Ladies and gentlemen, good morning. Thank you for standing by, and welcome to the Teledyne Third Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, today’s conference is being recorded. I would now like to turn the conference over to our host, Mr. Jason VanWees. Please go ahead.

Thank you, Tom. Good morning, everyone. This is Jason VanWees, Vice President, Strategy and M&A at Teledyne Technologies. I would like to welcome everyone to Teledyne’s third quarter 2012 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining us this morning are Teledyne’s Chairman, President and CEO, Robert Mehrabian; Senior Vice President and CFO, Dale Schnittjer; and Senior Vice President, General Counsel and Secretary, Melanie Cibik. After remarks by Robert and Dale, we will answer your questions. Again, before we get started, our attorneys have reminded me to tell you that all forward-looking statements made this morning are subject to various assumptions, risks and caveats as noted in the earnings release and our periodic SEC filings. And of course, actual results may differ materially. In order to avoid potential selective disclosures, this call is simultaneously being webcast and a replay, both via webcast and dial-in, will be available for approximately 1 month. Here is Robert.

Thank you, Jason, and good morning, everyone. Third quarter sales are $547.4 million, increased 10.3% compared to last year and was an all-time record for Teledyne. Earnings per share of $1.14 increased 25.2% and was also an all-time record despite $3.8 million of non-recurring acquisition related charges in the quarter. Our performance in the current economic environment reflects, first, our successful strategy; second, the balance of our business portfolio both end market and by geography; and third, our consistent operating discipline. With regards to strategy, we continue to shift our company to our conditions and internal investments toward fire technology and higher margin industrial markets such as offshore energy, high-end digital imaging and analytical and electronic test and measurement instrumentation. As an example, gross margin increased approximately 300 basis points compared to last year and was also a record for Teledyne. The shift in our portfolio was accelerated by 4 strategic acquisitions so far this year as well as a majority control investment in Optech, a leading 3D laser imaging company. As we seek to drive growth for new proprietary products and gain market share, R&D expense increased 175 basis points. Finally, our latest acquisition, Teledyne LeCroy, first, makes the Teledyne, truly premium products in its market; second, it extends our portfolio of analytical and chemical test instruments into electronic test and measurement; and third provides an ideal outlet for our unique technology in Indium Phosphide and high frequency analog and mixed signal design devices developed at Teledyne Scientific or R&D Laboratories. Turning to our business portfolio, we are not immune to worldwide economic conditions and did indeed experience weaknesses in certain markets and geographies. However, the overall balanced mix of our businesses and growth in those end markets in which we have made significant investment, helped us overcome many…

Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert, and then I will discuss our fourth quarter and full year outlook. First, regarding earnings per share, while the third quarter of 2012 included $3.1 million of net tax credits, it should be noted that the comparable period in 2011 also included net tax credits of $2.4 million. Turning to cash flow, in the third quarter cash provided from operating activities from continuing operations was $18.3 million compared with $52.9 million for the same period of 2011. The lower cash from operating activities primarily reflected a voluntary $42.8 million pretax cash contribution to our pension plan. Adjusted free cash flow, that is cash from operating activities, less capital expenditures plus the after tax value of the pension contribution was $30.8 million in the third quarter of 2012 compared to $43.2 million last year. Capital expenditures were $15.3 million in the third quarter compared to $9.7 million for the same period of 2011. Depreciation and amortization expense was $21.5 million in the quarter compared with $16.7 million last year. We expect to invest approximately $76 million in capital expenditures in 2012. Also for the full year 2012, we expect depreciation and amortization expense to be approximately $80 million with the amortization expense portion at approximately $30 million or about $0.55 per share. We ended the quarter with $623.5 million of net debt. That is $647.7 million of debt and capital leases, less cash of $24.2 million or a net debt to capital ratio of 34.2%. Next on pension. Net pension income after recovery of allowable costs pursuant to government cost accounting standards was $1.4 million in the third quarters of 2011 and 2012. On a full year basis, the pension impact…

Thank you, Dale. I would like now to take your questions. Operator, if you are ready to proceed with questions and answers, please go ahead.

[Operator Instructions] Our first question today comes from the line of Jeremy Devaney with BB&T.

I wanted to start out with what you are seeing on the M&A front. You recently did the term loan restructuring and opened up an additional $200 million. It gives you $400 million in total capacity for acquisitions or other capital investments. What are you seeing in terms of pricing? Where are you willing to take net debt to capital? Just some more color there?

Sure, thanks, Jeremy. First, we -- at any one time we have a large number of acquisitions that we are looking at in our pipeline. Probably, today I would say we’re looking at maybe over 50 potential acquisitions which would be approximately over $5 billion altogether. Obviously, the tunnel narrows as you come down. So at the present time, we might be actively looking at 3 or 4. In terms of the debt-to-cap, our cash flow for the year is going to be very healthy. It’s going to be over $150 million. Our debt-to-EBITDA ratio -- EBITDA-to-debt ratio is about -- debt-to-EBITDA is about 2.2 right now. That will go down as we generate more cash. We could probably go above that. We’re at 34% debt-to-cap right now. That again will go down as we generate more cash, but 34, 40 is reasonable for a company of our size.

In terms of pricing, what are you seeing on those transactions? You usually give some pretty good color on pricing, but also if you could just give a little follow-up commentary. You said cash flow for the year will be over $150 million. Does that -- including the pension contributions that you [indiscernible] thus far this year?

No, that would be excluding pension. By the way, Jeremy, as you know, our pension contributions are voluntary. We don’t have to do that. In terms of pricing, on the average depending on whether it’s in Instrumentation, Digital Imaging and now Test and Measurement, we paid somewhere between 6.5 to 8.5, 9 EBITDA multiple to enterprise value. We probably would like to stay below 9 if we can. Average -- our average is about 8.5. So that would be the range we would like to stay. Except it is a really strategic acquisition, especially in our Instrumentation and our Digital Imaging, we might go higher than that.

Lastly, and then I will get out of the way here. Within Instrumentation, you've a lot of exposure to the oil and gas end market. Baker Hughes rig counts have really kind of being rolling over this year, and we've heard some new entrants stepped into the market on hydrographic undersea space. What are you seeing in terms of demand and pricing, competition? A little bit more color in that end market would really be appreciated.

Sure Jeremy. On the onshore, it's a little soft. On the marine side, it’s exceptionally good. In the next 5 years it’s estimated that capital equipment investments in the offshore would be about $135 billion; 57% of that, about $77 billion are going to be in deep sea which would be 4,000, 5,000 feet and deeper. And that’s where we are really -- we’re really focused on. So we anticipate that we will do well in that domain. We’re also developing new products, high powered connectors based on some of the technology that’s coming out of our R&D centers. High pressured, high temperature probes, for high pressure probes, for temperature and pressure measurements, ultrasonic flow preventer, RAM position sensors and a whole range of other things. So I think overall we are going to do fine. We also, as you mentioned, while people are entering the survey market, but some other companies are exiting the survey market. There was a company announcement yesterday that they gave up on their glider programs that we were competing with because we won all of the programs. So overall, we feel good about that domain.

Our next question today comes from the line of Mark Jordan representing Noble Financial.

Question relative to the governmental contract manufacturing operations that I guess is in Kentucky, that’s been kind of a troubled area for you. It is very weak this quarter. Could you size that operation, and is that one of the areas where you’ve been doing the contraction and what's your longer term strategy for that asset?

We have 3 electronic contact manufacturing facilities. We have a small one in New Hampshire. We have a large one in Lewisburg, Tennessee. That's close to Kentucky, but it is Lewisburg. The third one was -- is in Los Angeles area. We have announced that we are going to shut down our Los Angeles operations and that’s been where most of -- that's our microelectronic packaging business. It has really 2 major products. One product is solid state relays. We are moving that to our electromechanical relay facility which is about 20 miles away. And that will -- that’s a healthy business for us. The packaging business, frankly that whole business has declined about 50% in the last 4 years. We will move the remainder of that and combine it with our Lewisburg operation. So we are going from 3 facilities to 2 facilities and all of our EMS combined between Lewisburg and the small facility that we have in New Hampshire, will then contribute about $100 million to our top-line. We are obviously are not happy with the contraction we are seeing. But it is what it is and we’ve taken the necessary steps.

Relative to the instrumentation segment, with the acquisitions that you have made there and quite of been sizable. What is a -- would be a normal targeted operating margin for that business after the acquisition-related expenses drop off?

Mark, I think because of some of the intangible amortization that will continue, our margins may come down a little bit. But I think somewhere between 18% to 20% is a good range for us in that business, that’s GAAP. But that’s a long-term aim for us. This quarter, if you take the $3.8 million that we spent on acquisition costs -- one-time acquisition costs, we’re probably are going to be closer to 18%.

Final question relative to the engineering systems, your guidance of basically flat for the full year would imply kind of a low $70 million number which is a real drop off from the Q3 performance. Could you talk about what -- what inflated the third quarter and what’s happening to draw the fourth quarter down to the low $70 million range?

Yes. In the third quarter we had strong sales in some of our historical NASA programs. We also had some really good contract manufacturing in delivering gun mounts to littoral combat ships. Those kind of boosted the quarter for us. I think it is becoming more normalized, we would be lower in manufacturing in Q4; 70, 72, you're right on there. For the year, we should be flat year-over-year. Frankly, we also had some upside in our objective simulation -- the modeling and simulation business. The upside we're about $20 million. The downside in the quarter really was from our SETA programs which are -- which used to be sizable, but continuing into next year we expect those to be around $7 million or so. So the contractions are coming from the SETA programs.

Our next question comes from the line of Tyler Hojo with Sidoti & Company.

Just going back to Jeremy’s line of questioning on R&D. Last quarter, I think you called out an incremental expense within the instrumentation segment for reservoir monitoring. I'm just wondering if there was any continuation of that in this quarter?

No, Tyler. What -- the reservoir monitoring system that we developed is now being installed in Brazil as a test bed, and we are anxious to find out how well it works because if that system works, that’s going to be a very important contributor to our oil exploration and production business. So most of the increase in our R&D in the quarter has been in really 2 areas -- 3 areas. One, our X-Ray imaging because we are developing very sensitive imaging systems for major customers, medical supply customers. Second, as you know we have a -- an [indiscernible] infrared sensor program in our Canadian DALSA operations in Vermont. That's absorbing more R&D. And then lastly, because of the LeCroy acquisitions we are developing our Indium phosphide semiconductor processes to be able to displace the Silicon germanium at the very high end, high bandwidth domain for those products. So most of our increases are targeted in those areas.

Okay, also, just going back to reservoir monitoring and you mentioned what you developed is with the customer. Any idea on timing or potential kind of revenues that could come from that product?

In the short-term really we have to succeed. The system has to succeed. We’d probably find out whether this test is successful over the next few months. I don’t know what the revenue stream from that would be. But over the long-term, it could be as significant as our streamer cable business that has really been very healthy for us. It could be as high as $50 million, $60 million and grow. Because reservoir monitoring is becoming very important as people try to get -- be more successful in getting oil out from the sea floor and find that -- kind of determine which pockets are declining and which pockets they can pressurize and get more out of.

And just lastly from me, I was just wondering if you could maybe comment, Robert, on the LeCroy acquisition. How is that tracking and obviously you’re going to get another month in there for Q4. But is it tracking kind of according to internal plan?

Yes. We’re very excited about that. They are kind of -- probably going to be slightly below their revenues for last year because the whole oscilloscope market across the board is done, but they are gaining share because they do have the very high end -- high bandwidth oscilloscope that goes to about 65 gigahertz. And then they also just introduced a very exciting new product which is a 12 bit oscilloscope in the mid range, which got 16 times the resolution of the competitive products. Now of course, in the long-term, Tyler, as we discussed, our Indium phosphide technology would enhance the high bandwidth significantly.

Our next question comes from the line of Steve Levenson with Stifel.

Just a question about voluntary contributions. I’ve heard this on a few other calls this quarter. And I guess the question is what’s the pension -- the funded level of the pension plan and is this being done to reduce the potential pension expense in the future, or is there some other advantage to Teledyne to do it this way?

There is really, Steve, 3 reasons. First, as we looked at our long-term pension obligation, we decided to take a number of steps to reduce that. First, we modified the way long pension is calculated from an average of 5 years -- average of higher 5 years to each year and that has reduced our pension exposure over the long-term about, I’d say, 8%. We also have people in our pension -- by the way, Steve, as you recall, we stopped putting new employees into our pension plan in 2004.

So this is all the long tail stuff?

That’s it, exactly. But when you look at the long tail, we have 3 types of people in our pension program. First, those who are actively working today. Those that left the pension for -- but are vested and those that are receiving pension so the vested ones are not receiving pension, but they can receive pension in the future. What we have done is we put out a program to offer them payment based on calculations -- [indiscernible] calculations of if wanted to take a lump sum at the present time and that’s helpful. And lastly, the problem that we have is that right now at 5.5% discount rate, which is what we used for 2012, our pension right now is funded over 100%, so 101%, 102% presently. But the discount rate is going to go down. There is no question about that, the issue is how far down? And as the discount rate goes down, today it might be 4.6%, 4.65% it will drop our funded ratio by almost 10%. So part of the contribution is to take some of that headwind away because our present calculations show that next year versus this year we are going to have a headwind of almost $0.15 a share. So everybody that you're hearing from are doing some of these same things we are. Take the long-term down -- long-term obligations down if you can and make sure that you kind of counteract some of the headwind because of the decrease in the discount rate that is coming.

On the imaging side, there obviously have been a lot of new products introduced. Can you tell us if those are intended to go after competitors where you had a hole in the line, or if these are new proprietary products or if they are upgrades?

By and large they are new proprietary products and upgrades. In the x-ray domain, this is also a very successful x-ray product line, with large panel CMOS x-rays. They have very high resolution. And when you have very high resolution in x-rays, as you well know, you can lower the dosage and the amount of dosage that you apply. And actually they have products that are so sensitive that you can use them dynamically during the operation. That’s during an operation you can actually watch to see where the instruments -- the physician’s instruments are. So that’s a new product. And that’s been a really good increase year-over-year for us. The second area is Optech which is our LIDAR imaging system, 3-dimensional laser imaging system. And that has been in the market for a while, but they are also developing new products coupled to some of our underwater products because they can’t do -- from aerially they can do 3-dimensional pictures of the shoreline as well as some underwater, then we have BlueView that can complete deeper water. And finally the big new product for us is going to be our uncooled infrared which we are developing. I guess that one you say is going -- is for competition in the future, and that’s really going to be competitive to foreign foundries that are dominant.

For example [indiscernible] or...

It would be [indiscernible] most probably. Because some of our on-shore foundries in the U.S., they do have some [indiscernible] restrictions. And then I have to mention one thing and that is in our fundamental work that we’re doing here in our imaging businesses is in California, we had a whole set of programs in 2 college [indiscernible] and we just introduced a strained superlattice camera into the market, which is..

That was just the other day, right?

Yes, we think that’s the first of its kind. And it’s a totally new technology and should perform at -- up to 130 degrees Fahrenheit. So you don’t have to cool it too far down. And it should be lighter and less expensive.

And next, we’ll go to the line of Kevin Ciabattoni with...

I just want to look first at the Environmental Instrumentation business, I think you pointed out that it was pretty steady internationally and down domestically. And you pointed to a couple reasons. Is that something we can expect as a longer term trend where there are some one-time factors there? Just kind of directionally where do you see that business going?

On the domestic -- let me start with the domestic front first. Municipalities are having a difficult time in meeting their budget and their pensions. And the other thing is the kind of hostility towards coal production that you have see -- you have seen over the last 3 years has kind of dampened capital expenditures in that domain. And we have a lot of instruments that go into measuring particulates, measuring air quality socks, et cetera. So that has been unfortunate, depends on what happens after the election, that will either pick up or it won’t. But on the other hand we do have roadside monitoring programs -- materials that are doing well. When you go to the foreign area, our sales to China are relatively healthy. We introduced new water monitoring products that are used for measuring flows in rivers, water quality and air quality products. So you’re right, the foreign is stable, domestic is slow, and we think that over the long-term it all depends on the emphasis on taking out a lot of coal production and other utilities production down. That might affect us negatively if that remains the way it is.

And then looking at the defense end market as well as NASA, what kind of scenarios are you looking at occurring from kind of the fiscal cliff Sequestration issues?

I’m going to take the guy’s word from last week. Sequestration is not going happen, right? Even though these guys backed off afterwards, but I don’t think -- I think we’re taking into account that our Defense businesses are going to contract. Defense right now contributes about 31% of our revenues, but less than 25% of our profit. So -- and you heard me talk about closure of one of our electronic manufacturing services which is all defense frankly. So we are not hopeful about Defense. On the national side, this administration has dismantled the NASA man space program, period. So we see shrinkage there. On the positive side in that domain we do have a new program which is -- we put announcements on which is -- it's an earth imaging system that would be located on the International Space Station. We are now working with partners to develop a strategy. We have about $18 million from NASA on that. If we can get that imaging system up with some partners, and we begin to enjoy some of the fruits of that, I think that would be healthy for us. But by and large other NASA programs, we are not very helpful. Well, on the other side we do have -- in our imaging group, we have some strong programs both in Europe as well as James Webb Telescope. So there kind of -- it’s like everything else in our businesses, mix of business is helping us where things are going down, other things are going up. So we have a -- that’s always helpful to us.

Great and then just a last one, any update on the SAP implementation? The ERP -- yes...

Yes. It’s going well. We are doing it in a very measured way. We are only doing it in part of our businesses. It’s not SAP. It's a Microsoft Business -- it’s a Microsoft Exchange product. I hate to do advertisements for anybody else. But having said that, we’ve put a pilot system in and we will put it in our instrumentation businesses and if that works in our A&D. Our LeCroy, DALSA, Engineered Systems and Scientific -- and Imaging, those already have their system. So this is not going to be across all of Teledyne.

And we will go to the line of Jeremy Devaney with BB&T.

First I wanted to -- earlier, Robert, you mentioned onshore versus offshore that you have a higher concentration in the offshore. I was wondering if you could break that out for us. What percentage of the oil and gas business is certainly offshore versus onshore?

I am trying to get a number out of my guys, but I would say our offshore is probably about 80% to 90% of the total, closer to 90%, less onshore. Onshore, we do have some products -- connected products that came, Jeremy, with VariSystem. That is in the tracking domain. And they are doing okay, but most of our work is offshore.

All right. And that kind of brings us to an interesting question. I wanted to turn a little to organic growth and VariSystems is an interesting place to start. Sequentially, VariSystems looks like it was off pretty heavily, $9.3 million last quarter versus $5.8 this quarter. Could you help walk us through the organic growth rates on your business across the 4 segments, Engineered Systems who is the only one that grew organically? I'm having a little trouble reconciling M&A strategy going forward and risks of that versus the organic growth of the business.

Oil and gas is up about 10%, so it offsets more than offsets VariSystems which is the onshore. In general, I will give you a big picture. We are probably down about a percent, organically 1%, but a lot of that, we took hits in our EMS business as I discussed before. Our imaging businesses are modestly up. Our instrumentation businesses are modestly up. We think that -- I don't -- we made 42 acquisitions and frankly since we haven’t had many failures I don’t think there is a lot of risk there. We are pretty good at that. So you got to do what you got to do. If you look at all the earnings that are coming out of different companies today, people are contracting. Those that can will do acquisitions in key areas, strategic areas and growth. Those that can’t, won’t and will suffer the consequences.

I totally hear you on your M&A history. And you certainly have the track record. You guys have done an exceptional job. But even when we look at the DALSA acquisition, you mentioned it's going to be down slightly year-over-year, the growth rates came in at about 4.7% year-over-year on the quarter. Are you seeing any challenges with forecasting some of these acquisition targets given the current environment?

Actually DALSA generally was up a little bit -- maybe a little over a percent year-over-year. Total year they are up. Next year, they are going to be up. They have exceptionally good products. The X-Ray imaging business was up over 20% quarter-over-quarter. So I don’t see it. Yes, they -- we are probably going to have some as -- if manufacturing doesn’t pick up especially in the semi domain, we will probably have some challenges in vision systems for semiconductors or flat panel displays or whatever. On the other hand, we also provide all the systems for handheld devices and inspection of iPads and other things. So I think DALSA is going to do fine. I am not worried about DALSA. My worry is frankly focused on the U.S. economy.

You are absolutely right. I misspoke. It was actually LeCroy you said was going to be down for the year and it was up 4.7% for the quarter, I misspoke.

Yes, they had a very good first 2 months. So year-over-year their first 2 months were very good. They were over 20% over last year, but maybe it’s because they are coming to Teledyne and we are always conservative and cautious. So maybe they are being a little conservative. Right now I think they are going to do fine.

Our next question comes from the line of Mark Jordan, Noble Financial.

Just a quick follow-up. Robert, just philosophically, you have been funding all of your acquisitions with bank debt and cash flow generated from operations for a number of years now. Do you see that changing and/or under what situation would you look to the equity markets as to bolster your borrowing in acquisition power?

Mark, it’s easier to fund it with cash as you well know. Acquisitions, maybe their stock are very difficult to make them accretive as you also know. On the other hand, if there was an extraordinary situation where it was a big enough acquisition and it fit where we want to grow, we would do it with shares and shares and cash combination. So I am not going to exclude that. On the other hand, it would have to be a really good acquisition that we can make work, because we don’t like to do dilutive acquisitions, haven’t done it so far. It might be temporarily diluted for a few months or 6 months. But all of our acquisitions so far have been accretive. So that’s the best answer I can give you on that.

[Operator Instructions]

Operator, thank you very much. I will now ask Jason to conclude our conference call.

Thanks, Robert, and again, thanks everyone for joining us and certainly if you have follow-up questions, please feel free to call me at the number listed on your earnings release. And again, the releases are available on our website, as is the replay of this call. Operator, if you could conclude the call and give the dial-in information for replay, we’d appreciate it. Thank you, again.

Ladies and gentlemen, that does conclude our conference for today. And today’s conference is available for replay at 11:25 this morning and running through midnight on November 25. You may access the AT&T Executive play back service at anytime by dialing 1 (800) 475-6701 and entering the access code of 255948. International participants may dial (320) 365-3844, and again please enter the access code of 255948. And that does conclude our conference for today. Thank you for your participation and using the AT&T Executive Teleconference. You may now disconnect.