy in 1982 by making its first large acquisition bid in 13 years. Continental tried to purchase Chrysler's tank division, which was the prime contractor for the M-1 tank. However, General Dynamics Corporation won the bid with a $336 million offer, exceeding Teledyne's offer by $36 million. According to Business Week, Pentagon officials were relieved that Continental lost the bid because they considered Continental to be "stagnating."
In 1983, Teledyne's sales fell from $3.24 billion to $2.86 billion, while net profit fell 37 percent to $248.7 million. That same year, Teledyne took a $49.1 million loss on its stake in GAF, and in December 1985 the company sold its 6.7 percent share in GAF.
With Teledyne's financial troubles fully apparent, discord also began to appear in management. High level executives complained increasingly that Singleton, who once claimed to have no specific business plan for the company, was only involved in management when problems developed. Due to the rumbling in management ranks, and because he was increasingly out of touch with the demands of strategic corporate planning, Singleton remained chairman but handed over the day-to-day management operations to George Roberts in 1986. Roberts, formerly the head of Vasco Metals and part of the company's specialty metals business, jumped in as chief executive officer and attempted to right Teledyne's financial difficulties.
- Teledyne, Inc. is founded by Dr. Henry Littleton.
- Wah Chang exotic metals producer is acquired.
- A merger with Allegheny Ludlum creates Allegheny Teledyne.
- Teledyne Technologies is spun off from Allegheny Technologies Inc.
Downsizing a Conglomerate in the 1990s
Teledyne seemed to rebound almost immediately under Roberts' leadership. In 1986, the company spun off Argonaut Insurance and began to divest some of the numerous operations it had acquired over the previous 15 years. By 1988, Teledyne was back on track when it reported a profit of $392 million on revenues of $4.5 billion—an impressive return on equity of nearly 20 percent. In 1990, the company spun off its Unitrin insurance group to shareholders and then disposed of its industrial rubber and oilfield equipment units. Even though the employee count had been reduced from 43,000 to 24,000, Roberts was a long way from completing the company's restructuring. In 1991, he announced that Teledyne planned to either close or sell 24 of its facilities.
Mounting legal problems, however, began at this stage to undermine the company's reputation, reduce profits, and interfere with its restructuring strategy. Numerous lawsuits were filed against Teledyne, including accusations of falsifying test results on missile relays, selling defective equipment, lying to cover up commissions on sales of military goods to Taiwan, and bribing both Saudi Arabian and Egyptian officials to procure contracts. Due to a U.S. government investigation into its Relays Division, the company was temporarily prohibited from bidding for any government contracts. Although Teledyne denied most of these charges, the sheer number of them indicated something was wrong with company management.
While continuing with his plans to restructure the company, Roberts also began to deal straightforwardly with Teledyne's legal woes. After 1992, Teledyne pled guilty to many accusations cited in the lawsuits brought against it and paid nearly $30 million to settle charges. The settlement of a federal probe into its Relays Division significantly reduced profits in 1992, but management thought this move was necessary because the U.S. government accounted for more than one-third of Teledyne's business that year. In short, Teledyne did not want to take any chances of losing any future government contracts, especially with the economic upheaval in the defense industry signaled by the end of the Cold War.
In 1993, Roberts retired and was replaced by William P. Rutledge. The new chairman and chief executive officer was from FMC Corporation and had worked at Teledyne in specialty metals since 1986. Rutledge brought in Donald Rice, a former secretary of the U.S. Air Force, to serve as president and chief operating officer. Immediately, the two men set out to repair Teledyne's damaged reputation. While Rutledge began to speed up the final phases of Teledyne's restructuring, Rice supervised the company's internal probe of ethical compliance. Under Rutledge and Rice, Teledyne's operations were consolidated from 65 units into 21 companies, reduced from a high of 130 in 1990. Wholesale layoffs of 1,200 executives followed, which brought the payroll down to almost 22,000.
Going into the middle 1990s, forecasts by Wall Street analysts for Teledyne's consumer products line, commercial use of specialty metals, industrial factory systems, and aviation electronics were very positive, as were conjectures that Teledyne could survive its legal problems. They also warned that Teledyne must repair its reputation, restore its credibility, and narrow its corporate focus.
Teledyne posted net income of $162 million on revenues of $2.57 billion in 1995. It had 18,000 employees at the time. Though Teledyne was profitable, conglomerates were finding themselves out of fashion on Wall Street in the 1990s. Cuts in military spending had given TeleDyne's defense-related units no room to grow.
In August 1996, Teledyne, Inc. was acquired by Allegheny Ludlum Corp., a Pittsburgh-based producer of stainless and specialty steels. The two companies each became wholly owned subsidiaries of Allegheny Teledyne Inc., a nearly $4 billion business with a total of 24,000 employees. WHX Corp., a producer of carbon steel, had launched a hostile takeover attempt but was outbid. According to the Pittsburgh Post-Gazette, Ludlum had been interested in Teledyne's specialty metals business since the mid-1980s.
Teledyne Tech Spun off in 1999
In 1999, Allegheny Teledyne spun off two divisions in order to focus on its specialty metals business. The consumer division became Water Pik Technologies. At the same time, three aerospace and electronics businesses were spun off into the newly created Teledyne Technologies, Inc. After the spin-off, Allegheny Teledyne itself was renamed Allegheny Technologies.
The businesses that formed Teledyne Technologies included Electric Technologies, Brown Engineering, Continental Motors, and Cast Parts. Their combined 1998 revenues were $800 million.
Teledyne Technologies was based in Century City, California, and headed by Robert Mehrabian, formerly president of Pittsburgh's Carnegie Mellon University and a professor of metallurgy and mechanical engineering. Shortly after the spin-off, Teledyne completed a secondary public offering that brought in a net of about $90 million. In 1999, government work had accounted for 40 percent of revenues. Developing products for the commercial marketplace was then a priority.
The company invested $20 million in fiber optics in a bid to enter the then booming broadband communications business. It had already been producing fiber-optic components for the military. Teledyne was also developing wireless applications.
Fuel cells were another area of interest. In 2001, Teledyne combined its energy systems business with that of Energy Partners, Inc., a Florida company dedicated to commercializing proton exchange membrane (PEM) fuel cell components and systems.
Teledyne then deepened its involvement in the growing environmental monitoring and pollution control market by acquiring Advanced Pollution Instrumentation (API) and Monitor Labs. API alone had sales of about $16 million a year. Teledyne CEO Robert Mehrabian described its business as highly complementary to Teledyne's precision electronics line.
Defense Fuels Growth after 9/11
The defense electronics business grew, fueled by the F-22 fighter and Comanche helicopter programs. New military applications, such as monitoring submarines, were developed for the company's Geophysical Instruments line.
The Systems Engineering Solutions segment was chosen as a subcontractor for Boeing's Ground-based Midcourse Defense (GMD) missile and continued Teledyne's near 50-year relationship with NASA by winning prime contractor status for microgravity science payloads for the International Space Station.
Teledyne's commercial aviation business suffered to an extent along with the rest of the industry. However, Teledyne was able to adapt some of its commercial avionics for military use. Continental Motors was experiencing several years of growth on the wings of aircraft manufacturers such as the highly successful Cirrus Design.
Sales were $840.7 million in 2003, up $68 million from the previous year. Net income rose from $25.4 million to $29.7 million. The company benefited from the post-9/11 increase in defense spending as well as a recovery in some of its commercial electronics businesses.
In 2003, Teledyne had acquired Aviation Information Solutions, a $17 million producer of flight deck and cabin displays, from Spirent plc for $6.85 million. In February 2004, the company announced it was buying assets of Leeman Labs, Inc., a producer of spectrometers used for environmental and quality control sampling, for $8 million.
Advanced Pollution Instrumentation Inc.; Aerosance Inc.; Teledyne Brown Engineering Inc.; Teledyne Continental Motors Inc.; Teledyne Controls; Teledyne Electronic Technologies; Teledyne Electronic Technology; Teledyne Energy Systems Inc.
Aerospace Engines and Components; Electronics and Communications; Energy Systems; Systems Engineering Solutions.
Lockheed Martin Corporation; Northrup Grumman Corporation; Raytheon Company.
Belgum, Deborah, "Teledyne Tops List Thanks to Spinoff Circumstances," Los Angeles Business Journal, May 1, 2000, p. 15.
Biddle, RiShawn, "A Renewed Focus on Aviation Helps to Give Teledyne a Lift," Los Angeles Business Journal, December 8, 2003, p. 25.
Boselovic, Len, "Allegheny Teledyne Splits Up," Pittsburgh Post-Gazette, September 15, 1999, p. F1.
Brinsley, John, "Fiber-Optic Future Seen as Good Strategy for Teledyne," Los Angeles Business Journal, December 25, 2000, p. 34.
"Let's Make a Deal," Pittsburgh Post-Gazette, April 2, 1996, p. A1.
Mehta, Seema, "Allegheny Spinoffs Will Create L.A. Company," Los Angeles Times, January 20, 1999, p. C2.
Norman, James R., "A New Teledyne," Forbes, September 27, 1993.
Peltz, James F., "Requiem for a Conglomerate," Los Angeles Times, August 15, 1996, pp. D1ff.
"Teledyne, Energy Partners Combine Units," Fuel Cell Technology News, August 2001.
—updates: Thomas Derdak and
Frederick C. Ingram