Ladies and gentlemen, thank you for standing by. Welcome to the Teledyne Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Jason VanWees. Please go ahead.

Thank you and good morning, everyone. This is Jason VanWees, Senior Vice President, Strategy and M&A at Teledyne. And I’d like to welcome everyone to Teledyne’s fourth quarter and full-year 2014 earnings release conference call. We released our earnings earlier this morning before the market opened. Joining me today are Teledyne’s Chairman, President and CEO, Robert Mehrabian; Senior Vice President and CFO, Sue Main; and Senior Vice President, General Counsel and Secretary, Melanie Cibik. After remarks by Robert and Sue, 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 of course our periodic SEC filings, and actual results could 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 one month. Here is Robert.

Thank you, Jason, and good morning, everyone. Record sales of $622.3 million increased 4.3% compared to last year with organic growth of 2.5%, inclusive of some currency headwind. Fourth quarter GAAP earnings per share of $1.62 was also a record, increasing 12.5% compared to last year. I should note that earnings, both this year and last were aided by certain tax items. Nevertheless, excluding these tax benefits and unusual charges such as restructuring and legal settlement gain in 2013, earnings still increase at double-digit rate year-over-year. Operating margin of 12.8% increased 220 basis points and was also a record. Our results continued to demonstrate the successful transformation of Teledyne into a higher margin industrial technology company, committed to operational excellence. Overall sales growth was driven by strong organic growth in the U.S. commercial market of just over 5% as well as continued gains in international markets and some impact from acquisitions. Our U.S. Government businesses, which represent approximately 25% of our total sales, declined slightly year-over-year on a somewhat difficult comparison, but we're nevertheless at the highest quarterly level in 2014 on an absolute basis. In our commercial businesses, we achieved growth in all major global market regions. Sales growth in the U.S. was largely driven by increased sales of instrumentation, avionics and commercial imaging systems. Commercial sales in Europe and the Middle East and Africa collectively also increased due in part to broad based demand across our instrumentation segment. Finally, Asia Pacific sales continue to grow with sales of nearly all of our Marine, acoustic positioning, and inter connect systems growing year-over-year. Before discussing our business segment in detail, I want to make some additional comments about our markets and outlook. Given the strength and diversity of Teledyne's businesses and our consistent focus on operational excellence, we were able…

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 first quarter and full-year 2015 outlook. In the fourth quarter, cash flow from operating activities was $84.1 million compared with the cash flow of $98.5 million for the same period of 2013. The lower cash provided by operating activities in the fourth quarter of 2014 primarily reflected the impact of higher income tax payments, partially offset by higher net income and the timing of accounts receivable collection. Free cash flow that is, cash from operating activities less capital expenditures, was $70.3 million in the fourth quarter of 2014, compared with $79.9 million in 2013. For the full year 2014, adjusted free cash flow of $240.2 million versus $182.9 million increased 31.3% over 2013, and was an all time record. Capital expenditures were $13.8 million in the fourth quarter compared to $18.6 million for the same period of 2013. Depreciation and amortization expense was $24.2 million in the quarter compared with $24 million last year. In December, we issued $125 million of senior unsecured notes with an average fixed rate of 2.97% and we ended the quarter with $563.7 million of net debt that is $705.1 million of debt and capital leases less cash of $141.4 million for a net debt to capital ratio of 27.7%. Turning to pension and stock compensation expense, in the fourth quarter of 2014, gross GAAP pension income was $0.3 million compared with gross pension expense of $4.5 million in the same period of 2013. Stock option compensation expense was $3.9 million in the fourth quarter of 2014 compared with $3.1 million in the fourth quarter of 2013. Finally, turning to our outlook, management currently believes that GAAP earnings per share from continuing operations in the first quarter of 2015 will be in the range of $1.16 to $1.20 per share. We expect full-year 2015 earnings per share of approximately $5.71 to $5.76. The 2015 full-year effective tax rate is expected to be 29.5% for reference excluding discrete items and fourth quarter R&D tax credit, the full-year 2014 tax rate was 28.7%. I do want to emphasize a few items regarding our 2015 outlook compared to 2014. First, our pension assumptions included a discount rate decrease of 90 basis points and changes in mortality assumptions, which will increase non-cash pension expense in 2015. Second, 2014 results benefited from net legal settlements, significant discreet tax items, including $0.06 in the first quarter of 2014 and the 2014 R&D tax credit which is not currently effective for 2015, as well as a slightly lower tax rate. Finally, approximately 10% of our total sales are in foreign currencies, and foreign exchange is likely to be a headwind of 1 to 2 percentage points to revenue in 2015. I will now pass the call back to Robert.

Thank you. We would now like to take your questions. Vicky, if you’re ready to proceed with questions and answers, please go ahead.

Certainly. [Operator Instructions] Our first question comes from the line of Greg Konrad. Please go ahead.

Good morning. I just wanted to start, you had good cash flow in the quarter and you also announced an increase in the share re-purchase program. You kind of made some comments about balancing share repurchases and acquisitions. I was hoping you could elaborate on that, and then also just touch on if the lower price of oil has kind of increased the acquisition pipeline?

Thank you, Greg. First, let me just emphasize that our aim always is to improve revenue and increase our earnings per share as we've done in the last 13 years, and part of the contribution to that, significant part, have been the acquisitions. Approximately 65 plus percent of our revenue and more than that in income comes through our acquisitions, so we will continue to look at those. We have a reasonably good pipeline of acquisitions. Having said that, as you also indicated, because of the healthy cash flow and our EBITDA of total of almost $395 million, we feel that we can do both open opportunistically. If there are a lot of large acquisitions available, we may not do as much buyback. On the other hand, I think the time has come for our company to look at those both options in a more balanced way. Having said that, price of oil going down, has affected our pipeline, at least our view of our pipeline somewhat in that we probably will be a little more cautious in making interments in the marine instrumentation domain that are related to oil production and exploration. Having said that as I said before our marine businesses are very well balanced and we will look at other opportunities in the marine domain that don’t serve the energy market. I don’t think prices have changed significant because of the change in oil; you have to obviously balance the price of acquisitions with their earning potential. I hope that answers your question.

Yes, that was perfect. Then just a follow-up on the instrumentation margin. You gave a little bit of color on, this but I remember what the segment used to do before LeCroy and the acquisition, and it sounds like the margin on that property has improved and that's part of the contribution to the 17.8% in the quarter. Can you maybe talk a little bit more about the moving pieces and what we can expect going forward and the ranges of the three segments?

Yes. I think in the instrumentation segment, we believe that the margins, we should be able to maintain those margins. I should note, Greg, that if you look at our Q1, both 2014 and 2013, Q1 is our weakest quarter because of the markets we serve, and so in Q1 we expect margins for almost all of our segments to be closer to Q1 of last year, but as the year goes on, I think the margins will improve as they did this year. In instrumentation, we view instrumentation in the various groupings. First, in oil and gas, our margins are very healthy and we just - our emphasis are to keep those margins and see if we can move the top line up a little bit. In test and measurements that you mentioned, primarily LeCroy, our aim is not to worry so much about revenue growth so we have some potential improvements in other businesses using LeCroy technologies. Our aim there is to improve margins, and we will do that next year. And in our environmental instrumentation, they have healthy margins we just want to keep them and move the top line up a little bit.

Thanks for taking my question. I’m sorry.

No that’s all right. And I just want to go back what Su mentioned and what I said about pension. If we hadn't taken the actions that we took on pension, which were mitigation by freezing the non-qualified pension, by doing one-time buys, our pension headwinds would have been significantly larger than it is, but nevertheless, having said all of that, between pension taxes, we have a $0.50 headwind going into next year. Our aim is to make that up in 2015, so that really consumes our various margin improvement programs.

Thanks for taking my questions.

Sure Greg.

Our next question comes from the line of Jim Ricchiuti with Needham & Company. Please go ahead.

Thank you. Good morning. Robert, I wonder if you would comment just in general on the outlook for the four main business segments, how you might see the year unfold from a top line standpoint?

Sure. Good morning Jim. I think from a top line standpoint. We should have about 1% or so in instrumentation primarily because we have, that's organic. That’s primarily because of the impact of our oil exploration programs which gone it is probably going to see 25% to 35% decline in revenue there, so we have to make it up somewhere else. And then there is foreign exchange headwind. In digital imaging, I think we can improve that about 3% to 4%. In Aerospace and defense, we will just be under 4% I will say 3.5% and engineered system I am talking year-over-year Jim I hope you’re read me on that.

I am. Thank you.

And engineered systems should improve the top line by about 4% collectively with taking into account with foreign exchange and the fact that first as Sue said, there's 10% of our stuff that are producing those markets, but the other problem that we have is we're competing in our instrumentation and other businesses overseas, and we have about 45% of our overall sales overseas. So we have to drop prices in those places in dollar denominations to compete. So we think revenue next year, organic revenue growth is going to be around 2% it could be a little higher, but right now that’s what we see.

That's very helpful. I wanted to follow-up on the digital imaging business, if I may. The growth there has been a little harder to come by in the last couple of years. You're assuming 3% to 4% or so growth in the business this year, and I just wonder if you could discuss that a little bit more. The particular areas where we might see the business begin to gain some traction.

Okay, Jim I’ll try. First, we’ve seen some pick up in our LIDAR base or laser based imaging business which we own 51% of, a company called Uptick in Canada. They've introduced new products and as a consequence of that, they have gained market share and we have some nice backlog going into next year. Their new products are, for example, there's a high performance airborne LIDAR that they've introduced and a multicolor laser wavelength light, those are making good in roads in the markets, so some of the growth is going to come from there. We also have new products we're introducing area scan products. We've primarily been a line scan camera oriented business. We're introducing area scan products with CMOS based sensors, and last to contributions we think will come from our infrared micro bolometers production and cameras in Canada, and from our very high resolution CMOS-based X-rays, so if you combine all of those, we think those would contribute to the revenue increase.

Thank you, that's helpful.

Thank you.

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

Good morning, everybody.

Good morning, Steve.

In the past I know you've spoken about acquisitions, but in the past you've also been able to boost margins by working on scrap, rework, waste and footprint. What do you think you can get out of that in 2015?

I think what - let me just backup a second. What we got in 2014, year-over-year was at 12.5% reduction in our scrap rework and warranty across over a billion dollars of manufactured goods, so that helped us out a lot. Over the last 10 years, the percentage of those, what we call price on non-conforming our factories has gone down from 5.1% to 1.8% resulting in a net improvement in our earnings of over $60 million. Now, our aim to do the same, Steve, every year. Our target for next year is around the same, 10% or so. We think if we can achieve that, especially where we have higher numbers for price on non-conformers, those would be primarily in more recent acquisitions, and we can improve the margins. I'm going to say overall in those businesses we can improve margins 20, 30 maybe 40 basis points from that. But some of the other businesses that have been with us for a long time all ready have (inaudible) numbers, percentages that are below 1; 0.6, 0.7. And improvement that 10%, 15% improvement there, while we do it, it’s not going to have a major effect in our bottom line.

Sounds like a high class problem, but thank you for the detail on that. I guess question on cash deployment. Is there a debt-to-EBITDA target leverage ratio? Do you think you'd borrow more to do more buybacks if there aren't acquisitions out there that fit your criteria?

Yes, right now if you look at our debt to EBITDA ratio, it's about 1.7. If you look at it from a net debt that Sue mentioned, to EBITDA ratio. It’s closer to 1.5. Having said that, I think we have a ceiling roof for our debt to EBITDA of 3. We'll never get that close, 3.25 to be exact. I think we feel comfortable to be around 2, maybe a little higher. We might go up to a 2.5, but we'll bring it down very fast by generating cash, but even at 1.8 to 2, we already have borrowing capacity if we assume that was the ceiling of up to $650 million.

Thank you for the additional detail. That's great.

Thank you.

[Operator Instructions] Our next question comes from the line of Chris Quilty with Raymond James. Please go ahead.

Good morning. Congratulations. A follow-up on the Marine segment, specifically oil and gas. Is there a specific price for a barrel of oil that's embedded in your revised forecast?

Not specific, what we have Chris is we know what our large customers on the exploration side are telling us, they are basically delaying of new vessels, other companies that we don’t do business with are retiring vessels. So there we have a pretty good idea of what that market is going to be like, it could be done as much as 35% year-over-year. Remembering that it was a $100 million in 2013 and closer to 80 this 2014 and other 30% decline would bring it down to $60 million, so you are going from 100 to 60 over two years. The flip side is as I said, our oil production so far is holding up very well, and part of that you ask about what kind of price to oil. Part of that is that different sources of oil and gas recovery have different price breakeven points depending on whether its shallow water that would be the lowest, onshore, conversational, it could be maybe $40, deep-water probably over $60, but then when you get to shale oil you are talking about $70, could be as high as $100. So what we're seeing is changes in the dynamics of the businesses the shale oil businesses are reducing their cost very fast, because that’s not too hard to do, and you will pick up your trucks and move them and stop the drilling. And where as in deep water the projects are planned over a 10-year period and larger oil companies have seen oil prices go up and down over the two decades and they can’t plant immediate price reduction, because they are spending huge amounts of money. For example, in the Combo Offshore Award that we got late in 2014 that is a $10 billion investment and cant shut that ticket off or turn it down. So they have a much longer view of the market than we do, and even as early as November, the quest subsea database is projecting increases in – significant increases in the production in the next six or seven years, as much as 70 or more percent. So, it's very hard to credit. I think in the deep sea oil production, we feel comfortable that oil prices are not going to affect them very quickly. Having said that, I'll repeat remarks that I made before in the last earnings call, which is it's my personal view that oil consumption per capita oil consumption is going to increase, especially as we see recoveries in the foreign markets because their capital consumption is several, four or five times less than ours or other for developed countries, and in the long-term, oil prices supplies are not going to be as abundant as they are today compared to consumption, so I think in the long-term oil prices have to moderate upwards and that's my prospective. I may be wrong, but I don't think so.

I would tend to agree. Can you give us a more specific guidance on the pension contribution that you would expect for this year?

We don’t Chris, we don’t expect to make a pension contribution. As of the end of the year, considering the 4.5% discount rate, to mention 90 basis points reduced from last year it was 5.4% its now 4.5% for us. Our pension is 110% funded, even at that discount rate and it’s a changes were in the mortality tables that actually got together and decided that people live longer, probably true, and so we don't need to make a contribution, but what we needed to do was take some actions by freezing our non-qualified pension plan and making one-time lump sum offers to those people who are retiring. We've made those to people who've what we call vested, people that are vested in our pension but are not at Teledyne anymore and I haven't begun withdrawing pension. We have bought about over 500 of those folks out of our pension planning the last two years.

Gotcha. And the R&D tax credits, I didn't pay attention. How long are those in effect for? Is this the typical one-year extension?

Yes. What they did is in the last few days of the year, they passed a R&D tax credit for 2014 only. They could have passed it, they could have done it permanently, they could have passed it for 2014 and 2014 as they did in 2013. In 2013, at the beginning of the year they passed it for 2013 and 2013, so we don't have an R&D tax credit right now in our plan for 2015. If it comes, then it will bump our earnings up anywhere between $0.10 and $0.15, but I can’t guide straight to earnings assuming something is going to happen in Washington. You now how predictive that is.

Gotcha. Final question. When you look at the avionics area, which is an area where you've been doing quite well, how does the acquisition pipeline look in that area and are there specific either products or aircraft type where you think you're most interested?

First, there are very few if any acquisitions. There are three or four big players. It's heavily consolidated market, and our job there is very simple. Take market share, and we've been relatively successful in that. First, we have this very large sole source contract from Boeing for the next 12 or 13 years that would address specifically put our systems in 737, 737 max, 777 and next generation of 737, 737 max and 747 production aircraft. These are the high volume aircraft. The other thing is, in the market share gain, we've been very fortunate to take market away from our competitors by having some of the larger airlines that have a lot of aircraft, take out competitor products and put our data acquisition systems. For example, Northwest airlines just gave us an order to add, I'm sorry, I said Northwest, I meant Southwest, to add 85 of our data acquisition systems over the next 18 months in their existing aircraft, so market share is very important there.

Gotcha. Thank you very much.

Thanks, Chris.

Our next question comes from the line of Michael Ciarmoli, KeyBanc Capital Markets. Please go ahead.

Good morning, guys, thanks for taking my questions. Robert, just to maybe dig in on the oil and gas. So you know, per the investor day slide deck from last year, the focus on oil and gas, you've got about 450 million in oil and gas revenues. Can you sort of tell us what the backlog is? How much visibility you have? A lot of your biggest customer also, FMC, Cameron's, we're seeing them make the CapEx cut. Is this something as they start to cut back, does this become more of a 2016 issue, or just how comfortable are you in the overall stability of that portfolio and the level of backlog that's there?

I’ve spoken to oil explorations, I won’t go over that. On the production side, we have a very healthy backlog right now. I’d say we have sufficient backlog to be able to predict what’s going to happen in 2015, certainly in the first nine months of 2015, and as I mentioned we don't expect to be significant change in that domain. And the flip side of that is as I mentioned, again, there are other areas of Marine that kind of make up for that, especially in defense and in size transportation hydrography etcetera.

Okay. You guys obviously just closed on Bolt. What are the expectations there? That's a company that's seen its revenues double since 2010. What's baked into the outlook, maybe even on a bottom line for Bolt and how do you think that business performs?

We think that business is going to do something around $50 million next year. And it contributed about $8 million in six weeks in the end of 2014. So even if that goes down, some we think the 50 is a fairly reasonable for us. And that business has, as I mentioned before as parts of it that have more to do with search and rescue and hydrography and other business and we have same thing with Ocean Science, so that’s where we are.

So have you quantified how much accretion you'll get from that in earnings next year, on Bolt?

I think what will happen is we may get as much as $0.10 may be $0.08, our intangibles from that are going to be significant as always are in all of our acquisitions. If we did non-GAAP adjusted earnings which a lot of people, you're familiar with, you cover, do, we would have probably add $0.63 to our earnings because of our intangibles. So once you take the intangibles out maybe $0.08 to $0.10.

Okay. Last one for me. You talked about some of your environmental lab and field instrumentation being weaker. How much indirect exposure do you think you guys have to some of the on shore shale where there's clearly a big focus on environmental? Is there any indirect exposure thank you guys see there?

No, we don’t see that.

Okay. Perfect. Thanks a lot, guys.

All right. Thank you.

Our next question comes from the line of Robert Kirkpatrick with Cardinal Capital. Please go ahead.

Good morning.

Good morning Rob.

Could you talk about your capital expenditures program in the year that just concluded because it was the lowest I've seen in a couple of years? Why that was and what your expectation is going forward for the next couple of years, please?

Hi Rob, good question. What happened in the capital expenditure is that we spent a significant amount of money in 2013 especially and a little bit in early 2014 in facility consolidation and we reduced our footprint across the company by 7% as part of our cost reduction, and so that didn’t happen then that slowed down in the end of 2014 and we ended up spending about $45 million. We think next year it might go up to $60 million to $65 million which is kind of our normal CapEx for a company of our size and the kinds of technologies that we have to maintain.

Okay and then secondly, I believe last year in 2013 spent $167 million on R&D and bid preparation. Did that go up substantially in 2014? And if so, what did it go to?

That’s a good number Rob, I think we also get as you know we also get another 80 to 100 from outside sources, so our total R&D is about 10% of our revenue. In 2014, it didn't change very much. I would say it's flat and we think it will be flat in 2015.

Super. Thank you so much.

10% of our revenue between us, what we do and what we get from outside.

Great. Thank you.

Thanks, Rob.

Our next question comes from the line of Jim Ricchiuti, Needham & Company. Please go ahead.

Robert, I just wanted to go back to a comment you made as you were discussing the Teledyne LeCroy business. You talked about, I think, leveraging their technology in some other areas. So I wonder if you could maybe discuss that a little further?

Sure, I’ll give you a specific example. We have, for example, we have a small business that does nuclear plant valve testing. What they do is they have strain gauges and software and all nuclear plants have to test their opening and closure of their valves every so often, especially after they have a fuel replacement cycle and that's a nice business, not big. It's maybe $10 million, but it makes great margins. What the LeCroy folks have been able to do is bring their expertise in digitalization and assist that company to develop a completely new product, which will probably over the next couple of years double the revenue in that one small business which has really good margins. So what we're trying to do at LeCroy is do that in a number of our other businesses. Just about every instrument that we make has relevant digitalization and a need to display the data in some form or another. They're experts at that. Especially when it comes to high definition data they have of course their new eight channel, 12-bit scope which they just launched six months ago and out-selling even our highest expectations. They bring those kinds of technology to new product development. The final thing is that LeCroy has probably the best marketing and sales channels at Teledyne across the world, and they are kind of coordinating a lot of our international sales in other instrumentation under that capability.

Got it. And then just on the core LeCroy business. You talked about not being as focused on revenues. Is it just a flat market? Is sounds like LeCroy has maintained or even possibly or gained some market share?

I think the market when I said we are obviously want to increase revenue, but the market as a whole that whole market yes I am going to say we expect in 2015 that market to grow about 2% across the world. In some places, it will go faster. Perhaps in Europe, Middle East and Pacific might grow 3%, 4%. The U.S. has been softer. So I think the scope market is relatively flat. On the other hand we do have a protocol business is the software base business primarily that markets growing faster and that grows more or like 8% or so.

Thank you.

Thank you. End of Q&A

We have no further questions on the phone line.

Thank you, Vicky. I will now ask Jason to conclude our conference call.

Thanks Robert and again thanks everyone for joining us this morning. If you have any follow-up questions again please feel free to call me on the number on the earnings release and as always, all news releases are available on our website teledyne.com. Operator if you could conclude the call and give the replay information, we'd appreciate it. Thank you.