This report is only 17 pages long: its brevity is laced with many positive developments. The efficiency with which the document conveys only the essential information regarding Teledyne’s performance mirrors the operational focus and success of the underlying company during the year. Sales and earnings both more than doubled. Singleton and Kozmetsky acquired land and companies to strengthen their foundation in precision electronic components and systems.
Many new shareholders joined the company, so Henry felt it was important to reiterate Teledyne’s purpose:
“From its inception the company has planned to become a major supplier, for military and industrial applications, of electronic end-item equipment and systems, and of the specialized electronic components that make up such systems.”
How would an investor classify Teledyne?
Top-line growth is often considered a positive development in business and many use revenue as the benchmark for categorizing a company’s industry. Henry wrote, in the annual shareholder letter:
“systems and equipment business during the fiscal year accounted for approximately two-thirds of our total sales volume.”1
Precision components “accounted for approximately one-third of total sales.”
But cash is oxygen. Revenue does not always produce cash flow and even if it does that is not enough: does the company have a better revenue and profit conversion to cashflow after its growth? It might do so in future but categorizing a company based on its revenue alone relies upon the implicit assumption that its revenue will generate cash later.
Henry signed off the letter to shareholders with ebullient optimism:
“we are entering our third year with a record-high backlog in excess of $12,000,000.”
Summary Statistics, 1962:
Sales $10,438,367
Net Income $331,518
Total Assets $10,843,760
Shareholders’ Equity $3,527,448
Average Shares Out. 654,857
There is not much information about Teledyne in this report but all that there is is useful in understanding the corporation’s foundations…
Henry and George — as per their original purpose in starting Teledyne — viewed the company as serving two markets — Electronic Systems and Precision Components.
In 1962, the Electronic Systems Division was composed of three parts:
Communications Equipment
Computers and Data Systems
Guidance and Control Systems
The Precision Components Division had four parts:
Electromechanical devices
Hydraulic and pneumatic aircraft and missile fittings
Transformers
Semiconductor devices and integrated circuits
Amelco Inc. was acquired in 1961 and formed the Electronic Devices Division of Teledyne Inc. During the year the number of people employed in that business increased from 50 to 200.2
Note the origin of the explosive growth:
“An important element facilitating this unusually rapid expansion has been the development and production of high-performance silicon planar transistors for our own computers and data systems.”3
Teledyne believed it had one of the fastest and lightest-weight silicon planar transistors available. This reflects Henry’s philosophy that profits are a second-order effect of a company’s actions to exploit a particular technology.
“we believe that our achievement of successful volume production of silicon field effect transistors represents a major step forward in device technology, and that these field effect devices may someday be as widely used as conventional transistors are today.”4
Henry Loved Real Estate of All Types
“We acquired a thirteen-acre site in Hawthorne, California for the expansion of our Electronic Systems Division. We have 45,000 square feet in operation there now, and can add an additional 200,000 square feet as the occasion arises.”
“For the expansion of the Electron Devices Division we acquired a fourteen acre site in Mountain View, California and are now constructing the initial 55,000 square food building of a research, development and production complex at this location.”
“Floor space now occupied by the company totals approximately 180,000 square feet.”5
Acquisitions:
(Components)
Linair Engineering – the transaction was made using Teledyne’s stock. This was a bolt-on acquisition for the precision components segment. It added to their pneumatic aircraft and missile fittings ability.
Crittenden Transformer – in exchange for Teledyne Stock. Transformers enable electrical energy to be transmitted between circuits without relying on the physical connection of materials (conduction). Energy is passed between two objects that aren’t touching.
(Systems)
American Systems Incorporated (renamed to Teledyne Systems Corporation) – all of the convertible preferred and nearly all of the common stock, for cash. This was acquired for digital computing know-how, electromagnetic systems technology, and control instruments propellant and oxidiser vapours.
“One of the most important early acquisitions was American Systems Inc., acquired in 1962. It became part of Teledyne Systems Company, which was the centrepiece of the company’s aerospace systems business, and one of the company’s most important profit centers.”6
1962 Investments:
Micronetics, Inc. (generation, detection, and utilization of extremely short pulses of microwave energy) 20% acquired with the option to purchase the rest under specific conditions.
Stock Options
In 1962, Henry explained Teledyne’s approach to options in attracting talent:
“The use of stock options to attract outstanding key personnel to our company has proven to be particularly effective. Without this ability it would have been extremely difficult, if not impossible, to have brought into the company so many highly qualified technical and management personnel in such a short period of time. The careful use of our option plan has been especially beneficial during the early stages of the company’s growth. As the company gains size and recognition, the number of options needed to serve our purpose of course diminishes.”
“At 31st October 1962 there were a potential 85,000 shares available for key employees to acquire for a total consideration of $1,080,450… We believe that the number of shares remaining of the 150,000 originally reserved by the shareholders for stock options will be adequate to serve the company’s needs for several years to come. None of the directors have stock options.”7
Dear Intelligent Investor,
Thank you for reading.
You can access this report and more due to the generosity of Adam Mead here:
Henry Singleton, Teledyne Inc. 1962 Annual Report, pg. 3.
Henry Singleton, Teledyne Inc. 1962 Annual Report, pg. 4.
Henry Singleton, Teledyne Inc. 1962 Annual Report, pg. 4.
Henry Singleton, Teledyne Inc. 1962 Annual Report, pg. 5.
Henry Singleton, Teledyne Inc. 1962 Annual Report, pp. 3-5.
George Roberts, Distant Force (2007), pg. 20.
Henry Singleton, Teledyne Inc. 1962 Annual Report, pg. 6.