Stockholder's Equity

The following is an analysis of Teledyne's common stock share activity:



		Shares
Balance, January 3, 2010		36,078,477
Stock options exercised and other		284,895
Balance, January 2, 2011		36,363,372
Stock options exercised and other		663,643
Balance, January 1, 2012		37,027,015
Stock options exercised and other		135,682
Balance, December 30, 2012		37,162,697

Shares issued in all three fiscal years include stock options exercised as well as shares issued under certain compensation plans.

Preferred Stock

Authorized preferred stock may be issued with designations, powers and preferences designated by the Board of Directors. There were no shares of preferred stock issued or outstanding in 2012, 2011 or 2010.

Treasury Stock

In October 2011, Teledyne's Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 2,500,000 shares of its common stock. Shares may be repurchased from time to time in open market transactions at prevailing market prices or in privately negotiated transactions. Shares could be repurchased in a plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The repurchase program is expected to remain open continuously, and the number of shares purchased will depend on a variety of factors, such as share price, levels of cash available, alternative investment opportunities available immediately or longer-term, and other regulatory, market or economic conditions. Repurchases would be funded with cash on hand and borrowings under the Company's credit facility. In 2011, Teledyne repurchased 658,562 shares of Teledyne common stock for $34.9 million under the program. Such repurchased shares became treasury stock. Teledyne issues shares for share-based compensation plans from treasury stock. Teledyne has no shares of treasury stock at December 30, 2012. No shares were repurchased in 2012 under the program.

Stock Incentive Plan

Teledyne has long-term incentive plans which provide its Board of Directors the flexibility to grant restricted stock, restricted stock units, performance shares, non-qualified stock options, incentive stock options and stock appreciation rights to officers and employees of Teledyne. Stock options become exercisable in one-third increments on the first, second and third anniversary of the grant and have a maximum 10 years life.

The valuation methodologies and assumptions in estimating the fair value of stock options granted in 2012 were similar to those used in estimating the fair value of stock options granted in 2011 and 2010. Stock option compensation expense is recorded on a straight line basis over the appropriate vesting period, generally three years. The Company recorded $8.0 million, $5.8 million, and $4.7 million for stock option expense, for 2012, 2011 and 2010, respectively. The Company issues shares of common stock upon the exercise of stock options.

The Company uses a combination of its historical stock price volatility and the volatility of exchange traded options, if any, on the Company stock to compute the expected volatility for purposes of valuing stock options issued. The period used for the historical stock price corresponded to the expected term of the options and was six years. The period used for the exchange traded options, if any, included the longest-dated options publicly available, generally three months. The expected dividend yield is based on Teledyne’s practice of not paying dividends. The risk-free rate of return is based on the yield of U.S. Treasury Strips with terms equal to the expected life of the options as of the grant date. The expected life in years is based on historical actual stock option exercise experience. The following assumptions were used in the valuation of stock options granted in 2012, 2011 and 2010:



For the year	2012		2011		2010
Expected dividend yield	—		—		—
Expected volatility	34.1	%	36.8	%	35.3	%
Risk-free interest rate	1.1	%	2.1	%	2.4	%
Expected life in years	6.7		6.2		6.0

Based on the assumptions in the table above, the grant date weighted average fair value of stock options granted in 2012, 2011 and 2010 was $23.90, $18.94 and $16.44, respectively.

Stock option transactions for Teledyne’s employee stock option plans are summarized as follows:



	2012				2011				2010
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Beginning balance	2,322,845		$	38.19	2,456,296		$	33.07	2,249,050		$	30.40
Granted	500,006		$	64.73	499,038		$	47.35	433,094		$	42.09
Exercised	(542,205	)	$	29.92	(576,575	)	$	23.89	(179,747	)	$	20.34
Canceled or expired	(77,641	)	$	48.19	(55,914	)	$	42.94	(46,101	)	$	36.74
Ending balance	2,203,005		$	45.90	2,322,845		$	38.19	2,456,296		$	33.07
Options exercisable at end of period	1,323,965		$	39.07	1,586,480		$	34.79	1,939,785		$	30.19

The following table provides certain information with respect to stock options outstanding and stock options exercisable at January 1, 2012 under the employee stock option plans:



	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining Life	Shares	Weighted Average Exercise Price
$13.45-$20.00	93,237	$	18.51	1.0	93,237	$	18.51
$20.01-$30.00	149,795	$	26.99	2.2	149,795	$	26.99
$30.01-$40.00	478,103	$	36.81	3.8	478,103	$	36.81
$40.01-$50.00	697,787	$	44.72	7.7	329,843	$	43.92
$50.01-$60.00	305,377	$	50.94	5.6	272,987	$	50.80
$60.01-$65.58	478,706	$	64.73	9.4	—	$	—
	2,203,005	$	45.90	6.3	1,323,965	$	39.07

Non-Employee Director Stock Compensation Plan

Teledyne also sponsors a stock plan for non-employee directors pursuant to which non-employee directors receive annual stock options and may receive stock or stock options in lieu of their respective retainer and meeting fees. The options become exercisable one year after issuance and have a maximum 10 years life.

Stock option transactions for Teledyne’s non-employee director stock option plans are summarized as follows:



	2012				2011				2010
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Beginning balance	404,692		$	32.85	440,825		$	28.15	418,817		$	26.66
Granted	43,548		$	59.17	42,759		$	45.19	41,364		$	39.53
Exercised	(139,332	)	$	26.66	(78,892	)	$	13.31	(17,356	)	$	14.55
Canceled or expired	—		$	—	—		$	—	(2,000	)	$	14.75
Ending balance	308,908		$	39.35	404,692		$	32.85	440,825		$	28.15
Options exercisable at end of period	265,360		$	36.10	361,933		$	31.39	399,461		$	27.06

The following table provides certain information with respect to stock options outstanding and stock options exercisable at December 30, 2012 under the non-employee director stock option plan:



	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining Life	Shares	Weighted Average Exercise Price
$8.37-$10.00	2,530	$	9.33	0.7	2,530	$	9.33
$10.01-$20.00	28,839	$	17.78	1.9	28,839	$	17.78
$20.01-$30.00	62,042	$	26.26	4.2	62,042	$	26.26
$30.01-$40.00	67,813	$	34.47	5.6	63,949	$	34.30
$40.01-$50.00	85,550	$	46.10	6.9	80,000	$	46.42
$50.01-$60.00	28,000	$	53.76	5.4	28,000	$	53.76
$60.01-$64.73	34,134	$	64.55	9.4	—	$	—
	308,908	$	39.35	5.7	265,360	$	36.10

The total pretax intrinsic value of options exercised during 2012 and 2011 (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was $22.3 million and $18.5 million, respectively. At December 30, 2012, the intrinsic value of stock options outstanding was $42.1 million and the intrinsic value of stock options exercisable was $38.9 million. During 2012 and 2011, the amount of cash received from the exercise of stock options was $19.9 million and $14.8 million, respectively.

At December 30, 2012, there was $8.0 million of total unrecognized compensation cost related to non-vested stock option awards which is expected to be recognized over a weighted-average period of 1.4 years.

Performance Share Plan

Teledyne's Performance Share Plan (“PSP”) provides grants of performance share units, which key officers and executives may earn if Teledyne meets specified performance objectives over a three-year period. Awards are payable in cash and to the extent available, shares of Teledyne common stock. Awards are generally paid to the participants in three annual installments after the end of the performance cycle so long as they remain employed by Teledyne (with exceptions for retirement, disability and death).

In January 2006, the performance cycle for the three-year period ending December 28, 2008 was set. Based on the performance over the three-year period, 53,834 shares were issued in 2009, 44,751 shares were issued in February 2010 and 47,589 shares were issued in February 2011.

In January 2009, the performance cycle for the three-year period ending January 1, 2012 was set. Based on the performance over the three-year period, at January 1, 2012 109,557 shares were calculated to be issued in three equal installments during 2012, 2013 and 2014. The first installment in 2012 was paid entirely in cash based upon the then current market price of $55.58 per share multiplied by 36,531 shares that would have been issued. In 2013, the Company issued 23,519 shares for the second installment. For the third and final installment in 2014, a maximum of 36,493 remain to be issued.

The calculated expense for each plan year was based on the expected cash payout and the expected shares to be issued, valued at the share price at the inception of the performance cycle, except for the shares that can be issued based on a market comparison. The expected expense for these shares was calculated using a Monte-Carlo type simulation which takes into consideration several factors including volatility, risk free interest rates and correlation of Teledyne's stock price with the comparator, the Russell 2000 Index. No adjustment to the calculated expense for the shares issued based on a market based comparison will be made regardless of the actual performance. The Company recorded $3.2 million, $3.7 million and $2.6 million in compensation expense related to the PSP program for fiscal years 2012, 2011 and 2010, respectively. The higher amount for 2011 reflected the impact of converting the 36,531 shares into the cash payment for the first installment paid in 2012. At December 30, 2012 based on the estimated performance over the three year performance period, there was $6.5 million unrecognized compensation cost related to the PSP program.

Restricted Stock Award Program

Under Teledyne's restricted stock award program selected officers and key executives receive a grant of stock equal to 30% of the participant's annual base salary at the date of grant. The restricted stock is subject to transfer and forfeiture restrictions during an applicable “restricted period”. The restrictions have both time-based and performance-based components. The restricted period expires (and the restrictions lapse) on the third anniversary of the date of grant, subject to the achievement of stated performance objectives over a specified three-year performance period. If employment is terminated (other than via death, retirement or disability) during the restricted period, stock is forfeited. At December 30, 2012, an aggregate of 121,769 shares of restricted stock were issued and outstanding at year-end 2012.

The following table summarizes Teledyne's restricted stock activity:



	Shares		Weighted average fair value per shares
Balance, January 3, 2010	101,340		$	31.77
Granted	41,885		$	29.62
Issued	(31,307	)	$	27.71
Forfeited/Canceled	(2,916	)	$	27.71
Balance, January 2, 2011	109,002		$	32.22
Granted	43,654		$	37.22
Issued	(27,913	)	$	37.89
Forfeited/Canceled	(7,311	)	$	30.77
Balance, January 1, 2012	117,432		$	32.82
Granted	37,304		$	44.34
Issued	(32,610	)	$	30.97
Forfeited/Canceled	(357	)	$	30.97
Balance, December 30, 2012	121,769		$	36.85

The calculated expense for each plan year is based on a Monte-Carlo type simulation which takes into consideration several factors including volatility, risk free interest rates and the correlation of Teledyne's stock price with the comparator, the Russell 2000 Index. No adjustment to the calculated expense will be made regardless of actual performance. The Company recorded $1.4 million, $1.4 million and $1.2 million in compensation expense related to the restricted stock award program for fiscal years 2012, 2011 and 2010, respectively. At December 30, 2012, there was $1.4 million of total unrecognized compensation cost related to non-vested awards which is expected to be recognized over a weighted-average period of 1.3 years.