Strategy
Our strategy continues to emphasize growth in our core markets of instrumentation, defense electronics and government engineered systems. Our core markets are characterized by high barriers to entry and include specialized products and services not likely to be commoditized. We intend to strengthen and expand our core businesses with targeted acquisitions. We intend to aggressively pursue operational excellence to continually improve our margins and earnings. At Teledyne, operational excellence includes the rapid integration of the businesses we acquire. Over time, our goal is to create a set of businesses that are truly superior in their niches. We intend to continue to evaluate our product lines to ensure that they are aligned with our strategy.
The table below summarizes the acquisitions made during fiscal year 2008. Other than the purchase of the assets of a marine sensor product line for $1.4 million and all of the remaining 14.1% minority interest in Ocean Design, Inc. ("ODI") for $25.5 million, no other acquisitions have been made in fiscal year 2009.

                                                                        Primary           Pre-acquisition      Transaction          Purchase
Name and Description(1)(2)                     Date Acquired            Location           Sales Volume           Type              Price(3)
                                                                                                                                 (in millions)
Fiscal Year 2008
Impulse Enterprise ("Impulse")               December 31, 2007       San Diego, CA         $16.8 million          Asset           $      35.0
Manufactures underwater electrical                                                        for its fiscal
interconnection systems for harsh                                                           year ended
environments.                                                                              December 31,
                                                                                               2006
Storm Products Co. ("Storm")                 December 31, 2007         Dallas, TX          $45.7 million          Stock                  47.7
Supplies custom, high-reliability bulk                               Woodridge, IL        for its fiscal
wire and cable assemblies to a number                                                       year ended
of markets, including energy                                                              March 31, 2007
exploration, environmental monitoring
and industrial equipment. Also provides
coax microwave cable and interconnect
products primarily to defense customers
for radar, electronic warfare and
communications applications.
SG Brown Limited and its wholly owned        January 31, 2008       Watford, United        £12.0 million          Stock                  54.8
subsidiary TSS International Limited                                    Kingdom           for its fiscal
("TSS")                                                                                     year ended
Designs and manufactures inertial                                                         March 31, 2007
sensing, gyrocompass navigation and
subseapipe and cable detection systems
for offshore energy, oceanographic and
military marine markets.
Judson Technologies, LLC ("Judson")          February 1, 2008       Montgomeryville,       $13.8 million          Asset                  27.0
Manufactures high performance infrared                                     PA             for its fiscal
detectors utilizing a wide variety of                                                       year ended
materials such as Mercury Cadmium                                                          December 31,
Telluride (HgCdTe), Indium Antimonide                                                          2006
(InSb), and Indium Gallium Arsenide
(InGaAs), as well as tactical dewar and
cooler assemblies and other specialized
standard products for military, space,
industrial and scientific applications.
Webb Research Corp. ("Webb")                 July 7, 2008            East Falmouth,        $12.2 million          Asset                  24.3
Manufacturer of autonomous underwater                                      MA             for its fiscal
gliding vehicles and autonomous                                                             year ended
profiling drifters and floats.                                                             December 31,
                                                                                               2007

See footnotes on following page.

                                                                  Primary       Pre-acquisition      Transaction          Purchase
Name and Description(1)(2)                  Date Acquired        Location        Sales Volume           Type              Price(3)
                                                                                                                       (in millions)
Fiscal Year 2008 (continued)
Defense business of Filtronic PLC         August 15, 2008        Shipley,        £14.5 million          Stock               24.1
("Filtronic")                                                     United        for its fiscal
Provides customized microwave                                     Kingdom         year ended
subassemblies and integrated                                                     May 31, 2008
subsystems to the global defense
industry.
Cormon Limited and Cormon Technology      October 16, 2008       Lancing,        £6.8 million           Stock               20.6 (4)
Limited ("Cormon")                                                United        for its fiscal
Designs and manufactures subsea and                               Kingdom         year ended
surface sand and corrosion sensors,                                             March 31, 2008
as well as flow integrity monitoring
systems, used in oil and gas
production systems.
Odom Hydrographic Systems, Inc.           December 19, 2008        Baton         $10.9 million          Stock                7.0 (5)
("Odom")                                                         Rouge, LA      for its fiscal
Designs and manufactures                                                          year ended
hydrographic survey instrumentation                                              September 30,
used in port survey, dredging,                                                       2008
offshore energy and other
applications.
Demo Systems LLC ("Demo")                 December 24, 2008      Moorpark,       $7.3 million           Asset                5.3
Designs and manufactures aircraft                                   CA          for its fiscal
data loading equipment, flight line                                               year ended
maintenance terminals, and data                                                  December 31,
distribution software used by                                                        2007
commercial airlines, the U.S.
military and aircraft manufacturers.

(1) Each of the acquisitions is part of the Electronics and Communications segment.

(2) We increased our ownership interest in Aerosance, Inc. to 100% for $0.2 million in the first quarter of 2008. We purchased the remaining minority ownership in ODI for $25.5 million in 2009. In the second quarter of 2009, we purchased the assets of a marine sensor product line for an initial payment of $1.4 million. We also made a scheduled payment of $0.3 million related to a prior acquisition.

(3) The purchase price represents the contractual consideration for the acquired business, net of cash acquired, including adjustments for certain paid acquisition transactions costs.

(4) Reflects a purchase price adjustment of $0.3 million in the first quarter of 2009 based on the final closing date net working capital.

(5) The final purchase price is subject to adjustment based on the final closing date net working capital of the acquired business.

Results of Operations
Third quarter of 2009 compared with the third quarter of 2008 Teledyne Technologies' third quarter 2009 sales were $429.4 million, compared with sales of $497.6 million for the same period of 2008, a decrease of 13.7%. Net income attributable to common stockholders for the third quarter of 2009 was $35.1 million ($0.96 per diluted share) compared with net income attributable to common stockholders of $30.9 million ($0.84 per diluted share) for the third quarter of 2008, an increase of 13.6%. The decrease in sales for the 2009 period, compared with the same 2008 period, reflected the impact of the general economic downturn, partially offset by revenue from acquisitions. Net income in the third quarter of 2009 includes research and development tax credits of $8.2 million.
The third quarter of 2009, compared with the same period in 2008, reflected lower sales in each operating segment. The Electronics and Communications segment sales included revenue from strategic acquisitions made in 2008 which were more than offset by lower organic sales. Incremental revenue in the third quarter of 2009 from businesses acquired in 2008 was $6.4 million. The increase in earnings for the third quarter of 2009, compared with the same period of 2008, reflected the impact of research and development tax credits of $8.2 million, partially offset by lower operating profit in each operating segment except the Energy and Power Systems segment. Segment operating profit reflected the impact of lower sales as well as higher pension costs, partially offset by cost reductions implemented during the year. The incremental operating profit in the third quarter of 2009 from businesses acquired in 2008, including synergies, was $0.1 million.
The third quarter of 2009 included pension expense of $5.7 million, compared with pension expense of $2.4 million in the third quarter of 2008. The increase in 2009 pension expense primarily reflects the impact of the reduction in pension assets in 2008 due to negative market returns. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards ("CAS") was $3.1 million in the third quarter of 2009, compared with pension expense of $2.4 million in the third quarter of 2008.

For the third quarter of 2009 and 2008, we recorded a total of $1.3 million and $1.9 million, respectively, in stock option compensation expense. The lower 2009 amount reflects the decision to eliminate the annual employee stock option grant for 2009.
Cost of sales in total dollars was lower in the third quarter of 2009, compared with the third quarter of 2008, primarily due to lower sales as well as recent cost reductions, partially offset by the impact from acquisitions made in 2008. Cost of sales as a percentage of sales for the third quarter of 2009 increased to 70.8% from 70.0% for the third quarter of 2008 and reflected the impact of lower sales while pension expense increased and certain fixed costs remained flat, partially offset by recent cost reductions. Cost of sales for the third quarter of 2009 also reflected lower LIFO expense of $1.1 million.
Selling, general and administrative expenses, including research and development and bid and proposal expense, in total dollars were lower in the third quarter of 2009, compared with the third quarter of 2008, primarily due to lower sales and lower corporate expense, partially offset by the impact from acquisitions made in 2008. Selling, general and administrative expenses for the third quarter of 2009, as a percentage of sales, decreased to 19.0%, compared with 19.5% in the third quarter of 2008 and reflected the impact of lower corporate expense and lower stock option compensation expense. Corporate expense was $6.3 million for the third quarter of 2009, compared with $7.7 million for the same period in 2008 and reflected lower professional fees and lower compensation accruals. Interest expense, net of interest income, was $1.1 million in the third quarter of 2009, compared with $2.5 million for the third quarter of 2008. The decrease in net interest expense reflected the impact of lower average interest rates, partially offset by higher outstanding debt levels.
The Company's effective tax rate for the third quarter of 2009 was 17.3% compared with 36.9% for the third quarter of 2008. The third quarter of 2009 includes research and development tax credits of $8.2 million following a formal communication from the Internal Revenue Service of a more favorable tax position than the Company's original measurement in connection with an ongoing audit of the research and development tax credit for prior years. The first nine months also included the reversal of $1.1 million in income tax contingency reserves which were determined to be no longer needed due to the expiration of applicable statutes of limitations. Excluding these amounts the effective tax rate for the third quarter of 2009 would have been 39.1%. The third quarter of 2008 reflects the reversal of $0.8 million in income tax contingency reserves which were determined to be no longer needed due to the expiration of applicable statutes of limitations. Excluding this item the effective tax rate for the third quarter of 2008 would have been 38.6%.
During the next twelve months, it is reasonably possible that tax audit resolutions and expirations of the statute of limitations could reduce unrecognized tax benefits by $1.1 million to $12.1 million, either because our tax positions are sustained on audit, because the Company agrees to their disallowance, or the expiration of the statute of limitations. Noncontrolling interest in subsidiaries' earnings reflects the minority ownership interest in ODI and Teledyne Energy Systems, Inc. The lower amount in 2009, primarily reflects the decrease in minority ownership interest in ODI due to share purchases by Teledyne in 2008 and 2009.
First nine months of 2009 compared with the first nine months of 2008 Teledyne Technologies' sales for the first nine months of 2009 were $1,310.8 million, compared with sales of $1,428.2 million for the same period of 2008, a decrease of 8.2%. Net income attributable to common stockholders for the first nine months of 2009 was $81.1 million ($2.22 per diluted share) compared with net income attributable to common stockholders of $91.4 million ($2.50 per diluted share) for the first nine months of 2008, a decrease of 11.3%. The decrease in sales for the 2009 period, compared with the same 2008 period, reflected the impact of the general economic downturn, partially offset by revenue from acquisitions. Net income in the first nine months of 2009 includes research and development tax credits of $8.2 million, recorded in the third quarter.
The first nine months of 2009, compared with the same period in 2008, reflected lower sales in each operating segment. The Electronics and Communications segment sales included revenue from strategic acquisitions made in 2008 which were more than offset by lower organic sales. Incremental revenue in the first nine months of 2009 from businesses acquired in 2008 was $35.5 million. The decrease in earnings for the first nine months of 2009, compared with the same period of 2008, reflected lower operating profit in each operating segment. The decrease in earnings reflected the impact of lower sales as well as

higher pension costs, partially offset by the impact of research and development tax credits of $8.2 million and by cost reductions implemented during the year. Incremental operating profit in the first nine months of 2009 from businesses acquired in 2008, including synergies, was $0.7 million.
The first nine months of 2009 included pension expense of $16.9 million, compared with pension expense of $7.2 million in the first nine months of 2008. The increase in 2009 pension expense primarily reflects the impact of the reduction in pension assets in 2008 due to negative market returns. Pension expense allocated to contracts pursuant to CAS was $9.3 million in the first nine months of 2009, compared with pension expense of $7.1 million in the first nine months of 2008. For the first nine months of 2009 and 2008, we recorded a total of $4.1 million and $5.6 million respectively in stock option compensation expense.
Cost of sales in total dollars was lower in the first nine months of 2009, compared with the first nine months of 2008, primarily due to lower sales as well as recent cost reductions, partially offset by the impact from acquisitions made in 2008. Cost of sales as a percentage of sales for the first nine months of 2009 increased to 71.1% from 69.6% for the first nine months of 2008 and reflected the impact of lower sales while pension expense increased and certain fixed costs remained flat, partially offset by recent cost reductions. Cost of sales for the first nine months of 2009 also reflected lower LIFO expense of $2.4 million.
Selling, general and administrative expenses, including research and development and bid and proposal expense, in total dollars were lower in the first nine months of 2009, compared with the first nine months of 2008, primarily due to lower sales and lower corporate expense, partially offset by the impact from acquisitions made in 2008. Corporate expense was $19.0 million for the first nine months of 2009, compared with $23.6 million for the same period in 2008 and reflected lower professional fees and lower compensation accruals. Selling, general and administrative expenses for the first nine months of 2009, as a percentage of sales, increased slightly to 19.6%, compared with 19.5% in the first nine months of 2008.
Interest expense, net of interest income, was $3.7 million in the first nine months of 2009, compared with $8.0 million for the first nine months of 2008. The decrease in net interest expense reflected the impact of lower average interest rates, partially offset by higher outstanding debt levels. The Company's effective tax rate for the first nine months of 2009 was 31.3% compared with 36.9% for the first nine months of 2008. The first nine months of 2009 includes research and development tax credits of $8.2 million following a formal communication from the Internal Revenue Service of a more favorable tax position than the Company's original measurement in connection with an ongoing audit of the research and development tax credit for prior years. The first nine months also included the reversal of $1.1 million in income tax contingency reserves which were determined to be no longer needed due to the expiration of applicable statutes of limitations and additional income tax expense of $0.3 million, primarily related to the impact of California income tax law changes. Excluding these amounts, the Company's effective tax rate for the first nine months of 2009 would have been 38.8%. The effective tax rate for the first nine months of 2008 reflects a research and development income tax refund of $1.3 million for the 2007 tax year which was recorded in the first quarter of 2008 and also reflects the third quarter reversal of $0.8 million in income tax contingency reserves which were determined to be no longer needed due to the expiration of applicable statutes of limitations. Excluding these items, the Company's effective tax rate for the first nine months of 2008 would have been 38.3%.
Noncontrolling interest in subsidiaries' earnings reflects the minority ownership interest in ODI and Teledyne Energy Systems, Inc. The lower amount in 2009, primarily reflects the decrease in minority ownership interest in ODI due to share purchases by Teledyne in 2008 and 2009.

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

                            Three          Three                              Nine             Nine
                           Months         Months                             Months           Months
                            2009           2008           % Change            2009             2008            % Change
Net sales:
Electronics and
Communications             $ 295.2        $ 330.3             (10.6 )%      $   910.3        $   947.9              (4.0 )%
Engineered Systems            82.0           97.9             (16.2 )%          260.5            277.1              (6.0 )%
Aerospace Engines and
Components                    30.5           46.3             (34.1 )%           86.2            140.7             (38.7 )%
Energy and Power
Systems                       21.7           23.1              (6.1 )%           53.8             62.5             (13.9 )%

Total net sales            $ 429.4        $ 497.6             (13.7 )%      $ 1,310.8        $ 1,428.2              (8.2 )%


Operating profit
(loss) and other
segment income:
Electronics and
Communications             $  39.7        $  46.0             (13.7 )%      $   117.9        $   133.3             (11.6 )%
Engineered Systems             6.8            9.9             (31.3 )%           23.6             27.4             (13.9 )%
Aerospace Engines and
Components                     1.2            1.5             (20.0 )%           (2.4 )           11.1                 *
Energy and Power
Systems                        2.3            2.2               4.5 %             2.6              7.2             (63.9 )%

Segment operating
profit and other
segment income             $  50.0        $  59.6             (16.1 )%      $   141.7        $   179.0             (20.8 )%
Corporate expense             (6.3 )         (7.7 )           (18.2 )%          (19.0 )          (23.6 )           (19.5 )%
Other income
(expense), net                   -           (0.1 )               *              (0.2 )            0.4                 *
Interest expense, net         (1.1 )         (2.5 )           (56.0 )%           (3.7 )           (8.0 )           (53.8 )%

Income before income
taxes                         42.6           49.3             (13.6 )%          118.8            147.8             (19.6 )%
Provision for income
taxes (a)                      7.4           18.2             (59.3 )%           37.2             54.5             (31.7 )%

Net income before
noncontrolling
interest                      35.2           31.1              13.2 %            81.6             93.3             (12.5 )%
Less: Noncrontrolling
interest in
subsidiaries'
earnings                      (0.1 )         (0.2 )           (50.0 )%           (0.5 )           (1.9 )           (73.7 )%

Net income
attributable to
common stockholders        $  35.1        $  30.9              13.6 %       $    81.1        $    91.4             (11.3 )%

(a) The first nine months of 2009 includes research and development tax credits of $8.2 million recorded in the third quarter following a formal communication from the Internal Revenue Service of a more favorable tax position than the Company's original measurement in connection with an ongoing audit of the research and development tax credit for prior years. The first nine months also included the reversal in the third quarter of 2009 of $1.1 million in income tax contingency reserves which were determined to be no longer needed due to the expiration of applicable statutes of limitations and additional income tax expense of $0.3 million primarily related to the impact of California income tax law changes recorded in the first quarter. The first nine months of 2008 includes income tax credits of $1.3 million recorded in the first quarter of 2008 and also reflects the reversal in the third quarter of 2008 of $0.8 million in income tax contingency reserves which were determined to be no longer needed due to the expiration of applicable statutes of limitations.

* percentage change not meaningful

Electronics and Communications
Third quarter of 2009 compared with the third quarter of 2008 Our Electronics and Communications segment's third quarter 2009 sales were $295.2 million, compared with $330.3 million for the third quarter of 2008, a decrease of 10.6%. Third quarter 2009 operating profit was $39.7 million, compared with operating profit of $46.0 million for the third quarter of 2008, a decrease of 13.7%.
The third quarter 2009 sales decrease resulted from lower sales of electronic instrumentation and other commercial electronics. The revenue decrease in electronic instrumentation of $23.4 million primarily reflected reduced sales of geophysical sensors for the energy exploration market, as well as environmental instruments for air and water quality monitoring, partially offset by acquisitions made in 2008. Lower sales of other commercial electronics of $10.2 million primarily reflected reduced sales of electronic manufacturing services and other electronic components. Revenue in the third quarter of 2009 included revenue from acquisitions made in 2008 of $6.4 million. The decrease in segment operating profit primarily reflected the impact of reduced sales, partially offset

by a reduction in certain insurance reserves. The incremental operating profit in the third quarter of 2009 from businesses acquired in 2008, including synergies, was $0.1 million. Operating profit also included pension expense of $2.3 million in the third quarter of 2009, compared with $0.8 million for the third quarter of 2008. Pension expense allocated to contracts pursuant to CAS was $0.6 million in the third quarter of 2009, compared with $0.4 million for the third quarter of 2008.
First nine months of 2009 compared with the first nine months of 2008 Our Electronics and Communications segment's first nine months 2009 sales were $910.3 million, compared with first nine months 2008 sales of $947.9 million, a decrease of 4.0%. First nine months 2009 operating profit was $117.9 million, compared with operating profit of $133.3 million in the first nine months of 2008, a decrease of 11.6%.
The first nine months 2009 sales decline resulted from lower sales of other commercial electronics and electronic instrumentation, partially offset by revenue growth in defense electronics. The revenue growth of $10.6 million in defense electronics was primarily driven by acquisitions made in 2008, partially offset by slightly lower organic sales. The revenue decrease in electronic instrumentation of $16.9 million reflected lower organic sales, partially offset by the impact of acquisitions made in 2008. The lower organic sales of electronic instruments reflected reduced sales geophysical sensors for the energy exploration market and environmental instruments for air and water quality monitoring. Lower sales of other commercial electronics of $31.3 million reflected reduced sales of avionics, medical manufacturing services and other electronic components. Revenue in the first nine months of 2009 included revenue from acquisitions made in 2008 of $35.5 million. The decrease in operating profit primarily reflected reduced sales and sales mix differences and higher pension expense, partially offset by a reduction in certain insurance reserves. Operating profit in the first nine months of 2008 was favorably impacted by a settlement of $2.0 million. The incremental operating profit in the first nine months of 2009 from businesses acquired in 2008, including synergies, was $0.7 million. Operating profit included $1.9 million of stock option compensation expense in the first nine months of 2009, compared with $2.7 million for the first nine months of 2008. Operating profit included pension . . .