A renewed focus on aviation helps to give Teledyne a lift.

ONCE the iconic conglomerate behind brands such as Water Pik and Shower Massage, Teledyne Technologies Inc. has returned to its roots, paring back and refocusing on its traditional aviation business.

A two-year restructuring is bearing fruit, despite continuing woes in the aviation market. For the third quarter ended Sept. 30, Los Angeles-based Teledyne reported net income of $9.9 million, a 43 percent increase over the like year-earlier period, while revenues increased 12 percent to $215.7 million.

The gains have resulted from the decision to abandon the swooning telecom and semiconductor equipment markets. Instead, Teledyne has focused on garnering more military electronics contracts and expanding its instruments business.

Driving growth in particular are contracts for electronic devices such as fiber-optic transmitters used in the F-22 Raptor stealth fighter. Over the last few months, it won a $4 million contract with Harris Corp. to produce transmitters and receivers for communications equipment used in the Joint Strike Fighter and a $2.4 million contract with the Navy to supply "recovery sequencers" used to control the timing of parachute openings.

Also showing strength is the instrument division, which manufactures sensors used in oil exploration and water treatment plants. Teledyne has expanded that business by snapping up cast-offs such as the Tekmar division of Emerson Electric, which it acquired in June for $13.5 million.

The strength of the electronics and instruments led to a 25 percent increase in revenues for the electronics and communications division, which accounts for more than half of its sales.

"The defense build-up has certainly helped their electronics business," said A.G. Edwards analyst Mark Jordan. "And the acquisitions on the instrument side have complemented what they already had."

Full circle

Teledyne, founded in 1960 by former Litton engineers Henry Singleton and George Kozmetsky, along with venture capitalist Arthur Rock, relied on defense operations to finance acquisitions that transformed the company into a purveyor of bathroom gadgets as well as the military gear. That era culminated in a 1997 merger with Allegheny-Ludlum, but within two years Teledyne Technologies and the consumer products operations had each been spun off from what is now called Allegheny Technologies.

From here, the plan is to expand Teledyne's presence in aviation, especially its avionics division, which makes flight control systems used on commercial jets. It already controls 50 percent of the market for so-called data acquisition systems and expects to expand that share slightly by year-end. In June, it spent $6.8 million to buy the avionics operations of British electronics firm Spirent Plc.

But the aviation market has been challenging, thanks to the recession and the collapse of air travel after the 2001 terrorist attacks. Teledyne has also suffered because most of its avionics business is tied to aircraft giant Boeing Co., which has been losing market share to European rival Airbus S.A.S.

To offset the declines, Teledyne has gotten itself certified by Airbus to supply avionics for its planes. That resulted in a deal last June with the leasing unit of insurance giant American International Group to supply "flight data interface management units" for its collection of Airbus planes held by its International Lease Finance Corp. subsidiary

Teledyne also has struggled with its engine division, which largely involves manufacturing and refurbishing engines used in small planes and which lost $400,000 in the third quarter, compared with a loss of $100,000 for the like period a year ago.

To spur sales, Teledyne teamed up with Honda Motor Co. to develop a low-end line of aircraft engines. But even an increase in engine sales won't be able to offset rising insurance premiums related to the 9/11 attacks. Teledyne's own monthly tab has risen 75 percent within the past year.

"This is the hardest insurance market we have went through," Chairman Robert Mehrabian said last month in a conference call. "Even if the market improves, we can't anticipate what insurance costs will be."

Those woes have weighed on Teledyne's stock. Its closing price of $16.98 on Dec. 3 represents just an 8.3 percent increase so far this year, lagging the overall market.

Teledyne Technologies Inc.

YEAR (Dec. 31)                 2002     2001

Revenues (millions)           $772.7   $744.3
Total Expenses (millions)      729.8    733.5
Operating Income (millions)     25.4      6.8
Net Income (millions)           25.4      6.6
Earnings Per Share             $0.77    $0.20

SUMMARY

Business: Defense electronics and aviation
Headquarters: Los Angeles
CEO: Robert Mehrabian
Market Cap: $547.3 million Dividend Yield: N/A *
Total Liabilities: $239.6 million P/E Ratio: 20.7
Long-Term Debt: $0

* Company does not pay a dividend.