Stockholders’ Equity

The following is an analysis of Teledyne’s common stock and treasury stock share activity:



	Stock	Treasury Stock
Balance, January 1, 2012	37,027,015	577,923
Issued	135,682	(577,923	)
Balance, December 30, 2012	37,162,697	—
Issued	408,485	—
Balance, December 29, 2013	37,571,182	—
Acquired	—	1,396,290
Issued	126,683	(354,009	)
Balance, December 28, 2014	37,697,865	1,042,281

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

Treasury Stock

In October 2011, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to 2,500,000 shares of its common stock. In 2011, Teledyne repurchased 658,562 shares of Teledyne common stock for $34.9 million under the program. No repurchases were made in 2013 or 2012.

In September 2014, the Company entered into a $101.6 million accelerated share repurchase agreement (“ASR”) with a financial institution (“ASR Counterparty”) in a privately negotiated transaction for 1,030,000 shares of the Company’s common stock at an initial price of $98.62 per share. Pursuant to the ASR agreement, in September 2014, the Company advanced $101.6 million to the ASR counterparty and received 927,000 shares of common stock, which used $91.4 million of the $101.6 million advanced, representing 90% of the estimated shares to be repurchased under the ASR agreement. The up-front payment was accounted for as a reduction to stockholders’ equity in the Company’s Condensed Consolidated Balance Sheet in the period the payment was made. The total number of shares of common stock that the Company will repurchase under the ASR will be based on the average of the daily volume-weighted average prices of the common stock during the term of the ASR, less a discount. At settlement, the ASR Counterparty may be required to deliver additional shares of the Company’s common stock to the Company or, under certain circumstances, the Company may be required to deliver shares of its common stock or make a cash payment to the ASR Counterparty. Final settlement of the ASR agreement is expected to occur in June 2015, although the settlement may be accelerated at the ASR Counterparty’s option. The Company has treated the ASR as a treasury share repurchase of common stock in the period the shares are delivered for purposes of calculating earnings per share and as a forward contract indexed to its own common stock. The ASR meets all of the applicable criteria for equity classification, and, therefore, is not accounted for as a derivative instrument.

In 2014, the Company spent $146.6 million, which includes $101.6 million advanced under the accelerated share repurchase agreement, to repurchase a total of 1,396,290 shares of its common stock at an average price $97.70 per share common stock. Teledyne issues shares for share-based compensation plans from treasury stock. Teledyne has 1,042,281 shares of treasury stock at December 28, 2014. At December 28, 2014, 342,148 shares remain available for repurchase under the 2011 repurchase program.

On January 27, 2015, Teledyne’s Board of Directors approved an additional stock repurchase program authorizing the Company to repurchase up to an additional 2,500,000 shares of its common stock, noting that 342,148 shares remain available for repurchase under the 2011 repurchase program. On February 2, 2015, the Company entered into a $142.0 million ASR agreement with a financial institution in a privately negotiated transaction for 1,500,000 shares of the Company's common stock under at an initial price of $94.68 per share. Pursuant to the ASR agreement, in February 2015, the Company advanced $142.0 million to the ASR counterparty and received 1,425.000 shares of common stock, which used $134.9 million of the $142.0 million advanced, representing 95% of the estimated shares to be repurchased under the ASR agreement. The ASR was funded by cash on hand and floating rate borrowings of $120.0 million under the$750 million credit facility. The 2011 and 2015 repurchase programs are 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 and borrowing capacity 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.

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 2014, 2013 or 2012.

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. Employee 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 2014 were similar to those used in estimating the fair value of stock options granted in 2013 and 2012. Stock option compensation expense is recorded on a straight line basis over the appropriate vesting period, generally three years. The Company recorded $14.0 million, $10.7 million, and $8.0 million for stock option expense, for 2014, 2013 and 2012, 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 granted. The period used for the historical stock price corresponded to the expected term of the options. 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 2014, 2013 and 2012:



For the year	2014		2013		2012
Expected dividend yield	—		—		—
Expected volatility	30.7	%	31.9	%	34.1	%
Risk-free interest rate	1.7	%	0.9	%	1.1	%
Expected life in years	7.4		7.3		6.7

Based on the assumptions in the table above, the grant date weighted average fair value of stock options granted in 2014, 2013 and 2012 was $36.19, $27.17 and $23.90, respectively.

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



	2014				2013				2012
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Beginning balance	2,419,372		$	53.77	2,203,005		$	45.90	2,322,845		$	38.19
Granted	567,008		$	94.22	573,724		$	75.17	500,006		$	64.73
Exercised	(406,167	)	$	44.01	(313,265	)	$	37.10	(542,205	)	$	29.92
Canceled or expired	(80,505	)	$	74.72	(44,092	)	$	57.68	(77,641	)	$	48.19
Ending balance	2,499,708		$	63.85	2,419,372		$	53.77	2,203,005		$	45.90
Options exercisable at end of period	1,477,205		$	49.81	1,414,002		$	43.40	1,323,965		$	39.07

The following table provides certain information with respect to stock options outstanding and stock options exercisable at December 28, 2014, under the employee stock option plans:



	Stock Options Outstanding				Stock Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining life in years	Shares	Weighted Average Exercise Price
$20.01-$30.00	17,975	$	26.99	0.2	17,975	$	26.99
$30.01-$40.00	360,873	$	36.88	1.8	360,873	$	36.88
$40.01-$50.00	503,405	$	44.65	5.7	503,405	$	44.65
$50.01-$60.00	205,829	$	50.82	3.3	205,829	$	50.82
$60.01-$70.00	359,980	$	64.73	7.4	230,031	$	64.74
$70.01-$80.00	500,588	$	75.17	8.4	159,092	$	75.17
$90.00-$95.74	551,058	$	94.27	9.4	—	$	—
	2,499,708	$	63.85	6.5	1,477,205	$	49.81

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 until January 1, 2015 received stock or stock options in lieu of their respective retainer and meeting fees. The stock 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:



	2014				2013				2012
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Beginning balance	324,381		$	45.06	308,908		$	39.35	404,692		$	32.85
Granted	45,010		$	89.19	42,166		$	71.22	43,548		$	59.17
Exercised	(18,088	)	$	24.59	(26,363	)	$	20.86	(139,332	)	$	26.66
Canceled or expired	(134	)	$	61.80	(330	)	$	40.70	—		$	—
Ending balance	351,169		$	51.76	324,381		$	45.06	308,908		$	39.35
Options exercisable at end of period	310,159		$	46.88	282,215		$	41.07	265,360		$	36.10

The following table provides certain information with respect to stock options outstanding and stock options exercisable at December 28, 2014, 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 in years	Shares	Weighted Average Exercise Price
$17.99-$20.00	5,248	$	19.46	5.5	5,248	$	19.46
$20.01-$30.00	47,712	$	26.71	2.7	47,712	$	26.71
$30.01-$40.00	67,813	$	34.47	3.5	67,813	$	34.47
$40.01-$50.00	84,589	$	46.08	5.0	84,589	$	46.08
$50.01-$60.00	30,797	$	53.65	3.8	30,797	$	53.65
$60.01-$70.00	41,010	$	64.23	7.7	34,000	$	64.56
$70.01-$80.00	36,000	$	75.13	8.3	36,000	$	75.13
$80.01-$94.24	38,000	$	94.08	9.3	4,000	$	94.24
	351,169	$	51.76	5.4	310,159	$	46.88

The total pretax intrinsic value of options exercised during 2014 and 2013 (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was $23.2 million and $14.2 million, respectively. At December 28, 2014, the intrinsic value of stock options outstanding was $120.5 million and the intrinsic value of stock options exercisable was $98.9 million. During 2014 and 2013, the amount of cash received from the exercise of stock options was $18.3 million and $12.1 million, respectively.

At December 28, 2014, there was $23.5 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 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 January1, 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, the Company issued 19,742 shares. In February 2015, the performance cycle for the three-year period ending December 31, 2017, was set. Under the plan, and based on actual performance, the target number of shares that could be issued in three equal installments in 2017, 2018 and 2019, was 33,411.

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 $6.2 million, $3.2 million and $3.2 million in compensation expense related to the PSP program for fiscal years 2014, 2013 and 2012, respectively.

Restricted Stock Award Program

Under Teledyne’s restricted stock award program selected officers and key executives receive a grant of stock equal to a specified percentage 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 28, 2014, total of 108,726 shares of restricted stock were issued and outstanding.

The following table summarizes Teledyne’s restricted stock activity:



	Shares		Weighted average fair value per share
Balance, January 1, 2012	117,432		$	32.82
Granted	37,304		$	51.38
Issued	(32,610	)	$	30.97
Forfeited/Canceled	(357	)	$	30.97
Balance, December 30, 2012	121,769		$	39.01
Granted	48,325		$	66.65
Issued	(39,867	)	$	29.62
Forfeited/Canceled	(944	)	$	29.62
Balance, December 29, 2013	129,283		$	52.31
Granted	37,688		$	88.05
Issued	(40,197	)	$	37.22
Forfeited/Canceled	(18,048	)	$	56.68
Balance, December 28, 2014	108,726		$	69.55

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 $2.8 million, $2.1 million and $1.4 million in compensation expense related to the restricted stock award program for fiscal years 2014, 2013 and 2012, respectively. At December 28, 2014, there was $2.2 million of total unrecognized compensation cost related to non-vested awards which is expected to be recognized over a weighted-average period of approximately 1.0 year.