Ladies and gentlemen, we'd like to thank you for standing by and welcome to the Teledyne Technologies second quarter earning teleconference call. At this time all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's call will be recorded. I would now like to turn the call over to your facilitator, Mr. Jason VanWees. Please go ahead, sir.

Good morning, everyone. This is Jason VanWees, Vice President Corporate Development and Investor Relations at Teledyne Technologies. I'd like to welcome you to Teledyne Technologies second quarter 2010 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne Technologies' Chairman, President and CEO, Robert Mehrabian; Senior Vice President and CFO, Dale Schnittjer; and Executive Vice President, General Counsel and Secretary, John Kuelbs. After remarks by Robert and Dale we will ask for your questions. However, 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 by a webcast and dial-in will be available for about one month. Here is Robert.

Thank you, Jason, and good morning, everyone. Before commenting on the specific results of our individual businesses, I have some general observations about our markets and performance during the second quarter. First, our commercial businesses continued to recovery nicely in the quarter. As a result of strong sales growth and margin improvement in our Environment and Monitoring and Marine Instrumentation businesses increased operating profit more than offset various charges in our Electronics and Communication segment. Our commercial aerospace businesses also performed well with increased sales and significantly improved margins, especially within our avionics business, Teledyne Controls. Second, with regard to our government businesses, sales of defense electronics increased in the quarter and we expect continued growth, especially due to our recent acquisitions of Optimum Optical and Intelek, which will expand our product portfolio and capabilities in the military imaging and microwave communication markets. As we have discussed in the past, the declines in our Engineered Systems segment were fully expected primarily due to lower sales of Missile Defense Engineering Services as a result of budget cuts and the lack of a loan guarantee for one of our customers in the nuclear domain. Negative comparisons in this business will persist through the end of 2010. However, as we mentioned in our last earnings call, we are optimistic about some recovery in 2011 due to our belief of greater financing possibility for the American Centrifuge Nuclear Enrichment Project. Finally, with growth of our high-margin commercial businesses, more than offsetting declines in our government business, year-over-year GAAP earnings per share increased 13%. Now, I'll turn to our business segment and the Q2 performance. Second quarter sales in our Electronics and Communications segment increased 6.1% compared to last year and segment operating profit increased 4.3%. On a GAAP basis, segment operating margin decreased 25…

Thank you, Robert, and good morning. I will first discuss some additional financials for the quarter not covered by Robert. Then I will discuss our 2010 outlook. On cash flow, in the second quarter cash provided from operating activities was $46.9 million compared with $35.8 million for the same period of 2009. The higher operating cash flow was primarily due to higher net income and improved working capital partially offset by higher income tax payments. Pre-cash flow for the second quarter of 2010 was $41.7 million, compared to $31.4 million for 2009. Capital expenditures were $5.2 million in the second quarter compared with $4.4 million for the same period of 2009; and depreciation and amortization expense was $11.2 million in the quarter compared with $11.3 million last year. We ended the quarter with $200.6 million of net debt. Our balance sheet remains strong with a net debt to capital ratio of 21.8%. Our credit facility has $590 million of bank commitments and expires in July of 2011. We are planning to renew our credit facility prior to its scheduled maturity. In addition, during May of 2010 we entered into a no-purchase agreement providing for a private placement of $250 million of unsecured debt. The notes have a weighted average interest rate of 4.8% and consist of $75 million with a five-year maturity, $75 million with a seven-year maturity and $100 million with a 10-year maturity. The proceeds will be used to pay down the existing revolver credit facility and for general corporate purposes including acquisitions. On pension, in the second quarter of 2010 gross pension expense was $1.3 million compared with gross pension expense of $5.6 million in the same period of 2009. Net pension income after recovery of allowable costs pursuant to government cost accounting standards, or [CAD], was…

Thank you, Dale. We'd now like to take your questions. Operator, if you're ready to proceed with the questions and answers, please go ahead.

A question relative to margin at the systems engineer sector at 11% for the quarter; was there some extraordinary fees earned during the period, or is that a normal rate for the business that remains?

I think it's a partial reflection that we had pension income in that segment and it wasn't effect of any specialities.

But we should expect the double-digit type of operating margin potential here on that reduce revenue rate through the balance of the year?

Yes, I would say, probably, Mark, it would be in the mid-10s. There is a little product mix difference -- 11, maybe, at the high end but the mid 10.50, double-digit, yes.

On the electronic communications margins, you reported 12.8, but that's after the 260 basis-point hit for the acquisition-related adjustments. Adding that back, it's a margin of 15.4. Is that -- I would imagine that you would view that as an unsustainable level?

As much as I'd love it to be sustained at that level, I think it'll come down somewhat closer to 14% perhaps, Mark, but that's still pretty good.

You would look at that as at the 14% norm as a very good normalized run rate with something that probably would be difficult to improve upon?

Oh, no, I wouldn't say it'd be difficult to improve upon. I just think that will be the rate this year. As you well know, we're continuously changing the business mix there to improve our margin. So I think in the out years, we have to strive for higher margins.

A final question, if I may, relative to the -- as you go and renegotiate your underlying bank lines here in the coming months, do you have an idea as to what would be the rates that you would -- on the next extension?

The revolver -- which is I think what you're asking about -- right now the revolver is LIBOR plus about 50 basis points. What we see in the market now and we just recently met with some of our bankers, for investment grade loans like ours, revolvers like ours, it will increase from 50 basis points over LIBOR to between 175 to 200 basis points. We waited a little longer, Mark, because we've been told by various bankers that as the year progresses there might be -- rates might be a little more favorable, maybe closer to the 175 than the 200.

Your next question comes from the line of Michael Lewis - BB&T Capital Markets. Michael Lewis - BB&T Capital Markets: So the profitability across the segments has really stabilized here. So that's good news. But I did want to talk about the $8.2 million inventory reversal charge that you took in E&C. Can we get some more information about that? It was somewhat significant, obviously, to the margin and so what's going on there?

Mike, in the second quarter, we recorded a noncash, pretax charge of $8.2 million. It was really to correct cost of sales that had been recorded incorrectly by the company over a number of years between 2003 and 2010. Primarily it was the result of incorrect inventory valuation at one of our business units. Michael Lewis - BB&T Capital Markets: That has been remedied, going forward?

Yes. Michael Lewis - BB&T Capital Markets: A second question for you with regard to the data links for communications with the UAVs. Did you see any lift in order flow there in the second quarter? I think you talked about last quarter that you were expecting some activity there?

Yes. Actually, Michael, that's a good observation. We received initial production orders for amplifiers used on the common data link upgrade for the Shadow UAV. We also received our first production order for car amplifiers based on gallium nitride technology for the IED market. We expect follow-on production orders in 2011. Michael Lewis - BB&T Capital Markets: That's great news. Then just a follow-up with regard to some financial metrics here; what is the expectation for free cash flow for fiscal year '10 and do you have any initial thoughts on how free cash flow should play out, moving into '11?

Yes, we look at precash flow. We normally think that catch provided from operations is in the a little over $100 million and our capital is in the $35 million, $40 million area. So we would e in the $100 million area, maybe a little lower. Michael Lewis - BB&T Capital Markets: Is that kind of stable moving into fiscal year '11? In other words, I guess where I'm going with this is that you don't see any big changes in the way that you're seeing the working capital moving throughout the firm?

No, we see no big changes.

Your next question comes from the line of Steve Levenson - Stifel.

In relation to the subsea instrumentation and the gliders, do you think the disaster in the Gulf is going to result in any regulation that requires more monitoring equipment? I'm curious to know if you're lobbying for something like that.

As you know, those regulations are coming. There has been the House Energy and Commerce Committee has reported out a Blowout Prevention Act earlier in July. It's not been enacted yet but it's been reported by a 48 to zero vote. There are many provisions in that but it also includes various asset monitoring systems for real-time increase of things like erosion, corrosion monitoring sensors. I think in the short-term the regulation, if it's enacted in the form that it's come out today, it may have, in the short term, may have a little negative effect, but I think in the longer term it will be very beneficial to us because basically it will call for more sophisticated monitoring systems including the pressure and corrosion, provisional electrical and optical interconnects and new sensors for blowout prevention. On July 14, the House Committee, I think, on Science and Technology also reported two bills to enhance US preparedness for oil spills and we are carefully following, obviously, all these legislations and overall that our gliders, our ADCPs for current monitoring, all of that is going to be positive for us.

So not a lot of lobbying necessary with a vote like that, I guess.

No, I don't think so.

Then in relation to thermal, you've now got, really, with Optical Alchemy, a full range of products. Do you see the UAV market growing that you can increase sales and earnings there? Or is that something where you think you can take share now that you've got all the different components?

Yes, I think where we are focusing there, Steve, is more the smaller UAVs. As you know, that market is moving faster and growing more in the smaller UAVs. So our focus has been on the Raven, Shadow, [Scan Ego], others, which would require smaller gimbals and lighter cameras. We also think there is going to be C4ISR upgrades to our existing platform. So all of those, I think, favor our small gimbal and camera and instrument capabilities. As you know, we also have in our Teledyne Scientific and Imaging information analysis capability for image analysis, which is very unique. Once you get the image that's all right but then you've got to analyze those and we have some strong capabilities there that we think will help us in that growth.

The last item is, are these pretty much restricted for sale in the US or do you have international opportunities as well?

I think most of the UAV applications are US, though I must add that we probably will have opportunities with NATO and some other countries.

Your next question comes from the line of Chris Quilty - Raymond James & Associates. Chris Quilty - Raymond James & Associates: A first question for you, Robert, in the past you've kind of given us a breakdown of acquisition contribution by segment. I was hoping you might be able to walk through that. I guess, this is a secondary question, which is with the recent acquisitions, can you give us an idea of where they will fall by segment? It sounds like the Intelek business is going to get split up in terms of where it's assigned.

There was very little revenue from acquisition in Q2 versus last year. There was about $400,000 and that was primarily from the acquisition of Optical Optimum in the Q1. But that's it -- in Q2, I should say. On the Intelek, it will get split up. The majority of it I would say out of about $40 million, about -- $50 million -- I'm sorry -- about $40 million or so, maybe a little less, would go to the electronics and communication segment and about $50 million will go to the engineered systems segment in the precision manufacturing composites capabilities in the UK, which, by the way, we find that attractive, not just because we don't currently have composite capability but also it establishes a presence for us in Europe which we don't currently enjoy in the manufacturing domain. Chris Quilty - Raymond James & Associates: Is that military or commercial composites?

Both. Chris Quilty - Raymond James & Associates: Can you just -- I mean, you've gotten a little bit more active on the M&A front. Can you give us a sense of what you're seeing out there in terms of opportunities and also acquisition multiples? When you look across, you've got a relatively broad spectrum of end markets that you can opportunistically choose from. Are there certain areas where valuations have become more attractive than others?

That's a good question, Chris. Without making the answer very long, there is nothing out there that's cheap, unfortunately. Chris Quilty - Raymond James & Associates: (Inaudible) cheap enough for you, Robert.

Yes, some of them may be. But we've never overpaid for things. But having said that, I think in general there are a large number of small opportunities that we can participate in. There's a scarcity of things that are on the larger side and the stuff that's out there usually has got a lot of hair on it. You've got to buy something. Let's say you buy something that has $100 million to $150 million in revenue but you've got to get rid of half of it. That's just not very attractive. But having said that, we are continuously looking in three areas: first, marine; second, the whole area of optics and imaging. I think with the acquisition of Intelek -- and there are two things that are opening up for us. One of them is, of course, this whole area of satellite communication and communication in general. The other one that we would like to move into more aggressively is the nuclear manufacturing domain because we think that's a good area for Teledyne because of our quality systems and the nuclear stamps that we have, which are kind of a good asset for us. Chris Quilty - Raymond James & Associates: Switching gears, the electronic instruments business, for several quarters now, we've seen the exit of the telecom and the EMS business as something that's been a drag. Are we many quarters removed from the point where that will cease to be a noticeable item?

That's a good question. What we -- in Q2 we -- if you look at where we are from last year, we had maybe over $8 million in revenue in that area. We are down to $2.5 million now and I think that will probably go down a little more but it's not going to be much more of a drag because we basically aren't taking any orders there. I would think the rest of the year the relays and avionics will give us positive comps in that area. Chris Quilty - Raymond James & Associates: Teledyne Imaging, I mean, that was one of your bigger acquisitions, or it was your biggest in the last five years. You did get -- subsequent to that you had the nice contract for the laser eye protection but on the more historic side of that, some of the space imaging and whatnot. I know, difficult competition ongoing. Can you give us an update on where that acquisition sits a couple of years out in terms of its performance and also what you see in terms of the opportunities on a go-forward basis?

Yes, there are two parts to it. First, there's one part of it that has to do with Teledyne Scientific, which is our research arm fundamentally. That has been very effective for us from a multiple domain. First, there are a number of products that have been developed in Scientific that have found their way into our businesses. For example, they have a very strong materials program and a lot of our oil and gas customers are looking for long-term projections of underwater performance of materials. They are lending a tremendous amount of help to our oil and gas businesses. But also, both in the communication area, they have a lot of DARFA contracts, very successful as well as in various new programs like our atomic clock -- or very small atomic clock, in the guided bullet program that you may have heard about and others. So that Scientific has become a very important part of Teledyne in developing new products for our businesses. Moving to the imaging side, on the space programs, as you may recall, we were very successful in prior large-scale programs in the space program but we also have now, while that overall program, in terms of its size, has gone down somewhat because some of the space programs have stopped. We have some very good programs now in space astronomy, ground-based astronomy. While the James Webb program money went down, the subsequent increases in astronomy have really helped us a lot. We have, for example, in JMAPS, which is a Joint Multiarcsecond Pathfinder Survey -- it's a complicated name -- we have a $7.5 million contract from the US Navy that we are just working on and other things. So that part is doing really well. But the part that we're really thinking about developing…

Yes, let me give you the broader answers that you asked for first. If you look at our total missile defense revenues in last year, in 2009, it was over $130 million. This year we are expected to be closer to $90 million, so there is a significant decline. That is -- some of it has to do with missile defense programs which are development programs. But a big chunk of it has to do with our engineering services program, which is going down. Also, as you know, the missile defense, the GMD budget part of the missile defense budget from last year to this year went down 50% from $1.5 billion to $1 billion. So I think what we're trying to do is maintain our presence. But we also have some new things that are getting a good traction in there, especially in integrated testing. We have some really good software capabilities and hardware in the loop, things like that. We expect those to grow some but not enough to make up the difference. Let me move to NASA, if I may. Overall, I think our NASA programs have been about $100 million, give or take a little. We expect it to go down this year again and, frankly, the turmoil you refer to between the administration and Congress and NASA on the space flight program is not helpful. It's not helpful to us. It's not helpful to anybody else. There is, however, legislation both in the Senate and the House that is trying to restore the Constellation program or the manned space program. That might be a compromise that would evolve between the Orion spacecraft as well as some of the lift vehicles. We think that from our perspective, in the short term, which is this year, we'll probably take some haircut on our NASA programs but we think, in the long term though, we're pretty well-positioned to capitalize on the changes I think better than a lot of our competitors because we have a lot of flexible task order contracts with broad scope and we don't really hold any large prime contracts for hardware development. So, all in all, I think -- for example, even in the Orion spacecraft we just recently got an order for $5 million to produce some gauges for the power system there. So I think in the long term, regardless of which direction this goes, we're going to be okay.

Your next question comes from the line of Michael Lewis -- BB&T Capital Markets. Michael Lewis -- BB&T Capital Markets: Robert, I was wondering on Intelek, if you look at the price paid, have you guys conducted a purchase price allocation? I spoke with you guys when you first picked up the company and I think Intelek had about $28 million in equity. So are we looking at $24 million, $25 million in goodwill and intangibles? If you have it, can you break that out for us?

The book value for it is close to $20 million and we -- I'm sorry, GBP 20 million, which is more like $35 million. So there would be some intangible amortization. In the short term, Michael, as you well know, we have to write down the expenses, the acquisition expenses which would be the fees that we paid the investment bankers as well as legal fees. So in the short term we already -- we think that's going to be a couple of million based on -- not all our bills have arrived yet but they will. So in the short term I think we're going to get hit with some expenses there. In the long term I don’t think the intangible amortization is going to be very large. Michael Lewis -- BB&T Capital Markets: The growth expectation for this property in your fiscal year '11 is a few percent mid-single maybe?

I would say that's a good number.

Ladies and gentlemen of the panel, there are no further questions in queue at this time. Please continue.

Thank you very much, Operator. I'll ask Jason to conclude the conference call.

Thanks, Operator, and, again, thanks, everyone, for joining us today. If you have follow-up questions, please do feel free to call me at the number listed on the earnings release and, again, all our releases are available on our website, teledyne.com. Operator, if you could conclude the call and give the replay information we would appreciate it. Bye-bye.