Stock-Based Compensation Plans

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Plans

Stock-Based Compensation Plans

Teledyne has long-term incentive plans pursuant to which it has granted non-qualified stock options, restricted stock and performance shares to certain employees. The Company also has non-employee director stock compensation plans, pursuant to which non-qualified stock options and common stock have been issued to its directors.

Stock Incentive Plan

The following disclosures are based on stock options granted to Teledyne’s employees and directors. The Company recorded a total of $2.3 million and $5.9 million in stock option compensation expense for the third quarter and first nine months of 2012, respectively. For the third quarter and first nine months of 2011, the company recorded a total of $1.5 million and $4.3 million, respectively in stock option expense. The lower amount in 2011 primarily reflected the absence of employee stock option grants in 2009. Employee stock option grants are expensed evenly over the three year vesting period. In 2012, the Company currently expects approximately $8.7 million in stock option compensation expense based on stock options already granted and current assumptions regarding the estimated fair value of stock option grants expected to be issued during the remainder of the year. However, our assessment of the estimated compensation expense will be affected by our stock price and actual stock option grants during the remainder of the year as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the volatility of our stock price and employee stock option exercise behaviors. 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 and 2011:

	2012		2011
Expected dividend yield	—		—
Expected volatility	34.1	%	36.8	%
Risk-free interest rate	1.1	%	2.1	%
Expected life in years	6.7		6.0

Based on the assumptions in the table above, the grant date weighted average fair value of stock options granted in 2012 and 2011 was $23.90 and $18.81, respectively.

Stock option transactions for Teledyne’s employee stock option plans for the third quarter and nine months ended September 30, 2012 are summarized as follows:

	2012
	Third Quarter			Nine Months
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Beginning balance	2,514,095	$	44.10	2,322,845	$	38.19
Granted	5,000	$	64.90	500,006	$	64.73
Exercised	(85,848)	$	29.88	(364,153)	$	31.52
Cancelled or expired	(17,692)	$	50.03	(43,143)	$	43.12
Ending balance	2,415,555	$	44.60	2,415,555	$	44.60
Options exercisable at end of period	1,501,517	$	37.61	1,501,517	$	37.61

Stock option transactions for Teledyne’s non-employee director stock option plans for the third quarter and nine months ended September 30, 2012 are summarized as follows:

	2012
	Third Quarter			Nine Months
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Beginning balance	410,504	$	36.80	404,692	$	32.85
Granted	5,476	$	49.28	42,767	$	59.48
Exercised	(10,511)	$	26.07	(41,990)	$	17.54
Ending balance	405,469	$	37.24	405,469	$	37.24
Options exercisable at end of period	361,896	$	34.61	361,896	$	34.61

Performance Share Plan and Restricted Stock Award Program

The first of three annual installments of the 2009 to 2011 Performance Share Plan was paid entirely in cash in the first quarter of 2012. Also in the first quarter of 2012, the restriction was removed for 32,599 shares of Teledyne common stock and 6,605 shares were forfeited related to the 2009 to 2011 Restricted Stock Award Program.