Teledyne Tons List Thanks To Spinoff Circumstances.

Teledyne Technologies Inc. may be a new kid on the block, but last year it reported a better return on equity than any other public company in Los Angeles County.

Until last year, Teledyne, an aerospace and electronics firm whose products include communications systems for commercial airlines and turbine engines for missiles, was a unit of specialty metals producer Allegheny Technologies in Pittsburgh.

But on Nov. 29, Teledyne Technologies was spun off as an independent company headquartered in Century City. And that spinoff is one of the reasons Teledyne's return on equity was a whopping 110.1 percent, analysts said. That number is something of an accounting fluke that's unlikely to be repeated.

"Since the equity portion of the new company is so low and the debt so high, it tends to distort that particular (ROE) value," said Bane of America Securities analyst Jim Samuels.

Teledyne's favorable statistic is related to the formula by which return on equity is computed. The number is derived by dividing shareholder equity (assets minus liabilities) into annual net income. Teledyne had extremely low shareholder equity following the spinoff.

As part of an agreement that allowed its parent company to avoid paying taxes on the spinoff, Teledyne has to issue a secondary stock offering some time this year. That offering "will change their equity, and their (ROE) calculations will be less interesting next year," Samuels said.

In the spinoff, shareholders of the former Pittsburgh parent' received one share of common stock in Teledyne for every 20 shares in Allegheny.

Teledyne officials admit their company's equity is unnaturally low and that their ROE will probably subside in the near future.

"Our ROE was affected probably by conservative investment, spinoff accounting and rapid depreciation," said Jason Von Wees, Teledyne's financial planning manager.

In addition to the secondary offering, other factors expected to lower the company's ROE this year are its plans to expand aggressively in two high-growth areas: wireless communications and fiber optics. These plans will add costs that will cut into profits.

"We have been involved in the assembly of fiber-optic components for the military for many years," Van Wees said. "Going forward, we hope to be more involved in the commercial side of it."

The company is headed by Robert Mehrabian, a former professor of metallurgy and mechanic engineering. Mehrabian was president of Carnegie Mellon University in Pittsburgh before being hired by Allegheny in 1997 as a senior vice president and segment executive in charge of aerospace and electronics.

Under his leadership, the new company has been profitable. Teledyne last week reported net income of $10.2 million (38 cents per diluted share) for the first quarter ended April 2, up from $9.7 million (35 cents) for the pro forma like period a year ago. Revenue was $203.5 million vs. $202 million.

Several analysts agreed that the newly independent company has a bright future. Teledyne was acquired in 1996 by Allegheny, but after a few years, Allegheny decided that the aerospace and electronics side of the corporation would be better off as a separate company.

"It is going to be behaving differently as a public entity than as a subsidiary," Samuels said. "I think you are going to see the company performing better going forward, and having more financial flexibility."

Already, Teledyne has won several contracts. The U.S. Army in February awarded Teledyne-Commodore, a joint venture between Teledyne and Commodore Applied Technologies Inc., a $7.9 million contract to test technology for destroying chemical weapons.

Teledyne also reached an agreement with Lockheed Martin Corp. in March to supply turbine engines for the Joint Air-to-Surface Standoff missile program. If government funding continues, that project could reap Teledyne $100 million in revenues over the next decade. Production of the new engine is expected to begin in about a year.

But Teledyne also lost a contract late last year. Raytheon Co. told Teledyne to stop work on its Tactical Tomahawk engine-development contract because Raytheon decided to use a different engine on the missile. The lost contract cost Teledyne about $50 million in projected revenues, Van Wees said.

The company's shares have doubled in the nearly five months since the spinoff, jumping from $8.81 to about $18 as of last week.

Teledyne has many facets. Its engineering services to the U.S. space program range from mission planning to training astronauts for the space shuttle. Teledyne also provides battle simulation and other software and makes microelectric modules used in fiber-optic systems and pacemakers. In addition, it manufactures piston engines, ignition systems and spare parts.

That diversity is both good and bad, according to Goldman Sachs & Co. analyst Howard A. Rubel. Because of the company's multifaceted nature, it has no single large program or project that can swing against it or give it an inordinately large boost, Rubel stated in a recent report.

Analysts' consensus estimate is for the company's revenues to rise to $852 million in 2000, and $900 million in 2001 -- up from $803 million in 1999, and operating profits are expected to grow faster than revenues because of efficiency and cost-cutting measures that have been instituted. Last year, the U.S. government accounted for about 40 percent of the company's revenues.