Welcome to the Teledyne's First Quarter 2012 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference to your host Mr. Jason VanWees. Please go ahead.

Thank you and good morning everyone. This is Jason VanWees, Vice President, Corporate Development and Investor Relations at Teledyne. And I would like to welcome everyone to Teledyne's First Quarter 2012 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, 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 via webcast and dial-in will be available for about one month. Here is Robert.

Thank you, Jason, and good morning everyone. First quarter sales of $494 million increased 5.5%. Earnings per share from continuing operations was $0.96 compared to $0.87 in 2011. As we have progressively done over the last decade, we continued our emphasis on higher margin industrial growth markets, increased our global presence, and like always, further pushed continuous improvement in our operations. Our current portfolio of higher technology businesses, provide proprietary, highly engineered products and served markets, which has energy exploration and production, global infrastructure, factory automation, transportation, and communication. In order to drive organic growth in this market, we continue to invest in research and development. In fact R&D expense increased 20 % compared to last year. In the first quarter, we received record orders of $528 million excluding acquired backlog. Overall, book-to-bill was 1.07. And despite our greater mix of short cycle businesses, backlog was approximately $990 million compared to approximately $945 million at 2011 fiscal year end. International sales contributed more than 40% of total revenue in the quarter. And U.S. government sales accounted for just 31% of sales, down from 36% in 2011, and 47% just a few years ago. The profile of our government businesses also continues to evolve with an increase in proprietary products over engineering services. Finally, given the greater profitability of our commercial businesses, the U.S. government in the first quarter accounted for only about 20% of income. I will now comment on our business segment, after which Dale Schnittjer will review some of the financials in more detail and provide an earnings outlook for the second quarter and full year 2012. Starting with our instrumentation segment, this segment comprises our highest margin group of businesses and primarily serves the offshore energy including deep water exploration and production and global infrastructure markets. International…

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 2012 outlook. On cash flow, in the first quarter, cash provided from operating activities from continuing operations was a cash usage of $19.7 million, compared with positive cash flow of $6.6 million for the same period of 2011. Free cash flow was a cash usage of $30.3 million in the first quarter of 2012. Adjusted for pension contributions, net of taxes, free cash flow was $2.2 million. Capital expenditures were $10.6 million in the first quarter, compared to $6.5 million for the same period of 2011. Depreciation and amortization expense was $16.8 million in the quarter compared to $13.9 million last year. We expect to invest approximately $65 million in capital in 2012. Also, for the full year of 2012, we expect depreciation and amortization expense to be approximately $75 million with amortization expense at approximately $28 million of the $75 million. We ended the quarter with $316.5 million of net debt. That is $401.4 million of debt and capital leases less cash of $84.9 million for a net debt to capital ratio of 23.2%. Cash was temporarily elevated at the end of the first quarter since we borrowed on the last day of the quarter to fund the purchase of the majority interest in Optech which closed early on the first day of the second quarter. Next on pension, net pension income after recovery of allowable costs pursuant to government cost accounting standards was $1.5 million in the first quarter of 2012, compared with $0.2 million of net pension income in the first quarter of 2011. There was a small positive variance in net pension income in the first quarter of 2012. However,…

Thank you, Dale. Before we take your questions, I would like to note that our 3 segment executives, Brian Doody, Rex Geveden, and Aldo Pichelli, are with us here today and I may pass along some of the questions for them to answer. Operator, if you're ready to proceed with the questions-and-answers please go ahead.

[Operator Instructions] And your first question comes from the line of Michael Ciarmoli of Keybanc Capital Markets.

Robert, if I could just pass in to the EPS increase. You got a little bit of a tax I guess benefit in the quarter and it seemed like, what had been maybe some tension tailwinds or headwinds turned into some tailwinds. I mean was that really the drivers behind the increase or was there any more kind of operational gains that that drove the increase for the full year, your view?

I think we got about 2.5 cents from tax and maybe a penny or maybe less than a penny. We did pick up some earnings from our acquisition of VariSystems, which is probably the driver there.

Okay, okay. And then, if I've got my math right, and maybe you can comment on the full year, the organic growth at the corporate level for the quarter and for the full year you guys still look to be kind of under some pressure maybe slightly down to the low single digit, I mean do you have any organic growth expectations for the full year?

Yes we do. Well I think our expectation is in the 5% maybe a little more for the year. The thing that we think will happen with us is that we will increase our commercial businesses and maybe shrink our government businesses like we did in the first quarter. And that's part of it that, as you know Michael, is planned; we really have gotten out of the seato-type work pretty much.

Right. Is that, is the planned shrinkage of government is that, just kind of the natural pressures and challenges or you guys thinking about doing anything strategically with some of those segments and some of those business units there?

Let me just say both of those.

Okay. That's helpful. And then, last question, and I'll just jump off here. You mentioned, I think in the prepared comments some of the short cycle businesses and I knew there had been maybe a quarter or 2 ago some concerns on what was happening in Europe? What are you seeing in some of those, maybe the industrial automation, the semi cap equipment, can you comment on kind of what kind of order trends you're seeing right now?

We saw some softness in the semi cap equipment earlier but we're seeing some pickup there. In Europe, I think, just like everybody else, everything is stagnant. It's -- I would say Europe is neutral for us. On the other hand, Asia-Pacific, we're seeing some positive signs. Middle East, interestingly, Middle East dry shale is a significant buildup of petrochemicals and other activities that's helping us. The only exception in Europe, I would say for us, is Norway, because of our oil and gas presence.

Okay. And with that Asia-Pacific I know you've got some of the machine vision that was tied to consumer electronics. Any kind of real changes there with demand trends in that specific market?

Yes I think, I'm going to actually answer that and then let perhaps Brian Doody make a comment. I think what we're seeing is some of the machine vision in that we've for flat panel displays; a lot of the large flat panel display companies are not doing well. On the other hand, we're seeing a pickup in small notebook and others display devices that you're cognizant of what you heard yesterday in the market, we're seeing pickups there. So while there is some weakness, there’s some positives. Brain do you want to add to that?

Sure. Thanks, Robert. In Asia, we have generally had a very stronger position in for semiconductor capital equipment, which includes inspecting flat panel displays as Robert mentioned. The real bright spot for us is the increased use of very high resolution smaller displays for tablets and smartphones. This combined with pressure and some bad press that manufacturers are getting for working conditions is pushing these manufactures to increase their automation levels within the factories and that's a driver for our growth. So we're starting to see some of those factors pushup demand as we come out of this down cycle in this particular industry.

[Operator Instructions] You have a question from the line of Chris Quilty of Raymond James.

Question, you called out the record R&D spending in the quarter, is that merely a reflection of a fully loaded impact of DALSA or are there some onetime investments you've undertaken this year that you see a specific pay back on?

I think that's really a pickup from DALSA. DALSA has got a -- but they have 2 parts of our R&D expenditures. One is that internal, which is about 10% plus. The other is they do customer directed R&D. This is from the internal R&D pickup. Brain do you have any other comment?

No, I think you said it correctly Robert. The R&D spend from Teledyne DALSA will fluctuate as our contract business goes up and down for any NRE work. And as the industry is in semiconductor CapEx are in down cycles they tend to increase their R&D activity and move towards next generation product development. So we actually increase our R&D during those periods and that's what we're seeing.

Yes, Chris, just on a bigger scale, internally sponsored R&D in 2011 was about $102 million. Our anticipation is that that would be about $212 million this year; I'm sorry $112 million this year.

Okay, switching gears, can you characterize for us the acquisition pipeline, how you feel about pricing multiples, valuation expectations, and whether you're seeing anything more interesting from the sector basis?

I must say there has been more activity for us in that domain. Obviously we're interested in things, products that are go into the ocean and oil and gas that's where VariSystems came in, op tech interesting some of the lighter images come right on the shore line. So you can see some of the pictures of the shoreline and of course we are looking to buy things that we take images under the water, more precise images than the scans we have now. I think overall, there is some opportunity, perhaps some larger opportunities as we get along.

Question for Dale on the following the anticipated pension contribution in the second half of the year, where does that put your anticipated and in funding status?

Well, we are -- if we include the prepayments in our plan currently we are a 100% funded and that would put us at about a 105%.

And what would be the rational for over funding?

Well, that funding assumes an 8.25% rate of return. We do not know what the return will be exactly and the liability continues to grow as you take an additional year of discounting off of the PDO liability, so that is not a lot of leeway sitting on top of the pension liability that we have.

Understand 8.25% is reason enough. Final question, the marine instruments was down in the quarter I believe, is that just due to some variables? And, I know we have talked about this already but, Robert, can you talk about the anticipated impact of frac-ing or the growth of frac-ing over the next couple of years? Whether that is a net positive or negative to your business demand?

I think from my perspective that is a net positive especially with our acquisition of VariSystems. Obviously, there is some regulations coming down there but those won't be effective until 2015; that should not affect this much. And thus, as you remember, those relate to the first when you start the frac-ing process you get some gases that come up that may have to be either burned or captured, right now they're being burned. But, I think that what will affect frac-ing is probably the price of gas and people are shifting their emphasis to oil sands, which again is good for us. So we think generally that is positive of us.

Our next question from a line of Robert Kirkpatrick of Cardinal Capital.

Could you please expand a bit on the FMC relationship the order that they received from Petrobras and what that could need for the marine part of your business going-forward?

The FMC Petrobras agreement is for increased subsea trees, Rob, and our agreement with FMC -- we have always had a very good relationship with FMC. But in Brazil especially, I think we are kind of sole source to them in a lot of the stuff that we can make. What the frame agreement that is it kind of solidifies our position for them over multiple years. And the other thing in general that is happening in the deep sea market exploration market is, if you look at they measure the number of subsea trees, these are the large trees that sit on top of the oil well. Those are expected to almost double between 2011 and 2015. Now, of course that is great for us, it's all the way because we make -- we own half the electrical market there connector market and perhaps as much as 90% plus of the optical connector market. And then we also make pressure and temperature sensors and other sensors. And our underwater vehicles and other people's under water vehicles use the lot of our Doppler Velocity measurement devices. So, all in all that whole area is really positive for us.

And the next question is from the line of Mark Jordan of Noble Financial.

First question is relative to you area alluded to well some of the larger production contracts for the marines for the, I guess the assault vehicle etc. When would those contracts go into a production mode versus being in design and development?

I am going to let Rex speak up on this. Rex Geveden who runs both our engineered systems and our scientific and imaging here. But, let me just note on the underwater vehicles, there are separate contract in the marine business but there are 2 big contracts that the engineered systems does. One of them is gliders which are self-powered vehicles, underwater vehicle. And the next one is the shallow water vehicle for delivering the special ops folks. So, I will let Rex transfer the more detailed question.

Okay, thank you, Robert. One of our -- the contract for our shallow water combat submersible is in the engineering development phase right now. That goes through about the summer of 2013 at which point production would occur. We have -- the contract has options for up to 42 vehicles in it and that production to go over 5 years past 2013, so up to 2018 we have indications that that we would perhaps 16 to 18 vehicles in that timeframe excluding any foreign military sales. On the glider program that Robert referred to, we're in the production phase on that one right now. We've delivered about 50 vehicles of the unpowered gliders to the customer and they have options for another 100 vehicles that we would produce over the next 2 years.

Second question, we just talked about upgrading of undersea fields with new trees, added sensors. What is the catalyst for the producing company to actually go out and do that upgrade and how much lead time is there in going back and making the decision for significant capital upgrade?

Yes, most of these are, Mark, new trees that are being put. They're just drilling new holes. Deep ocean is the only really growing domain left for new oil production. So, when we say trees are going to be added those would be for new production and primarily in the deep water domain. And we not only make the connectors, but we make a whole set of sensors that are either located down there or on vehicles that are used for assembling stuff on the ocean floor.

Is there any difference in terms of the level of the sophistication of the equipment placed under water by geographic area? By that I mean is it -- its in US Gulf waters is it any different than would be utilized in Brazil or Russia for that matter?

I think it’s not the location by itself, Mark, but I think you have an important point. The deeper you go, as you start getting down to 7,000 ft or more, the material challenges become really serious because you cannot really replace material. You don’t want to replace them. You have a minimum 25 year life requirement. The one advantage that we have over competitors is that in our scientific research domain here we have a very strong history of material used in challenging environments in space. And we are taking a lot of that know-how and now bringing it to deep ocean floor structures. And our customers find that very attractive because here they're putting stuff in deep water that are very challenging environment, both in terms of pressure and temperature and they want to have predicted maps of how long this stuff will last, and we're able to produce that. And we are the only company that does that right now. So, we are at an advantage with our customers in doing things like that.

And the next question from the line of Steve Levenson of Stifel, Nicolaus.

I'll apologize, I don’t know if this has been asked before because I've been flipping back between calls. On the electronic manufacturing, could you discuss the timing issue and is this a business that you think still has long term opportunities or is it maybe on your list for changes?

I'll let Al Pichelli take that. He runs both our instrument segment and our electronics, commercial and defense electronics segment.

Thank you, Robert. And yes, as we look at our contract manufacturing services, there was tapering off of activity early part of this year specifically EMS where we build circuit card assemblies and box builds for some of the major clients, [indiscernible] Northrop Grumman. We are starting some very attractive programs but there has been a delay in funding in some of these programs. These are ones in which we are sole sourced and we believe that there will be some recovery as we get near the end of this year into 2013, so we do believe it’s more of a timing temporary delay.

I depict a bigger picture there is that segment, the electronic segment was essentially flat year-over-year. On the other hand our electronic manufacturing services, EMS part of that business was down almost 30%. So, we picked that up in other areas of the business as I mentioned. Some of it are commercial aerospace where we put computers on commercial aircraft and some of it also we have put businesses in our microwave businesses. So, avionics was up probably 15%, microwave was up about 5% and they made up for the down spike that we saw in the MS. And the other thing is the EMS margins are much lower. So, overall, operating profit increased 6% year-over-year even though EMS was down almost 30%.

[Operator Instructions] You have a follow-up question from the line of Michael Ciarmoli of Keybanc Capital Markets.

Just a follow up maybe on the margins, Robert. If I looked at the aerospace and the defense electronics, it sounds like clearly there's pressure on the EMS, but it’s I guess the 4th quarter now where the margins have trended lower. Is this more of a function of some of the contracting and funding delays? I mean, can you hold this 14% or are we expecting these margins to continue to maybe to trend back down towards that 10% to 12% range?

I think I'm rarely given to optimism on these things, but on the other hand, I must say I think the margins are going to improve in that domain, maybe 50 basis points over the year rather than go down.

And is that a function of maybe the strength in some of the avionics and some of the other areas?

Yes, you're right, it’s a mix issue. But also even in our manufacturing we expect some of that programs, as Al mentioned, to come back. And as I indicated earlier, we did buy VariSystems, which is a difficult environment connector and cable product line, and we think that will have better margins also.

Okay. And then just on the $520 million orders you referenced, can you give us any sense of the end market mix there? Were there any standouts or any concentration?

Yes, I think most of it is commercial. Really good pickup in some of our marine businesses, a little in the government business. But we have acoustics we had a really pickup in some of our classified programs out of our imaging group here in Thousand Oaks. And some of our avionics, especially in commercial where we supply both what is referred to as the wireless downlink and now the uplink to commercial aircraft; we have had some nice pickups there so. And we've had some nice pickups in our engineered systems. So, I think it’s across the board. We see some strength in our bookings, and we don’t count long term bookings for which the money has not been allocated.

Okay, and there are no further questions in queue.

Thank you, operator and now I will turn the call over to Jason to conclude it.

Thanks Robert. Again thank you everyone for joining us morning. If you have follow-up questions, please feel free to call me at the number listed on the earnings release. Again all of our earnings releases are available on our website www.teledyne.com. Operator, if you would go ahead and give the replay information and end today's conference call that would be fantastic.

I certainly will. And ladies and gentlemen, this conference will be available for replay after 10 o'clock am today through May 25th at midnight. You may access the AT&T Executive Replay System at anytime by dialing 1-800-475-6701 entering the access code 235585. International participants dial 320-365-3844 and again that access is 235585. That does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.