1999: $8.40/share 2011: $50.52/share
In 1960, after earning three degrees from MIT and rising to vice-president and general manager of Litton, Henry A. Singleton quit his $35,000 a year job and convinced his assistant and old friend, George Kozmetsky, who had earned a doctorate in commercial science from Harvard, to join him in a new business venture.
Singleton, who in five years had helped raise Litton Industries Inc.’s
electronicsequipment division to $80 million in sales, decided that success lay in the semiconductor business. Despite an already crowded market, he nevertheless believed that producing semiconductors, the “basic building block of electronics,” would lead to other high-technology and high-growth inventions.
Using the money they earned from their Litton stock options, Singleton and Kozmetsky each invested $225,000 to start their business. Singleton became chairman and president of the company they named Teledyne, and Kozmetsky became executive vice-president. Their backgrounds in high technology and innovative ideas quickly paid off. The company achieved first year sales of $4.5 million and employed nearly 450 people. Second year sales of $10.5 million confirmed their success.
ACQUISITIONS BEGIN
With sales continuing on an upward trend, the company embarked on a series of acquisitions, first in electronics and then in geophysics, to increase the company’s strength in businesses related to semiconductors. In 1966, Teledyne bought Vasco Metals Corporation, which started a wave of acquisitions in specialty metals. Vasco, with sales of $43 million, specialized in titanium, molybdenum, beryllium, and vanadium alloys.
Also in 1966, Kozmetsky, whose 130,000 shares of Teledyne were by then worth well over $20 million, retired from the company to become dean of the College of Business Administration at the University of Texas. George A. Roberts, formerly president of Vasco, replaced him as president of Teledyne. Singleton continued on as chairman and CEO. By the end of 1966, Teledyne broke into the 293rd spot in the Fortune 500 ranking with sales of more than $256 million — nearly triple the total of just one year before.
GROWTH CONTINUES
In 1967, Teledyne continued its impressive growth. The company’s 16,000 employees were manufacturing microelectronic integrated circuits, microwave tubes, aircraft instruments, miniature television camera transmitters, hydraulic systems, computers, seismic measuring devices, specialty alloys, and a large variety of other sophisticated products. The company beat out IBM and Texas Instruments for a government defense contract and became the prime contractor for the development of the Integrated Helicopter Avionics System (IHAS). The IHAS was a helicopter control system that used computers to provide “precise navigation, formation flight, terrain following, and fire control” in virtually any kind of weather.
Also in 1967 — in a move Business Week magazine called a “coup” — Teledyne purchased the Wah Chang Corporation, a leading producer of tungsten and columbium, and the world’s top producer of hafnium, zirconium, and other exotic metals. Teledyne also moved into the insurance business by purchasing 21 percent of United Insurance Company for $40 a share.
In 1969, Teledyne’s sales surpassed the $1 billion mark. The company subsequently stopped its aggressive acquisition program and paid off its short term debts. Wall Street analysts predicted that the acquisition phase was over and that Singleton was turning Teledyne into an operating company. Teledyne’s financial condition was quite strong. From 1961 to 1971, the company led the Fortune 500 ranking in earnings and earnings per share growth. During the recession in the early 1970s, while many conglomerates were experiencing financial difficulties, Teledyne remained strong, net profits remaining near $60 million.
BUMPS IN THE ROAD
In 1972, Argonaut, one of Teledyne’s six financial companies, decided to expand from the worker’s compensation field into the medical malpractice insurance business. At the same time, the frequency and size of malpractice claims were growing — but premiums did not keep pace. In 1974, Argonaut took a $104 million pretax write-off, resulting in a $31.2 million net loss in insurance operations and a reduction of Teledyne’s net profit for the year to $31.5 million. Nine of Argonaut’s 11 top officers were fired, and Singleton began running the operations from the company’s headquarters in Los Angeles. Argonaut, one of the last large companies in the malpractice market, discontinued underwriting physicians’ individual policies. It continued to offer coverage to the 25 percent of the nation’s hospitals it covered, but at higher rates and covering fewer risks. In the meantime, the company collected $170 million in reserves against malpractice cases.
Teledyne’s problems were compounded in 1973 when the consumer products division lost $1.8 million, mostly because of its Packard-Bell television production unit’s failure to capture a large enough share of the West Coast television market. Teledyne reduced production and narrowed the loss to $500,000 the next year.
With these problems solved, Teledyne’s outlook improved. Net income soared to $101.7 million on sales of $1.71 billion in 1974. The largest share of profit came from industrial products such as diesel and gasoline engines and machine tools. Insurance operations had improved and were contributing $19 million. The consumer products division showed a healthy profit of $13.1 million because of Water Pik, which had sold a million shower heads at $25 to $40 each.
By 1978, Singleton’s strategy of bringing in new management to replace underachievers appeared to be working. Without a single acquisition, company sales had soared to $2.2 billion.
Singleton took advantage of the company’s regained financial strength and used $400 million of the company’s earnings to purchase large stakes in 11 companies. By 1978, through Teledyne, Singleton had gained effective control of five other companies, owning 22 percent of Litton’s common stock, 28.5 percent of Curtiss-Wright, nearly 20 percent of Walter Kidde, 22 percent of Brockway Glass, and 20 percent of Reichhold Chemicals. In addition, he purchased 8 percent of GAF, 5.5 percent of Rexnord, 7 percent of Federal Paper Board, 5 percent of Colt Industries, and 8 percent of Eltra.
One of the worst problems the company has faced occurred in 1980. Until then, its Continental Motors division in Muskegon, Michigan, supplied diesel engines to all U.S. military tanks, an important contributor to Teledyne’s earnings. When the turbine-powered M1 was introduced that year, Continental was relegated to the replacement-engine market for existing tanks.
In addition, Wah Chang, which had once enjoyed a virtual monopoly on the free-world production of zirconium, a crucial metal in building nuclear reactors, had lost a large portion of its market share to French companies, which controlled 40 percent of the market. Westinghouse Electric Corporation’s completion of a new plant threatened to reduce Chang’s market share to less than half of the $150 million free-world output. In 1981, the insurance operations, which contributed 25 percent of Teledyne’s total revenue, were once again in trouble. These companies, which were not performing well within their industry, lost $79.2 million before taxes.
The manufacturing plants and service companies continued to perform poorly in several important markets. Water Pik was showing a profit but only by reducing product development, advertising, and marketing expenditures drastically. Ryan Aeronautical, formerly the premier producer of robot aircraft used for military target practice and reconnaissance, lost most of its market share. Ryan’s Firebee model controlled 75 percent of the market in the early 1970′s, but Teledyne’s emphasis on accumulating cash opened the field to more innovative competitors. Northrop Corporation, for instance, introduced less expensive and easier to launch alternatives that used sophisticated electronics to match the Firebee’s capabilities.
In 1983, Teledyne’s sales fell from $3.24 billion to $2.86 billion, while net profit fell 37 percent to $248.7 million. High level executives complained increasingly that Singleton was only involved in management when problems developed. Singleton reacted, remaining chairman but handing over day-to-day management operations to George Roberts in 1986. Roberts, formerly the head of Vasco Metals and part of the company’s specialty metals business, jumped in as chief executive officer and attempted to right Teledyne’s financial difficulties.
THE ERA OF DOWNSIZING
Teledyne began to rebound under Roberts’ leadership. In 1986, the company spun off Argonaut Insurance and began to divest some of the numerous operations it had acquired over the previous 15 years. By 1988, Teledyne was back on track when it reported a profit of $392 million on revenues of $4.5 billion. In 1990, the company spun off its Unitrin insurance group to shareholders and then disposed of its industrial rubber and oilfield equipment units. Even then, Roberts had not completed the company’s restructuring. In 1991, he announced that Teledyne planned to close or sell 24 of its facilities.
HANDLING LEGAL PROBLEMS
Numerous lawsuits were filed against Teledyne, including accusations of falsifying test results on missile relays, selling defective equipment, lying to cover up commissions on sales of military goods to Taiwan, and bribing both Saudi Arabian and Egyptian officials to procure contracts.
While continuing with his plans to restructure the company, Roberts also dealt straightforwardly with Teledyne’s legal woes. After 1992, Teledyne pled guilty to many lawsuits, and paid nearly $30 million to settle charges. The settlement of a federal probe into its Relays Division significantly reduced profits in 1992, but management thought this move was necessary because the U.S. government accounted for more than one-third of Teledyne’s business that year.
In 1993, Roberts retired and was replaced by William P. Rutledge, who had worked at Teledyne in specialty metals since 1986. Rutledge brought in Donald Rice, a former secretary of the U.S. Air Force, to serve as president and chief operating officer. Immediately, the two men set out to repair Teledyne’s damaged reputation. Under Rutledge and Rice, Teledyne’s operations were consolidated from 65 units into 21 companies, reduced from a high of 130 in 1990. Teledyne posted net income of $162 million on revenues of $2.57 billion in 1995, with 18,000 employees.
In August 1996, Teledyne, Inc. was acquired by Allegheny Ludlum Corp., a Pittsburgh-based producer of stainless and specialty steels. The two companies each became wholly owned subsidiaries of Allegheny Teledyne Inc., a nearly $4 billion business with a total of 24,000 employees. In 1999, Allegheny Teledyne spun off two divisions in order to focus on its specialty metals business. The consumer division became Water Pik Technologies. At the same time, three aerospace and electronics businesses were spun off into the newly created Teledyne Technologies, Inc.
The businesses that formed Teledyne Technologies included Electric Technologies, Brown Engineering, Continental Motors, and Cast Parts. Their combined 1998 revenues were $800 million.
Shortly after the spin-off, Teledyne completed a secondary public offering that brought in a net of about $90 million. The company invested $20 million in fiber optics in a bid to enter the then booming broadband communications business. Fuel cells were another area of interest. In 2001, Teledyne combined its energy systems business with that of Energy Partners, Inc., a Florida company dedicated to commercializing proton exchange membrane (PEM) fuel cell components and systems.
Teledyne then deepened its involvement in the growing environmental monitoring and pollution control market by acquiring Advanced Pollution Instrumentation (API) and Monitor Labs. API alone had sales of about $16 million a year.
The defense electronics business grew, fueled by the F-22 fighter and Comanche helicopter programs. New military applications, such as monitoring submarines, were developed for the company’s Geophysical Instruments line. The Systems Engineering Solutions segment was chosen as a subcontractor for Boeing’s Ground-based Midcourse Defense (GMD) missile and continued Teledyne’s near 50-year relationship with NASA by winning prime contractor status for microgravity science payloads for the International Space Station.
Today the company’s principal subsidiaries are Advanced Pollution Instrumentation Inc., Aerosance Inc., Teledyne Brown Engineering Inc., Teledyne Continental Motors Inc., Teledyne Controls, Teledyne Electronic Technologies, Teledyne Electronic Technology, and Teledyne Energy Systems Inc. Its principal divisions are Aerospace Engines and Components, Electronics and Communications, Energy Systems, and Systems Engineering Solutions.
Phil Robertson, Editor
