Sales decreased 2.5% in the first quarter, as growth in our defense and government business did not offset contracting commercial markets amid the global recession, said Robert Mehrabian, chairman, president and chief executive officer. Nonetheless, first quarter earnings were consistent with our outlook issued in January, since we acted swiftly to adjust our cost structure. Employment reductions over the last several months have already equaled six percent of our North American workforce, and we have eliminated the 2009 annual salary increases and the annual grant of employee stock option awards. In addition, by the end of the second quarter 2009, we expect to have closed or relocated five operating sites. Since late last year, we have absorbed operating expenses of approximately $5.3 million, including $3.2 million in the first quarter of 2009, associated with severance, facility relocations and planned product line terminations. Given recent further deterioration in the general aviation, commercial aerospace and global infrastructure markets, 2009 will continue to be a very challenging year. However, we believe the strength of our defense and government businesses, along with aggressive cost controls, should allow Teledyne to outperform in such an environment.

Review of Operations (comparisons are with the first quarter of 2008, unless noted otherwise)

Electronics and Communications

The Electronics and Communications segment’s first quarter 2009 sales were $310.0 million, compared with $301.3 million, an increase of 2.9%. First quarter 2009 operating profit was $38.3 million, compared with operating profit of $40.3 million, a decrease of 5.0%.

The first quarter 2009 sales improvement resulted from revenue growth in electronic instruments and defense electronics, partially offset by lower sales of other commercial electronics. The revenue growth in electronic instruments was driven by organic sales growth and acquisitions made in 2008. Organic sales growth in electronic instruments primarily reflected increased sales of geophysical sensors for the energy exploration market, partially offset by lower sales of electronic instruments for the environmental monitoring and industrial markets. The revenue growth in defense electronics was primarily driven by acquisitions made in 2008. Lower sales of other commercial electronics reflected reduced sales of avionics, medical manufacturing services and other electronic components. The increase in segment revenue in the first quarter of 2009 from acquisitions made in 2008 was $16.3 million. Operating profit included pension expense under SFAS No. 87 and No. 158, of $2.4 million in the first quarter of 2009, compared with $0.8 million. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards (CAS) was $0.6 million in the first quarter of 2009, compared with $0.4 million.

Engineered Systems

The Engineered Systems segment’s first quarter 2009 sales were $88.8 million, compared with $83.5 million, an increase of 6.3%. Operating profit was $8.1 million for both the first quarter of 2009 and the first quarter of 2008.

The first quarter 2009 sales improvement primarily reflected revenue growth in certain manufacturing programs including gas centrifuge service modules for nuclear power applications. Operating profit in the first quarter of 2009 reflected the impact of higher revenue, which was offset by higher pension expense. Pension expense under SFAS No. 87 and No. 158, of $2.7 million in the first quarter of 2009, compared with $1.2 million. Pension expense allocated to contracts pursuant to CAS was $2.4 million in the first quarter of 2009, compared with $1.8 million.

Aerospace Engines and Components

The Aerospace Engines and Components segment’s first quarter 2009 sales were $26.0 million, compared with $46.5 million, a decrease of 44.1%. The first quarter 2009 operating loss was $4.3 million, compared with operating profit of $4.6 million.

Sales were lower in all end markets, including OEM piston engines and aftermarket engines and spare parts, due to lower demand in the general aviation market. The operating loss for the first quarter of 2009 primarily reflected the impact of significantly reduced sales.

Energy and Power Systems

The Energy and Power Systems segment’s first quarter 2009 sales were $15.5 million, compared with $20.5 million, a decrease of 24.4%. The first quarter 2009 operating results were breakeven, compared with operating profit of $2.2 million.

First quarter 2009 sales reflected lower commercial hydrogen generator sales, as well as lower sales in the turbine engine business. Operating results reflected the impact of lower sales and lower margins in the hydrogen generator and turbine engine businesses.

Additional Financial Information (comparisons are with the first quarter of 2008, unless noted otherwise)

Cash Flow

Cash used by operating activities was $7.6 million for the first quarter of 2009, compared with cash provided by operating activities of $22.6 million. The lower cash provided by operating activities in 2009 was primarily due to higher pension contributions of $77.8 million, partially offset by an income tax refund of $30.9 million. Free cash flow (cash from operating activities less capital expenditures) was negative $20.7 million for the first quarter of 2009, compared with free cash flow of $13.9 million and reflected higher pension contributions, partially offset by an income tax refund. At March 29, 2009, total debt was $361.6 million, which includes $355.0 million drawn on available credit lines, as well as other debt and capital lease obligations. Cash and cash equivalents were $21.8 million at March 29, 2009. The company received $0.1 million from the exercise of employee stock options in the first quarter of 2009, compared with $1.8 million. The company paid $0.8 million to repurchase 36,239 shares of Teledyne common stock under a stock repurchase program announced in February 2009. In the first quarter of 2009, Teledyne Instruments acquired an additional 3.4% of ownership in Ocean Design Inc. (ODI) for $5.9 million. Teledyne now owns 89.3% of ODI. Capital expenditures for the first quarter of 2009 were $13.1 million, compared with $8.7 million. Depreciation and amortization expense for the first quarter of 2009 was $11.7 million, compared with $10.7 million.

Outlook

Based on its current outlook, the company’s management believes that second quarter 2009 earnings per diluted share will be in the range of approximately $0.64 to $0.68. The full year 2009 earnings per diluted share outlook is expected to be in the range of approximately $2.70 to $2.80. The outlook for the second quarter and full year 2009 reflects a reduction in sales for the company’s Aerospace Engines and Components segment. In addition, the full year outlook reflects a contraction in sales of marine instruments, which serve the offshore exploration market, especially in the second half of 2009. The company’s estimated effective tax rate for 2009 is expected to be 38.3%, excluding anticipated tax credits totaling $2.5 million during 2009.

The outlook reflects adjustments to our cost structure by making employment reductions and eliminating 2009 annual salary increases and the annual grant of employee stock option awards. In addition, by the end of the second quarter, it is expected that five operating sites will have either been closed or relocated.