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 the purchase of an additional 3.4% interest in Ocean Design, Inc. ("ODI") for $5.9 million. At June 28, 2009, the Company owned 89.3% of ODI. 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
subsea pipe 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 hydrographic                                              year ended
survey instrumentation used in port                                               September 30,
survey, dredging, offshore energy and                                                 2008
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 a 3.4% ownership in ODI for $5.9 million in the first quarter of 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
Second quarter of 2009 compared with the second quarter of 2008 Teledyne Technologies' second quarter 2009 sales were $441.1 million, compared with sales of $478.8 million for the same period of 2008, a decrease of 7.9%. Net income attributable to common stockholders for the second quarter of 2009 was $25.2 million ($0.69 per diluted share) compared with net income attributable to common stockholders of $32.6 million ($0.89 per diluted share) for the second quarter of 2008, a decrease of 22.7%. 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. The second 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 second quarter of 2009 from businesses acquired in 2008 was $15.2 million. The decrease in earnings for the second quarter 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 cost reductions implemented during the year. The incremental operating profit in the second quarter of 2009 from businesses acquired in 2008, including synergies, was $0.6 million.
The second quarter of 2009 included pension expense, in accordance with the pension requirements of Statement of Financial Accounting Standards ("SFAS") No. 87 and No. 158, of $5.6 million, compared with pension expense of $2.5 million in the second 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 second quarter of 2009, compared with pension expense of $2.4 million in the second quarter of 2008.
For the second quarter of 2009 and 2008, we recorded a total of $1.2 million and $1.8 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 second quarter of 2009, compared with the second quarter of 2008, primarily due to lower sales, partially offset by the impact from acquisitions made in 2008. Cost of sales as a percentage of sales for the second quarter of 2009 increased to 71.1% from 69.1% for the second quarter of 2008 and reflected the impact of lower sales while pension expense increased and certain fixed costs remained flat. Cost of sales for the second quarter of 2009 also reflected lower LIFO expense of $0.9 million. Selling, general and administrative expenses, including research and development and bid and proposal expense, in total dollars were lower in the second quarter of 2009, compared with the second 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 second quarter of 2009, as a percentage of sales, decreased slightly to 19.0%, compared with 19.2% in the second quarter of 2008 and reflected the impact of lower corporate expense. Corporate expense was $5.9 million for the second quarter of 2009, compared with $8.4 million for the same period in 2008 and reflected lower accruals for compensation expense and lower professional fees expense. Interest expense, net of interest income, was $1.5 million in the second quarter of 2009, compared with $2.5 million for the second 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 second quarter of 2009 was 39.0% compared with 38.3% for the second quarter of 2008.
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 six months of 2009 compared with the first six months of 2008 Teledyne Technologies' sales for the first six months of 2009 were $881.4 million, compared with sales of $930.6 million for the same period of 2008, a decrease of 5.3%. Net income attributable to common stockholders for the first six months of 2009 was $46.0 million ($1.26 per diluted share) compared with net income attributable to common stockholders of $60.5 million ($1.66 per diluted share) for the first six months of 2008, a decrease of 24.0%. 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.
The first six 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 six months of 2009 from businesses acquired in 2008 was $30.4 million. The decrease in earnings for the first six 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 cost reductions implemented during the year. Incremental operating profit in the first six months of 2009 from businesses acquired in 2008, including synergies, was $0.3 million.
The first six months of 2009 included pension expense, in accordance with the pension requirements of SFAS No. 87 and SFAS No. 158, of $11.2 million, compared with pension expense of $4.8 million in the first six 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 $6.2 million in the first six months of 2009, compared with pension expense of $4.7 million in the first six months of 2008. For the first six months of 2009 and 2008, we recorded a total of $2.8 million and $3.7 million respectively in stock option compensation expense. Cost of sales in total dollars was lower in the first six months of 2009, compared with the first six months of 2008, primarily due to lower sales, partially offset by the impact from acquisitions made in 2008. Cost of sales as a percentage of sales for the first six months of 2009 increased to 71.2% from 69.4% for the first six months of 2008 and reflected the impact of lower sales while pension expense increased and certain fixed costs remained flat. Cost of sales for the first six months of 2009 also reflected lower LIFO expense of $1.3 million.
Selling, general and administrative expenses, including research and development and bid and proposal expense, in total dollars were lower in the first six months of 2009, compared with the first six 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 $12.7 million for the first six months of 2009, compared with $15.9 million for the same

period in 2008 and reflected lower accruals for compensation expense and lower professional fees expense. Selling, general and administrative expenses for the first six months of 2009, as a percentage of sales, increased to 19.8%, compared with 19.4% in the first six months of 2008, and reflected the impact of lower sales while certain fixed costs remained flat.
Interest expense, net of interest income, was $2.6 million in the first six months of 2009, compared with $5.5 million for the first six 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 six months of 2009 was 39.1% compared with 36.9% for the first six months of 2008. The effective tax rate for the first six months of 2009 reflected additional income tax expense of $0.3 million, primarily related to the impact of California income tax law changes, which was recorded in the first quarter of 2009. Excluding this item, the Company's effective tax rate for the first six months of 2009 would have been 38.7%. The effective tax rate for the first six 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. Excluding this item, the Company's effective tax rate for the first six months of 2008 would have been 38.2%. 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                           Six            Six
                           Months         Months            %            Months         Months            %
                            2009           2008           Change          2009           2008           Change
Net sales:
Electronics and
Communications             $ 305.1        $ 316.3           (3.5) %      $ 615.1        $ 617.6           (0.4) %
Engineered Systems            89.7           95.7           (6.3) %        178.5          179.2           (0.4) %
Aerospace Engines and
Components                    29.7           47.9          (38.0) %         55.7           94.4          (41.0) %
Energy and Power
Systems                       16.6           18.9          (12.2) %         32.1           39.4          (18.5) %

Total net sales            $ 441.1        $ 478.8           (7.9) %      $ 881.4        $ 930.6           (5.3) %


Operating profit
(loss) and other
segment income:
Electronics and
Communications             $  39.9        $  47.0          (15.1) %      $  78.2        $  87.3          (10.4) %
Engineered Systems             8.7            9.4           (7.4) %         16.8           17.5           (4.0) %
Aerospace Engines and
Components                     0.7            5.0          (86.0) %         (3.6 )          9.6               *
Energy and Power
Systems                        0.3            2.8          (89.3) %          0.3            5.0          (94.0) %

Segment operating
profit and other
segment income             $  49.6        $  64.2          (22.7) %      $  91.7        $ 119.4          (23.2) %
Corporate expense             (5.9 )         (8.4 )        (29.8) %        (12.7 )        (15.9 )        (20.1) %
Other income
(expense), net                (0.6 )          0.7               *           (0.2 )          0.5               *
Interest expense, net         (1.5 )         (2.5 )        (40.0) %         (2.6 )         (5.5 )        (52.7) %

Income before income
taxes                         41.6           54.0          (23.0) %         76.2           98.5          (22.6) %
Provision for income
taxes (a)                     16.2           20.7          (21.7) %         29.8           36.3          (17.9) %

Net income before
noncontrolling
interest                      25.4           33.3          (23.7) %         46.4           62.2          (25.4) %
Less: Noncontrolling
interest in
subsidiaries'
earnings                      (0.2 )         (0.7 )          71.4 %         (0.4 )         (1.7 )        (76.5) %

Net income
attributable to
common stockholders        $  25.2        $  32.6          (22.7) %      $  46.0        $  60.5          (24.0) %

(a) The first six months of 2009 includes additional income tax expense of $0.3 million, recorded in the first quarter, related to the impact of California income tax law changes. The first six months of 2008 includes income tax credits of $1.3 million recorded in the first quarter.

* percentage change not meaningful

Electronics and Communications
Second quarter of 2009 compared with the second quarter of 2008 Our Electronics and Communications segment's second quarter 2009 sales were $305.1 million, compared with $316.3 million for the second quarter of 2008, a decrease of 3.5%. Second quarter 2009 operating profit was $39.9 million, compared with operating profit of $47.0 million for the second quarter of 2008, a decrease of 15.1%.
The second quarter 2009 sales decrease resulted from lower sales in electronic instruments and other commercial electronics, partially offset by revenue growth in defense electronics. The revenue growth of $5.8 million in defense electronics was primarily driven by an acquisition made in 2008, as well as slightly higher organic sales. Lower sales of electronic instruments of $7.7 million primarily reflected reduced sales of geophysical sensors for the energy exploration market and environmental instruments for air and water monitoring, partially offset by acquisitions made in 2008. Lower sales of other commercial electronics of $9.3 million primarily reflected reduced sales of avionics and other electronic components. Revenue in the second quarter of 2009 included revenue from acquisitions made in 2008 of $15.2 million. The decrease in operating profit primarily reflected the impact of reduced sales and a $0.4 million charge related to past due accounts receivable. Operating profit in the second quarter of 2008 was favorably impacted by a settlement of $2.0 million. The incremental operating profit in the second quarter of 2009 from businesses acquired in 2008, including synergies, was $0.6 million. Operating profit also included pension expense under SFAS No. 87 and No. 158, of $2.4 million in the second quarter of 2009, compared with $0.9 million for the second quarter of 2008. Pension expense allocated to contracts pursuant to CAS was $0.6 million in the second quarter of 2009, compared with $0.4 million for the second quarter of 2008. Total year sales of environmental instruments for air and water monitoring, other commercial electronics and for marine instruments, which serve the offshore exploration market, are expected to decline in 2009, especially in the second half of 2009, compared with total year 2008.
First six months of 2009 compared with the first six months of 2008 Our Electronics and Communications segment's first six months 2009 sales were $615.1 million, compared with first six months 2008 sales of $617.6 million, a decrease of 0.4%. First six months 2009 operating profit was $78.2 million, compared with operating profit of $87.3 million in the first six months of 2008, a decrease of 10.4%.
The first six months 2009 sales decline resulted from lower sales of other commercial electronics, partially offset by revenue growth in defense electronics and electronic instruments. The revenue growth of $12.2 million in defense electronics was primarily driven by acquisitions made in 2008, as well as slightly higher organic sales. The revenue growth in electronic instruments of $6.5 million reflected the impact of acquisitions made in 2008, partially offset by lower organic sales. The lower organic sales of electronic instruments reflected reduced sales of environmental instruments for air and water monitoring, partially offset by higher sales of geophysical sensors for the energy exploration market. Lower sales of other commercial electronics of $21.2 million reflected reduced sales of avionics, medical manufacturing services and other electronic components. Revenue in the first six months of 2009 included revenue from acquisitions made in 2008 of $30.4 million. The decrease in operating profit primarily reflected reduced sales and sales mix differences, higher pension expense and a $0.4 million charge related to past due accounts receivable. Operating profit in the first six months of 2008 was favorably impacted by a settlement of $2.0 million. The incremental operating profit in the first six months of 2009 from businesses acquired in 2008, including synergies, was $0.3 million. Operating profit included $1.3 million of stock option compensation expense in the first six months of 2009, compared with $1.8 million for the first six months of 2008. Operating profit included pension expense under SFAS No. 87 and No. 158, of $4.8 million in the first six months of 2009, compared with $1.7 million for the first six months of 2008. Pension expense allocated to contracts pursuant to CAS was $1.2 million in the first six months of 2009, compared with $0.8 million for the first six months of 2008.

Engineered Systems
Second quarter of 2009 compared with the second quarter of 2008 Our Engineered Systems segment's second quarter 2009 sales were $89.7 million, compared with $95.7 million for the second quarter of 2008, a decrease of 6.3%. Operating profit was $8.7 million for the second quarter of 2009, compared with operating profit of $9.4 million in the second quarter of 2008, a decrease of 7.4%.
The second quarter 2009 sales reflected lower revenue in aerospace and defense programs of $5.3 million and slightly lower environmental sales of $0.7 million. Operating profit in the second quarter of 2009 reflected higher pension expense and the impact of lower revenue, partially offset by improved margins for certain programs. Operating profit included pension expense under SFAS No. 87 and No. 158, of $2.8 million in the second quarter of 2009, compared with $1.4 million for the second quarter of 2008. Pension expense allocated to contracts pursuant to CAS was $2.5 million in the second quarter of 2009, compared with $2.0 million for the second quarter of 2008.
Teledyne Brown Engineering, Inc. manufactures gas centrifuge service modules for Fluor Enterprises, Inc., acting as agent for USEC Inc., used in the American Centrifuge Plant in Piketon, Ohio. On July 28, 2009, USEC issued a statement that the U.S. Department of Energy would not proceed with USEC's application for a loan guarantee to complete construction of the American Centrifuge Plant. USEC has announced it is pursuing additional discussions regarding funding for the project. At this time we cannot predict the impact of these developments on this program; however, construction delays or demobilization of the American Centrifuge Plant could result, over time, in reduced sales within our Engineered Systems Segment.
First six months of 2009 compared with the first six months of 2008 Our Engineered Systems segment's first six months 2009 sales were $178.5 million, compared with first six months 2008 sales of $179.2 million, a decrease of 0.4%. First six months 2009 operating profit was $16.8 million, compared with operating profit of $17.5 million for the first six months of 2008, a decrease of 4.0%.
The first six months 2009 sales reflected flat revenue in aerospace and defense programs and lower environmental sales of $1.2 million. Operating profit in the . . .