filings.toolsItem 15. Exhibits and Financial Statement Schedules
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Item 15. Exhibits and Financial Statement Schedules
(a) Exhibits and Financial Statement Schedules:
(1) Financial Statements
See the “Index to Financial Statements and Related Information” on page 58 of this Report, which is incorporated herein by reference.
(2) Financial Statement Schedules
See Schedule II captioned “Valuation and Qualifying Accounts” on page 99 of this Report, which is incorporated herein by reference.
(3) Exhibits
A list of exhibits filed with this Form 10-K or incorporated by reference is found in the Exhibit Index immediately following the certifications of this Report and incorporated herein by reference.
(b) Exhibits:
See Item 15(a)(3) above.
(c) Financial Schedules:
See Item 15(a)(2) above.
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION
| Page | ||
| Financial Statements and Related Information: | ||
| Management Statement | 59 | |
| Report of Independent Registered Public Accounting Firm | 60 | |
| Report of Independent Registered Public Accounting Firm | 61 | |
| Report of Independent Registered Public Accounting Firm | 62 | |
| Consolidated Statements of Income | 63 | |
| Consolidated Statements of Comprehensive Income | 63 | |
| Consolidated Balance Sheets | 64 | |
| Consolidated Statements of Stockholders’ Equity | 65 | |
| Consolidated Statements of Cash Flows | 66 | |
| Notes to Consolidated Financial Statements | 67 | |
| Financial Statement Schedule: | ||
| Schedule II - Valuation and Qualifying Accounts | 99 |
MANAGEMENT STATEMENT
RESPONSIBILITY FOR PREPARATION OF THE FINANCIAL STATEMENTS AND ESTABLISHING AND MAINTAINING ADEQUATE INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for the preparation of the financial statements included in this Annual Report. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of management. The other financial information contained in this Annual Report is consistent with the financial statements.
Our internal control system is designed to provide reasonable assurance concerning the reliability of the financial data used in the preparation of Teledyne financial statements, as well as to safeguard the Company’s assets from unauthorized use or disposition.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement presentation.
REPORT OF MANAGEMENT ON TELEDYNE TECHNOLOGIES INCORPORATED’S INTERNAL CONTROL OVER FINANCIAL REPORTING
We are also responsible for establishing and maintaining adequate internal control over financial reporting. We conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of January 3, 2016. In making this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) ( the COSO criteria) in Internal Control - Integrated Framework. Our evaluation included reviewing the documentation of our controls, evaluating the design effectiveness of our controls and testing their operating effectiveness. Our evaluation did not include assessing the effectiveness of internal control over financial reporting for the Bowtech and ICM acquisitions in 2015. These acquisitions, which are included in the 2015 consolidated financial statements of the Company, constituted less than 3% of total assets and less than 1% of both total revenues and net income of the Company as of and for the year ended January 3, 2016. We did not assess the effectiveness of internal control over financial reporting at these newly acquired entities due to the insufficient time between the date acquired and year-end and the complexity associated with assessing internal controls during integration efforts making the process impractical. Based on this evaluation we believe that, as of January 3, 2016, the Company’s internal controls over financial reporting were effective.
Deloitte and Touche LLP, our independent registered public accounting firm, has issued its report on the effectiveness of Teledyne’s internal control over financial reporting. Their report appears on page 60 of this Annual Report.
Date: February 29, 2016
| /S/ ROBERT MEHRABIAN |
| Robert Mehrabian |
| Chairman, President and Chief Executive Officer |
Date: February 29, 2016
| /S/ SUSAN L. MAIN |
| Susan L. Main |
| Senior Vice President and Chief Financial Officer |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Teledyne Technologies Incorporated
Thousand Oaks, California
We have audited the internal control over financial reporting of Teledyne Technologies Incorporated and subsidiaries (the "Company") as of January 3, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in the Report of Management on Teledyne Technologies Incorporated’s Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting for Bowtech and ICM (“the 2015 acquisitions”), which were acquired in February 2015 and June 2015, respectively, and are included in the 2015 consolidated financial statements of the Company and constituted less than 3% of total assets and less than 1% of both total revenues and net income of the consolidated financial statement amounts as of and for the year ended January 3, 2016. Accordingly, our audit did not include the internal control over financial reporting for the 2015 acquisitions. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Teledyne Technologies Incorporated’s Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended January 3, 2016 of the Company and our report dated February 29, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/ Deloitte & Touche LLP
Los Angeles, California
February 29, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Teledyne Technologies Incorporated
Thousand Oaks, California
We have audited the accompanying consolidated balance sheet of Teledyne Technologies Incorporated and subsidiaries (the "Company") as of January 3, 2016 and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for the year then ended. Our audits also included the financial statement schedule as of and for the year ended January 3, 2016 listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements and financial statement schedule present fairly, in all material respects, the financial position of Teledyne Technologies Incorporated and subsidiaries as of January 3, 2016, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of January 3, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte & Touche LLP
Los Angeles, California
February 29, 2016
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Teledyne Technologies Incorporated
We have audited the accompanying consolidated balance sheet of Teledyne Technologies Incorporated as of December 28, 2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 28, 2014. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2) for each of the two years in the period ended December 28, 2014. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teledyne Technologies Incorporated at December 28, 2014, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 28, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein for each of the two years in the period ended December 28, 2014.
/s/ Ernst & Young LLP
Los Angeles, California
February 26, 2015
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
| 2015 | 2014 | 2013 | ||||||||||
| Net Sales | $ | 2,298.1 | $ | 2,394.0 | $ | 2,338.6 | ||||||
| Costs and expenses | ||||||||||||
| Cost of sales | 1,427.8 | 1,487.1 | 1,500.0 | |||||||||
| Selling, general and administrative expenses | 588.6 | 612.4 | 598.3 | |||||||||
| Total costs and expenses | 2,016.4 | 2,099.5 | 2,098.3 | |||||||||
| Operating income | 281.7 | 294.5 | 240.3 | |||||||||
| Interest and debt expense, net | (23.9 | ) | (19.0 | ) | (20.4 | ) | ||||||
| Other income, net | 0.4 | 6.6 | 4.1 | |||||||||
| Income before income taxes | 258.2 | 282.1 | 224.0 | |||||||||
| Provision for income taxes | 62.7 | 66.5 | 39.5 | |||||||||
| Net income | 195.5 | 215.6 | 184.5 | |||||||||
| Noncontrolling interest | 0.3 | 2.1 | 0.5 | |||||||||
| Net income attributable to Teledyne | $ | 195.8 | $ | 217.7 | $ | 185.0 | ||||||
| Basic earnings per common share | $ | 5.55 | $ | 5.87 | $ | 4.96 | ||||||
| Weighted average common shares outstanding | 35.3 | 37.1 | 37.3 | |||||||||
| Diluted earnings per common share | $ | 5.44 | $ | 5.75 | $ | 4.87 | ||||||
| Weighted average diluted common shares outstanding | 36.0 | 37.9 | 38.0 |
The accompanying notes are an integral part of these financial statements.
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| 2015 | 2014 | 2013 | ||||||||||
| Net income | $ | 195.5 | $ | 215.6 | $ | 184.5 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign exchange translation adjustment | (83.6 | ) | (58.2 | ) | (15.2 | ) | ||||||
| Hedge activity, net of tax | (1.4 | ) | (2.0 | ) | (1.4 | ) | ||||||
| Pension and postretirement benefit adjustments, net of tax | (5.0 | ) | (97.5 | ) | 124.5 | |||||||
| Other comprehensive income (loss)(a) | (90.0 | ) | (157.7 | ) | 107.9 | |||||||
| Comprehensive income | 105.5 | 57.9 | 292.4 | |||||||||
| Noncontrolling interest loss | 0.3 | 2.1 | 0.5 | |||||||||
| Comprehensive income attributable to Teledyne, net of tax | $ | 105.8 | $ | 60.0 | $ | 292.9 |
(a) Net of income tax benefit of $3.5 million in 2015, income tax expense of $22.6 million for 2014 and income tax benefit of $81.1 million for 2013.
The accompanying notes are an integral part of these financial statements.
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
| 2015 | 2014 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 85.1 | $ | 141.4 | ||||
| Accounts receivable, net | 373.0 | 400.7 | ||||||
| Inventories, net | 309.2 | 311.8 | ||||||
| Prepaid expenses and other current assets | 60.9 | 87.8 | ||||||
| Total current assets | 828.2 | 941.7 | ||||||
| Property, plant and equipment, net | 321.3 | 336.5 | ||||||
| Goodwill, net | 1,140.2 | 1,150.6 | ||||||
| Acquired intangibles, net | 243.3 | 277.6 | ||||||
| Prepaid pension assets | 111.0 | 86.3 | ||||||
| Other assets, net | 74.5 | 69.5 | ||||||
| Total Assets | $ | 2,718.5 | $ | 2,862.2 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 136.5 | $ | 162.5 | ||||
| Accrued liabilities | 238.0 | 290.3 | ||||||
| Current portion of long-term debt, capital leases and other debt | 19.1 | 86.2 | ||||||
| Total current liabilities | 393.6 | 539.0 | ||||||
| Long-term debt and capital leases | 762.9 | 618.9 | ||||||
| Other long-term liabilities | 217.9 | 235.8 | ||||||
| Total Liabilities | 1,374.4 | 1,393.7 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, $0.01 par value; outstanding shares-none | — | — | ||||||
| Common stock, $0.01 par value; authorized 125 million shares; Issued shares: 37,697,865 at January 3, 2016, and 37,697,865 at December 28, 2014; Outstanding shares: 34,514,599 at January 3, 2016, and 36,655,584 at December 28, 2014 | 0.4 | 0.4 | ||||||
| Additional paid-in capital | 345.3 | 326.5 | ||||||
| Retained earnings | 1,721.5 | 1,525.7 | ||||||
| Treasury stock, 3,183,266 at January 3, 2016 and 1,042,281 at December 28, 2014 | (309.9 | ) | (102.1 | ) | ||||
| Accumulated other comprehensive loss | (413.2 | ) | (323.2 | ) | ||||
| Total Teledyne Stockholders’ Equity | 1,344.1 | 1,427.3 | ||||||
| Noncontrolling interest | — | 41.2 | ||||||
| Total Stockholders’ Equity | 1,344.1 | 1,468.5 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 2,718.5 | $ | 2,862.2 |
The accompanying notes are an integral part of these financial statements.
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Teledyne Technologies Incorporated Stockholders’ Equity | Noncontrolling Interest | Total Equity | |||||||||||||||||||||||||
| Balance, December 30, 2012 | $ | 0.4 | $ | 297.8 | $ | — | $ | 1,123.0 | $ | (273.4 | ) | $ | 1,147.8 | $ | 55.6 | $ | 1,203.4 | |||||||||||||||
| Net income (loss) | — | — | — | 185.0 | — | 185.0 | (0.5 | ) | 184.5 | |||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 107.9 | 107.9 | — | 107.9 | ||||||||||||||||||||||||
| Purchase of noncontrolling interest | — | — | — | — | — | — | (4.6 | ) | (4.6 | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment - noncontrolling interest | — | — | — | — | — | — | (3.5 | ) | (3.5 | ) | ||||||||||||||||||||||
| Stock option compensation expense | — | 10.7 | — | — | — | 10.7 | — | 10.7 | ||||||||||||||||||||||||
| Exercise of stock options and other, net | — | 20.3 | — | — | — | 20.3 | — | 20.3 | ||||||||||||||||||||||||
| Balance, December 29, 2013 | 0.4 | 328.8 | — | 1,308.0 | (165.5 | ) | 1,471.7 | 47.0 | 1,518.7 | |||||||||||||||||||||||
| Net income (loss) | — | — | — | 217.7 | — | 217.7 | (2.1 | ) | 215.6 | |||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (157.7 | ) | (157.7 | ) | — | (157.7 | ) | |||||||||||||||||||||
| Foreign currency translation adjustment - noncontrolling interest | — | — | — | — | — | — | (3.7 | ) | (3.7 | ) | ||||||||||||||||||||||
| Treasury stock purchases | — | (20.0 | ) | (102.1 | ) | — | — | (122.1 | ) | — | (122.1 | ) | ||||||||||||||||||||
| Stock option compensation expense | — | 14.0 | — | — | — | 14.0 | — | 14.0 | ||||||||||||||||||||||||
| Exercise of stock options and other, net | — | 3.7 | — | — | — | 3.7 | — | 3.7 | ||||||||||||||||||||||||
| Balance, December 28, 2014 | 0.4 | 326.5 | (102.1 | ) | 1,525.7 | (323.2 | ) | 1,427.3 | 41.2 | 1,468.5 | ||||||||||||||||||||||
| Net income (loss) | — | — | — | 195.8 | — | 195.8 | (0.3 | ) | 195.5 | |||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (90.0 | ) | (90.0 | ) | — | (90.0 | ) | |||||||||||||||||||||
| Purchase of noncontrolling interest | — | 17.6 | — | — | — | 17.6 | (39.6 | ) | (22.0 | ) | ||||||||||||||||||||||
| Foreign currency translation adjustment - noncontrolling interest | — | — | — | — | — | — | (1.3 | ) | (1.3 | ) | ||||||||||||||||||||||
| Treasury stock purchases | — | (36.0 | ) | (207.8 | ) | — | — | (243.8 | ) | — | (243.8 | ) | ||||||||||||||||||||
| Stock option compensation expense | — | 12.2 | — | — | — | 12.2 | — | 12.2 | ||||||||||||||||||||||||
| Exercise of stock options and other, net | — | 25.0 | — | — | — | 25.0 | — | 25.0 | ||||||||||||||||||||||||
| Balance, January 3, 2016 | $ | 0.4 | $ | 345.3 | $ | (309.9 | ) | $ | 1,721.5 | $ | (413.2 | ) | $ | 1,344.1 | $ | — | $ | 1,344.1 | ||||||||||||||
The accompanying notes are an integral part of these financial statements.
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| 2015 | 2014 | 2013 | ||||||||||
| Operating Activities | ||||||||||||
| Net income | $ | 195.5 | $ | 215.6 | $ | 184.5 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 90.3 | 94.3 | 91.1 | |||||||||
| Deferred income taxes | (7.9 | ) | (57.0 | ) | 17.4 | |||||||
| Stock option expense | 12.2 | 14.0 | 10.7 | |||||||||
| Excess tax benefits from stock options exercised | (4.3 | ) | (6.2 | ) | (5.4 | ) | ||||||
| Changes in operating assets and liabilities, excluding the effect of businesses acquired: | ||||||||||||
| Accounts receivable | 21.9 | (18.9 | ) | (7.1 | ) | |||||||
| Inventories | (6.4 | ) | (5.7 | ) | 0.6 | |||||||
| Prepaid expenses and other assets | (1.3 | ) | (2.8 | ) | 1.3 | |||||||
| Accounts payable | (26.8 | ) | 13.4 | (11.8 | ) | |||||||
| Accrued liabilities | (41.1 | ) | 8.6 | 5.1 | ||||||||
| Income taxes payable, net | (21.3 | ) | (7.5 | ) | 2.2 | |||||||
| Long-term assets | 3.7 | (1.5 | ) | (9.7 | ) | |||||||
| Other long-term liabilities | (5.0 | ) | 4.4 | 3.3 | ||||||||
| Pension benefits | 3.3 | 44.4 | (75.8 | ) | ||||||||
| Postretirement benefits | (2.0 | ) | 1.2 | (2.4 | ) | |||||||
| Other operating, net | (0.6 | ) | (8.4 | ) | (0.7 | ) | ||||||
| Net cash provided by operating activities | 210.2 | 287.9 | 203.3 | |||||||||
| Investing Activities | ||||||||||||
| Purchases of property, plant and equipment | (47.0 | ) | (43.5 | ) | (72.6 | ) | ||||||
| Purchase of businesses and other investments | (66.7 | ) | (195.8 | ) | (128.2 | ) | ||||||
| Proceeds from the sale of businesses and disposal of fixed assets | 3.8 | 0.6 | 5.8 | |||||||||
| Net cash used in investing activities | (109.9 | ) | (238.7 | ) | (195.0 | ) | ||||||
| Financing Activities | ||||||||||||
| Net proceeds on credit facility | 45.5 | — | — | |||||||||
| Proceeds on other debt | 9.7 | 29.5 | — | |||||||||
| Payments on other debt | (102.8 | ) | — | (5.0 | ) | |||||||
| Proceeds from issuance of senior notes | 125.0 | 125.0 | — | |||||||||
| Purchase of treasury stock | (243.8 | ) | (146.6 | ) | — | |||||||
| Proceeds from stock options exercised | 19.0 | 18.3 | 12.1 | |||||||||
| Excess tax benefits from stock options exercised | 4.3 | 6.2 | 5.4 | |||||||||
| Issuance of cash flow hedges | (0.5 | ) | (2.0 | ) | — | |||||||
| Other financing | (1.4 | ) | — | (1.4 | ) | |||||||
| Net cash provided (used) by financing activities | (145.0 | ) | 30.4 | 11.1 | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | (11.6 | ) | (4.2 | ) | 0.8 | |||||||
| Increase (decrease) in cash | (56.3 | ) | 75.4 | 20.2 | ||||||||
| Cash—beginning of period | 141.4 | 66.0 | 45.8 | |||||||||
| Cash—end of period | $ | 85.1 | $ | 141.4 | $ | 66.0 |
The accompanying notes are an integral part of these financial statements.
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 3, 2016
Note 1. Description of Business
Teledyne Technologies Incorporated (“Teledyne” or the “Company”) became an independent, public company effective November 29, 1999. Teledyne provides enabling technologies for industrial growth markets that require advanced technology and high reliability. These markets include deepwater oil and gas exploration and production, oceanographic research, air and water quality environmental monitoring, electronics design and development, factory automation and medical imaging. The products include monitoring and control instrumentation for marine and environmental applications, harsh environment interconnects, electronic test and measurement equipment, digital imaging sensors and cameras, aircraft information management systems, and defense electronics and satellite communication subsystems. Teledyne also supplies engineered systems for defense, space, environmental and energy applications. Teledyne differentiates itself from many of its direct competitors by having a customer and company sponsored applied research center that augments our product development expertise.
Teledyne consists of the Instrumentation segment with principal operations in the United States, the United Kingdom and Denmark; the Digital Imaging segment with principal operations in the United States, Canada and the Netherlands: the Aerospace and Defense Electronics segment with principal operations in the United States and the United Kingdom; and the Engineered Systems segment with principal operations in the United States and the United Kingdom.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Teledyne and all wholly-owned and majority-owned domestic and foreign subsidiaries. Intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current period presentation.
Fiscal Year
The Company operates on a 52- or 53-week fiscal year convention ending on the Sunday nearest to December 31. Fiscal year 2015 was a 53-week fiscal year and ended on January 3, 2016. Fiscal year 2014 was a 52-week fiscal year and ended on December 28, 2014. Fiscal year 2013 was a 52-week fiscal year and ended on December 29, 2013. References to the years 2015, 2014 and 2013 are intended to refer to the respective fiscal year unless otherwise noted.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to product returns and replacements, allowance for doubtful accounts, inventories, goodwill, intangible assets, asset valuations, income taxes, warranty obligations, pension and other postretirement benefits, long-term contracts, environmental, workers’ compensation and general liability, employee benefits and other contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances at the time, the results of which form the basis for making its judgments. Actual results may differ materially from these estimates under different assumptions or conditions. Management believes that the estimates are reasonable.
Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended January 3, 2016, and December 28, 2014:
| Foreign Currency Translation | Cash Flow Hedges and other | Pension and Postretirement Benefits | Total | ||||||||||||
| Balances as of December 29, 2013 | $ | (32.4 | ) | $ | (3.3 | ) | $ | (129.8 | ) | $ | (165.5 | ) | |||
| Other comprehensive loss before reclassifications | (58.2 | ) | (4.7 | ) | — | (62.9 | ) | ||||||||
| Amounts reclassified from AOCI | — | 2.7 | (97.5 | ) | (94.8 | ) | |||||||||
| Net other comprehensive loss | (58.2 | ) | (2.0 | ) | (97.5 | ) | (157.7 | ) | |||||||
| Balance as of December 28, 2014 | (90.6 | ) | (5.3 | ) | (227.3 | ) | (323.2 | ) | |||||||
| Other comprehensive loss before reclassifications | (83.6 | ) | (8.2 | ) | — | (91.8 | ) | ||||||||
| Amounts reclassified from AOCI | — | 6.8 | (5.0 | ) | 1.8 | ||||||||||
| Net other comprehensive loss | (83.6 | ) | (1.4 | ) | (5.0 | ) | (90.0 | ) | |||||||
| Balance as of January 3, 2016 | $ | (174.2 | ) | $ | (6.7 | ) | $ | (232.3 | ) | $ | (413.2 | ) | |||
The reclassification out of AOCI for the year ended January 3, 2016, and December 28, 2014, are as follows:
| January 3, 2016 | December 28, 2014 | |||||||
| Amount reclassified from AOCI | Amount reclassified from AOCI | Financial Statement Presentation | ||||||
| Loss on cash hedges: | ||||||||
| Loss recognized in income on derivatives | $ | 9.1 | $ | 3.6 | Cost of sales | |||
| Income tax impact | (2.3 | ) | (0.9 | ) | Income tax benefit | |||
| Total | $ | 6.8 | $ | 2.7 | ||||
| Amortization of defined benefit pension and postretirement plan items: | ||||||||
| Amortization prior service cost | $ | (6.0 | ) | $ | (4.6 | ) | See Note 11 | |
| Amortization of net actuarial loss | 34.0 | 24.6 | See Note 11 | |||||
| Pension adjustments | (36.0 | ) | (173.7 | ) | See Note 11 | |||
| Total before tax | (8.0 | ) | (153.7 | ) | ||||
| Tax effect | 3.0 | 56.2 | ||||||
| Net of tax | $ | (5.0 | ) | $ | (97.5 | ) |
Revenue Recognition
Revenue is recognized when the earnings process is substantially complete and all of the following criteria are met: 1) persuasive evidence of an arrangement exists; 2) delivery has occurred or services have been rendered; 3) our price to our customer is fixed or determinable; and 4) collectability is reasonably assured.
We determine the appropriate method by which we recognize revenue by analyzing the terms and conditions of our contracts or arrangements entered into with our customers. The majority of our revenue relates to product sales and is recognized upon shipment to the customer, at fixed or determinable prices and with a reasonable assurance of collection, passage of title to the customer and fulfillment of all significant obligations. Revenue is recognized net of estimated sales returns and other allowances. The Company does not offer substantial sales incentives and credits to customers. The remaining revenue is generally associated with long-term contracts to design, develop and manufacture highly engineered products used in commercial or defense applications. Such contracts are generally accounted for using contract accounting, percentage-of-completion (“POC”) method.
The Company’s standard terms of sale are FOB shipping point. For a small percentage of sales where title and risk of loss passes at destination point, and assuming all other criteria for revenue recognition are met, the Company recognizes revenue after delivery to the customer. If any significant obligation to the customer with respect to a sales transaction remains following shipment, revenue recognition is deferred until such obligations have been fulfilled. In general, our revenue arrangements do not involve acceptance provisions based on customer specified acceptance criteria. In those circumstances when customer specified acceptance criteria exist, and if we cannot demonstrate that the product meets those specifications prior to the shipment, then revenue is deferred until customer acceptance is obtained.
We have a few contracts that require the Company to warehouse certain goods, for which revenue is recognized when all risks of loss are borne by the customer and all other criteria for revenue recognition are met.
We also have a small number of multiple elements arrangements (i.e., free product, training, installation, additional parts, etc.). If contract accounting does not apply, we allocate the contract price among the deliverables based on vendor-specific objective evidence of fair value to each element in the arrangement. If objective and reliable evidence of fair value of any element is not available, we use our best estimate of selling price for purposes of allocating the total arrangement consideration among the elements. Also, extended or non-customary warranties do not represent a significant portion of our revenue; however when our revenue arrangements include an extended or non-customary warranty provision, the revenue is deferred and recognized ratably over the extended warranty period.
For contracts that require substantial performance over a long time period (generally one or more years), revenue is recorded under the POC method. We record net revenue and an estimated profit as work on our contracts progresses. The POC method for these contracts is dependent on the nature of the contract or products provided. Depending on the contract, we may measure the extent of progress toward completion using the units-of-delivery method, cost-to-cost method or upon attainment of scheduled performance contract milestones which could be time, event or expense driven. For example, for cost-reimbursable contracts we use the cost-to-cost method to measure progress toward completion. Under the cost-to-cost method of accounting, we recognize revenue and an estimated profit as allowable costs are incurred based on the proportion that the incurred costs bear to total estimated costs. Another example, for contracts that require us to provide a substantial number of similar items, we record revenue and an estimated profit on a POC basis using units-of-delivery as the basis to measure progress toward completing the contract. Occasionally, it is appropriate to combine individual customer orders and treat them as one arrangement when the underlying agreement was reached with the customer for a single large project.
The percentage of Company revenue recognized using the POC method was 31.2% in 2015, 28.7% in 2014 and 32.1% in 2013.
Accounting for contracts using the POC method requires management judgment relative to assessing risks, estimating contract revenue and cost, and making assumptions for schedule and technical issues. Contract revenue may include estimated amounts not contractually agreed to by the customer, including price redetermination, cost or performance incentives (such as award and incentives fees), un-priced change orders, claims and requests for equitable adjustment. The POC method requires management’s judgment to make reasonably dependable cost estimates generally over a long time period. Since certain contracts extend over a long period of time, the impact of revisions in cost and revenue estimates during the progress of work may adjust the current period earnings on a cumulative catch-up basis. This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters. Additionally, if the current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract cost and revenue estimates for significant contracts are generally reviewed and reassessed quarterly.
The net effect of the favorable and unfavorable changes in estimates were expense of $3.1 million in 2015, $3.0 million in 2014 and $1.8 million in 2013. The gross aggregate effects of these favorable and unfavorable changes in estimates in 2015, 2014 and 2013 were $38.6 million, $22.9 million and $21.4 million of favorable operating income and $35.5 million, $25.9 million and $23.2 million of unfavorable operating income, respectively. We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in contract estimates for 2015, 2014 or 2013 was material to the consolidated statements of income for such annual periods.
Shipping and Handling
Shipping and handling fees reimbursed by customers are classified as revenue while shipping and handling costs incurred by Teledyne are classified as cost of sales in the accompanying consolidated statements of income.
Product Warranty and Replacement Costs
Some of the Company’s products are subject to specified warranties and the Company reserves for the estimated cost of product warranties on a product-specific basis. Facts and circumstances related to a product warranty matter and cost estimates to return, repair and/or replace the product are considered when establishing a product warranty reserve. The adequacy of the preexisting warranty liabilities is assessed regularly and the reserve is adjusted as necessary based on a review of historic warranty experience with respect to the applicable business or products, as well as the length and actual terms of the warranties, which are typically one year. The product warranty reserve is included in current accrued liabilities and long-term liabilities on the balance sheet.
| Warranty Reserve (in millions): | 2015 | 2014 | 2013 | ||||||||
| Balance at beginning of year | $ | 18.5 | $ | 17.3 | $ | 17.8 | |||||
| Accruals for product warranties charged to expense | 6.1 | 6.6 | 4.4 | ||||||||
| Cost of product warranty claims | (7.7 | ) | (5.9 | ) | (5.2 | ) | |||||
| Acquisitions | 0.2 | 0.5 | 0.3 | ||||||||
| Balance at end of period | $ | 17.1 | $ | 18.5 | $ | 17.3 |
Research and Development
Selling, general and administrative expenses include research and development and bid and proposal costs which are expensed as incurred and were $163.7 million in 2015, $166.9 million in 2014 and $167.0 million in 2013.
Income Taxes
We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the results of discontinued operations and incorporate assumptions about the amount of future state, federal and foreign pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative operating income. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
Income tax positions must meet a more-likely-than-not recognition in order to be recognized in the financial statements. We recognize potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense. As new information becomes available, the assessment of the recognition threshold and the measurement of the associated tax benefit of uncertain tax positions may result in financial statement recognition or derecognition.
Net Income Per Common Share
Basic and diluted earnings per share were computed based on net earnings. The weighted average number of common shares outstanding during the period was used in the calculation of basic earnings per share. This number of shares was increased by contingent shares that could be issued under various compensation plans as well as by the dilutive effect of stock options based on the treasury stock method in the calculation of diluted earnings per share.
The following table sets forth the computations of basic and diluted earnings per share (amounts in millions, except per share data):
| Net Income Per Common Share: | 2015 | 2014 | 2013 | ||||||||
| Net income attributable to Teledyne | $ | 195.8 | $ | 217.7 | $ | 185.0 | |||||
| Basic earnings per common share: | |||||||||||
| Weighted average common shares outstanding | 35.3 | 37.1 | 37.3 | ||||||||
| Basic earnings per common share | |||||||||||
| Basic earnings per common share | $ | 5.55 | $ | 5.87 | $ | 4.96 | |||||
| Diluted earnings per share: | |||||||||||
| Weighted average common shares outstanding | 35.3 | 37.1 | 37.3 | ||||||||
| Effect of diluted securities | 0.7 | 0.8 | 0.7 | ||||||||
| Weighted average diluted common shares outstanding | 36.0 | 37.9 | 38.0 | ||||||||
| Diluted earnings per common share | |||||||||||
| Diluted earnings per common share | $ | 5.44 | $ | 5.75 | $ | 4.87 |
For 2015 and 2014 no stock options were excluded in the computation of diluted earnings per share. In 2013, 9,000 stock options were excluded in the computation of diluted earnings per share because they had exercise prices that were greater than the average market price of the Company’s common stock during the respective periods.
For 2015, 2014 and 2013, stock options to purchase 2.4 million, 2.9 million and 2.7 million shares of common stock, respectively, had exercise prices that were less than the average market price of the Company’s common stock during the respective periods and are included in the computation of diluted earnings per share.
In addition, 3,997 contingent shares of the Company’s common stock under the restricted stock or performance share compensation plans were excluded from fully diluted shares outstanding for 2015. No contingent shares of the Company’s common stock under the restricted stock or performance share compensation plans were excluded from fully diluted shares outstanding for 2014 or 2013.
Accounts Receivable
Receivables are presented net of a reserve for doubtful accounts of $6.3 million at January 3, 2016, and $7.8 million at December 28, 2014. Expense recorded for the reserve for doubtful accounts was $0.9 million, $3.6 million and $0.9 million for 2015, 2014 and 2013, respectively. An allowance for doubtful accounts is established for losses expected to be incurred on accounts receivable balances. Judgment is required in the estimation of the allowance and is based upon specific identification, collection history and creditworthiness of the debtor. The Company markets its products and services principally throughout the United States, Europe, Japan and Canada to commercial customers and agencies of, and prime contractors to, the U.S. Government. Trade credit is extended based upon evaluations of each customer’s ability to perform its obligations, which are updated periodically.
Cash and Cash Equivalents
Cash totaled $85.1 million at January 3, 2016, of which $84.2 million was held by foreign subsidiaries of Teledyne. Cash equivalents, if any, consist of highly liquid money-market mutual funds and bank deposits with maturities of three months or less when purchased. There were no cash equivalents at January 3, 2016 and December 28, 2014.
Inventories
Inventories are stated at the lower of cost or market, less progress payments. The majority of inventory values are principally valued on an average cost, or first-in, first-out method, while the remainder are stated at cost based on the last-in, first-out method. Costs include direct material, direct labor, applicable manufacturing and engineering overhead, and other direct costs. Additionally, certain inventory costs are also reflective of the estimates used in applying the percentage-of-completion revenue recognition method. Judgment is required when establishing reserves to reduce the carrying amount of inventory to market or net realizable value. Inventory reserves are recorded when inventory is considered to be
excess or obsolete based upon an analysis of actual on-hand quantities on a part-level basis to forecasted product demand and historical usage.
Property, Plant and Equipment
Property, plant and equipment is capitalized at cost. Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are determined using a combination of accelerated and straight-line methods over the estimated useful lives of the various asset classes. Buildings and building improvements are depreciated over periods not exceeding 45 years, equipment over 5 to 18 years, computer hardware and software over 3 to 7 years and leasehold improvements over the shorter of the estimated remaining lives or lease terms. Significant improvements are capitalized while maintenance and repairs are charged to expense as incurred. Depreciation expense on property, plant and equipment, including assets under capital leases, was $58.3 million in 2015, $62.3 million in 2014 and $59.6 million in 2013.
Goodwill and Other Intangible Assets
Business acquisitions are accounted for under the acquisition method by assigning the purchase price to tangible and intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded at their fair values and the excess of the purchase price over the amounts assigned is recorded as goodwill.
Goodwill and intangible assets with indefinite lives are not amortized, but tested at least annually for impairment. The Company performs an annual impairment test for goodwill and other acquired intangible assets in the fourth quarter of each year, or more often as circumstances require. The two-step impairment test is used to first identify potential goodwill impairment and then measure the amount of goodwill impairment loss, if any. When it is determined that an impairment has occurred, an appropriate charge to operations is recorded. No impairment of goodwill was indicated in 2015, 2014 or 2013, based on the annual impairment test completed in the fourth quarter of each year. Based on an annual impairment test completed in 2015, the Company recorded a $0.5 million asset impairment related to acquired intangible assets. Based on a quarterly impairment test completed in 2014, the Company recorded a $0.7 million impairment to acquired intangible assets. Based on an annual impairment test completed in 2013, the Company recorded a $1.2 million impairment to acquired intangible assets. Acquired intangible assets with finite lives are amortized and reflected in the segments operating income over their estimated useful lives.
We review intangible assets subject to amortization for impairment whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. We assess the recoverability of the carrying value of assets held for use based on a review of projected undiscounted cash flows. Impairment losses, where identified, are determined as the excess of the carrying value over the estimated fair value of the long-lived asset.
Deferred Compensation Plan
The Company has a non-qualified executive deferred compensation plan that provides supplemental retirement income benefits for a select group of management. This plan permits eligible employees to make salary and bonus deferrals that are 100% vested. We have an unsecured obligation to pay in the future the value of the deferred compensation adjusted to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each participant during the deferral period. As of January 3, 2016 and December 28, 2014, $43.9 million and $45.8 million, respectively, is included in other long-term liabilities related to these deferred compensation liabilities. Additionally, the Company purchased life insurance policies on certain participants to potentially offset these unsecured obligations. These policies are recorded at their cash surrender value as determined by the insurance carrier. The cash surrender value of these policies was $47.9 million and $49.6 million, as of January 3, 2016 and December 28, 2014, respectively, and are recorded in other non-current assets.
Environmental
Costs that mitigate or prevent future environmental contamination or extend the life, increase the capacity or improve the safety or efficiency of property utilized in current operations are capitalized. Other costs that relate to current operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable, which is generally not later than the completion of the feasibility study or the Company’s recommendation of a remedy or commitment to an appropriate plan of action. The accruals are reviewed periodically and, as investigations and remediations proceed, adjustments are made as necessary. Accruals for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. The accruals are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their obligations at such sites. The measurement of environmental liabilities by the Company is based on currently available
facts, present laws and regulations, and current technology. Such estimates take into consideration the Company’s prior experience in site investigation and remediation, the data concerning cleanup costs available from other companies and regulatory authorities, and the professional judgment of the Company’s environmental personnel in consultation with outside environmental specialists, when necessary.
Foreign Currency Translation
The Company’s foreign entities’ accounts are generally measured using local currency as the functional currency. Assets and liabilities of these entities are translated at the exchange rate in effect at year-end. Revenues and expenses are translated at average month end rates of exchange prevailing during the year. Unrealized translation gains and losses arising from differences in exchange rates from period to period are included as a component of accumulated other comprehensive loss in stockholders’ equity.
Hedging Activities/Derivative Instruments
Teledyne transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company’s primary objective is to protect the United States dollar value of future cash flows and minimize the volatility of reported earnings. The Company utilizes foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in Canadian dollars for our Canadian companies, including DALSA. These contracts are designated and qualify as cash flow hedges.
The effectiveness of the cash flow hedge contracts, excluding time value, is assessed prospectively and retrospectively on a monthly basis using regression analysis, as well as using other timing and probability criteria. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges and must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash flow hedge contracts’ gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of accumulated other comprehensive income (“AOCI”) in stockholders’ equity until the underlying hedged item is reflected in our consolidated statements of income, at which time the effective amount in AOCI is reclassified to cost of sales in our consolidated statements of income. Net deferred losses recorded in AOCI, net of tax, for contracts that will mature in the next 12 months total $4.0 million. These losses are expected to be offset by anticipated gains in the value of the forecasted underlying hedged item.
In the event that the gains or losses in AOCI are deemed to be ineffective, the ineffective portion of gains or losses resulting from changes in fair value, if any, is reclassified to other income and expense. In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges will be reclassified from AOCI to other income and expense. During the current reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other income and expense. As of January 3, 2016, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars totaling $79.4 million and these contracts had a negative fair value of $5.9 million. These foreign currency forward contracts have maturities ranging from March 2016 to February 2018.
In addition, the Company utilizes foreign currency forward contracts which are not designed as hedging instruments to mitigate foreign exchange rate risk associated with foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. As of January 3, 2016, Teledyne had foreign currency contracts of this type in the following pairs (in millions):
| Contracts to Buy | Contracts to Sell | |||||||
| Currency | Amount | Currency | Amount | |||||
| Canadian Dollars | C$ | 64.9 | U.S. Dollars | US$ | 51.3 | |||
| Euros | € | 11.9 | U.S. Dollars | US$ | 13.1 | |||
| Great Britain Pounds | £ | 0.9 | Australian Dollars | A$ | 1.9 | |||
| Great Britain Pounds | £ | 21.0 | U.S. Dollars | US$ | 32.0 | |||
| Euros | € | 7.4 | Canadian Dollars | C$ | 4.9 | |||
| U.S. Dollars | US$ | 2.1 | Japanese Yen | ¥ | 250.0 | |||
| Singapore Dollars | S$ | 1.7 | U.S. Dollars | US$ | 1.2 |
The above table includes non-designated hedges derived from terms contained in triggered or previously designated cash flow hedges. The gains and losses on these derivatives which are not designated as hedging instruments under ASC 815, Derivatives and Hedging (“ASC 815”), are intended to, at a minimum, partially offset the transaction gains and losses
recognized in earnings. All derivatives are recorded on the balance sheet at fair value. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. Teledyne does not use foreign currency forward contracts for speculative or trading purposes.
The effect of derivative instruments designated as cash flow hedges for 2015 and 2014 was as follows (in millions):
| 2015 | 2014 | |||||||
| Net loss recognized in AOCI (a) | $ | (11.0 | ) | $ | (6.4 | ) | ||
| Net loss reclassified from AOCI into cost of sales (a) | $ | (9.1 | ) | $ | (3.6 | ) | ||
| Net foreign exchange gain recognized in other income and expense (b) | $ | 0.5 | $ | 0.6 |
(a)Effective portion
(b)Amount excluded from effectiveness testing
The effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for 2015 and 2014 was a loss of $10.6 million and $3.8 million, respectively.
The fair values of the Company’s derivative financial instruments are presented below. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy (in millions):
| Asset/(Liability) Derivatives | Balance sheet location | January 3, 2016 | December 28, 2014 | ||||||
| Derivatives designated as hedging instruments: | |||||||||
| Cash flow forward contracts | Accrued liabilities | $ | (4.7 | ) | $ | (2.8 | ) | ||
| Cash flow forward contracts | Other long-term liabilities | (1.3 | ) | (1.1 | ) | ||||
| Total derivatives designated as hedging instruments | (6.0 | ) | (3.9 | ) | |||||
| Derivatives not designated as hedging instruments: | |||||||||
| Non-designated forward contracts | Other current assets | 0.2 | 0.3 | ||||||
| Non-designated forward contracts | Accrued liabilities | (6.0 | ) | (4.8 | ) | ||||
| Total derivatives not designated as hedging instruments | (5.8 | ) | (4.5 | ) | |||||
| Total asset/(liability) derivatives | $ | (11.8 | ) | $ | (8.4 | ) |
Supplemental Cash Flow Information
Cash payments for federal, foreign and state income taxes were $86.5 million for 2015, which are net of $4.8 million in tax refunds. Cash payments for federal, foreign and state income taxes were $75.0 million for 2014, which are net of $2.3 million in tax refunds. Cash payments for federal, foreign and state income taxes were $32.8 million for 2013, which are net of $3.3 million in tax refunds. Cash payments for interest and credit facility fees totaled $24.2 million, $17.6 million and $19.7 million for 2015, 2014 and 2013, respectively.
Fair Value Measurements
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The Company uses the following three levels of inputs in determining the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available:
| • | Level 1-Quoted prices in active markets for identical assets or liabilities. |
| • | Level 2-Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. |
| • | Level 3-Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. |
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within
which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.
Related Party Transactions
The Company had no related party transactions for all periods presented that are required to be disclosed.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. In July 2015, the FASB deferred the effective date by one year, but will allow early adoption as of the original adoption date. This new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating both methods of adoption, as well as assessing the impact on the consolidated financial statements and footnote disclosures.
In April 2015, the FASB issued ASU No. 2015-03 (ASU 2015-03), Interest - Imputation of Interest (Subtopic 835-30). The new guidance changes the presentation of debt issuance costs in the financial statements to present such costs as a direct deduction from the related debt liability rather than as an asset. Amortization of debt issuance costs will be reported as interest expense. This standard is effective for annual reporting periods beginning after December 15, 2015. The Company does not expect the adoption to have a material impact on our consolidated financial position, and will have no impact on our results of operations or cash flows.
In November 2015, the FASB issued ASU No. 2015-17 (ASU 2015-17), Balance Sheet Classification of Deferred Taxes. The new guidance simplifies the presentation of deferred income taxes by eliminating the requirement for companies to present deferred tax liabilities and assets as current and non-current on the Consolidated Statements of Financial Position. Instead, companies will be required to classify all deferred tax assets and liabilities as non-current. This guidance is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. We elected to early adopt ASU 2015-17 effective January 3, 2016 on a prospective basis. Prior periods were not adjusted. The adoption at year end 2015, did not have a material impact on our consolidated financial position, and had no impact on our results of operations or cash flows.
In January 2016, the FASB issued ASU No. 2016-01 (ASU 2016-01), Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10). ASU 2016-01 provides guidance for the recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for annual and interim periods beginning after December 15, 2017, with early adoption not permitted. The Company does not expect the adoption to have a material impact on our consolidated financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02 requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. The new guidance is effective for interim and annual periods beginning after December 15, 2018. Early adoption of the update is permitted. The Company is evaluating the impact of the adoption of this update on our consolidated financial statements and related disclosures.
In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). Under the new guidance, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient will no longer be categorized in the fair value hierarchy. It is effective for interim and annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company does not expect the adoption to have a material impact on our consolidated financial position, results of operations, or cash flows but will impact the disclosures related to certain investments related to our domestic pension plan which are contained in Note 11 to our Consolidated Financial Statements.
Note 3. Business Acquisitions, Goodwill and Acquired Intangible Assets
The Company spent $66.7 million, $195.8 million and $128.2 million on acquisitions and other investments in 2015, 2014 and 2013, respectively.
On June 5, 2015, Teledyne DALSA BV, a Netherlands-based subsidiary, acquired ICM for an initial payment of $21.4 million, net of cash acquired. The Company paid a $0.4 million purchase price adjustment in 2015. An additional $2.6 million of the purchase price is subject to an indemnification holdback, all or a portion of which is payable in December 2016. Based in Liège, Belgium, ICM is a supplier of portable X-ray generators for non-destructive testing applications, as well as complete X-ray imaging systems for on-site security screening and is part of the Digital Imaging segment.
On April 29, 2015, Teledyne DALSA, Inc. acquired the remaining 49% noncontrolling interest in the parent company of Optech for $22.0 million in cash. As a result of the purchase, the difference between the cash paid and the balance of noncontrolling interest was recorded to additional paid in capital. The balance of the noncontrolling interest of $41.2 million at December 28, 2014 decreased by $0.3 million for the net loss and $1.3 million in translation adjustments prior to the purchase which eliminated the remaining balance. The balance of the noncontrolling interest of $47.0 million at December 29, 2013 decreased by $2.1 million for the net loss and $3.7 million in translation adjustments, resulting in a balance of $41.2 million at December 28, 2014. Teledyne no longer has any noncontrolling interests. Optech is part of the Digital Imaging segment.
On February 2, 2015, Teledyne acquired Bowtech through a U.K.-based subsidiary for $18.9 million in cash, net of cash acquired and including an estimated working capital adjustment. Based in Aberdeen, Scotland, Bowtech designs and manufactures harsh underwater environment vision systems and is part of the Instrumentation segment.
Also in 2015, Teledyne made an additional investment in Ocean Aero and now owns a 36.9% interest in Ocean Aero which is accounted for under the equity method.
Teledyne funded the purchases from borrowings under its credit facility and cash on hand. The ICM, Bowtech and Optech acquisitions were funded with cash held by foreign subsidiaries. The results of the acquisitions have been included in Teledyne’s results since the dates of the respective acquisition.
During 2014, Teledyne made four acquisitions, the largest of which was Bolt in November 2014.
On November 18, 2014, Teledyne acquired all of the outstanding common shares of Bolt for $22.00 per share payable in cash. The aggregate value for the transaction was $171.0 million, excluding transaction costs and taking into account Bolt’s stock options, other liabilities and net cash on hand. Bolt is a developer and manufacturer of marine seismic data acquisition equipment used for offshore oil and natural gas exploration. Bolt is also a developer and manufacturer of remotely operated robotic vehicles systems used for a variety of underwater tasks. Bolt had sales of $67.5 million for its fiscal year ended June 30, 2014. In addition to the acquisition of Bolt in 2014, the Company completed the acquisition of three businesses and invested in Ocean Aero in 2014 for a total of $24.8 million.
All of the 2014 acquisitions are part of the Instrumentation segment.
During 2013, Teledyne made four acquisitions, the largest of which was RESON in March 2013. On March 1, 2013, a subsidiary of Teledyne acquired all the outstanding shares of RESON for $69.7 million, net of cash acquired. RESON, headquartered in Slangerup, Denmark, provides multibeam sonar systems and specialty acoustic sensors for hydrography, global marine infrastructure and offshore energy operations. RESON had sales of €50.8 million for its fiscal year ended December 31, 2012, and is part of the Instrumentation segment. In addition to the acquisition of RESON in 2013, the Company completed the acquisition of three businesses and made other investments for a total of $58.5 million, primarily within the Instrumentation segment.
The results of these acquisitions have been included in Teledyne’s results since the dates of their respective acquisition.
The primary reasons for the above acquisitions were to strengthen and expand our core businesses through adding complementary product and service offerings, allowing greater integrated products and services, enhancing our technical capabilities or increasing our addressable markets. The significant factors that resulted in recognition of goodwill were: (a) the purchase price was based on cash flow and return on capital projections assuming integration with our businesses and (b) the calculation of the fair value of tangible and intangible assets acquired that qualified for recognition. Teledyne funded the purchases primarily from borrowings under its credit facility and cash on hand.
Teledyne’s goodwill was $1,140.2 million at January 3, 2016, and $1,150.6 million at December 28, 2014. The decrease in the balance of goodwill in 2015 resulted from the impact of exchange rate changes partially offset by goodwill on current year acquisitions. Teledyne’s net acquired intangible assets were $243.3 million at January 3, 2016, and $277.6 million at December 28, 2014. The decrease in the balance of acquired intangible assets in 2015 resulted from amortization and the impact of exchange rate changes, partially offset by current year acquisitions. The Company’s cost to acquire Bowtech and ICM has been allocated to the assets acquired and liabilities assumed based upon their respective fair values as of the date of the completion of the acquisition. The differences between the fair value of the consideration paid and the estimated fair value of the assets and liabilities acquired has been recorded as goodwill. The Company is still in the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the ICM acquisition. The Company made preliminary estimates as of January 3, 2016, since there was insufficient time between the acquisition date and the end of the period to finalize the analysis. The Company completed the allocation of the cost to acquire the Bolt acquisition in 2015. As a result, goodwill for the Bolt acquisition increased by $3.4 million. There were no changes for the other 2014 acquisitions.
The following tables show the purchase price (net of cash acquired), goodwill acquired and intangible assets acquired for the acquisitions made in 2015 and 2014 (in millions):
| 2015 | ||||||||||||||
| Name | Acquisition Date | Cash Paid (a) | Goodwill Acquired | Acquired Intangible Assets | ||||||||||
| Bowtech | February 2, 2015 | $ | 18.9 | $ | 7.0 | $ | 4.3 | |||||||
| ICM | June 5, 2015 | 21.8 | 19.2 | 5.8 | ||||||||||
| Purchase of remaining interest of Optech | April 29, 2015 | 22.0 | — | — | ||||||||||
| Other investments | 4.0 | 1.4 | 0.9 | |||||||||||
| $ | 66.7 | $ | 27.6 | $ | 11.0 | |||||||||
| (a) net of any cash acquired. |
| 2014 | ||||||||||||||
| Name | Acquisition Date | Cash Paid (a) | Goodwill Acquired | Acquired Intangible Assets | ||||||||||
| Photon | March 30, 2014 | $ | 2.9 | $ | 1.4 | $ | 1.5 | |||||||
| Atlas | August 17, 2014 | 5.2 | 3.6 | 0.8 | ||||||||||
| Bolt | November 18, 2014 | 171.0 | 128.8 | 41.5 | ||||||||||
| Oceanscience | October 22, 2014 | 14.7 | 9.0 | 4.4 | ||||||||||
| Other investments | 2.0 | — | — | |||||||||||
| $ | 195.8 | $ | 142.8 | $ | 48.2 | |||||||||
| (a) net of any cash acquired. |
| Estimated fair values allocated to the assets acquired and liabilities assumed (in millions): | 2015 | 2014 | ||||||
| Current assets, excluding cash acquired | $ | 8.5 | $ | 34.0 | ||||
| Property, plant and equipment | 9.8 | 8.7 | ||||||
| Goodwill | 27.6 | 142.8 | ||||||
| Other acquired intangible assets | 11.0 | 48.2 | ||||||
| Other long-term assets | 1.9 | 5.3 | ||||||
| Total assets acquired | 58.8 | 239.0 | ||||||
| Current liabilities | (5.1 | ) | (26.0 | ) | ||||
| Long-term liabilities | (9.0 | ) | (17.2 | ) | ||||
| Total liabilities assumed | (14.1 | ) | (43.2 | ) | ||||
| Noncontrolling interests (a) | 22.0 | — | ||||||
| Cash paid, net of cash acquired | $ | 66.7 | $ | 195.8 | ||||
| (a) relates to the purchase of the remaining interest in Optech. |
The following table is a summary at the acquisition date of the acquired intangible assets and weighted average useful life in years for the acquisitions made in 2015 and 2014 (dollars in millions):
| 2015 | 2014 | |||||||||||
| Intangibles subject to amortization: | Intangible Assets | Weighted average useful life in years | Intangible Assets | Weighted average useful life in years | ||||||||
| Proprietary technology | $ | 5.7 | 9.9 | $ | 18.4 | 11.0 | ||||||
| Customer list/relationships | 3.0 | 8.3 | 21.4 | 11.3 | ||||||||
| Backlog | — | n/a | 0.8 | 0.3 | ||||||||
| Total intangibles subject to amortization | 8.7 | 9.4 | 40.6 | 11.0 | ||||||||
| Intangibles not subject to amortization: | ||||||||||||
| Trademarks | 2.3 | n/a | 7.6 | n/a | ||||||||
| Total intangibles not subject to amortization | 2.3 | n/a | 7.6 | n/a | ||||||||
| Total acquired intangible assets | $ | 11.0 | n/a | $ | 48.2 | n/a | ||||||
| Goodwill | $ | 27.6 | n/a | $ | 142.8 | n/a |
Except for the Atlas and Oceanscience acquisitions, goodwill resulting from the acquisitions made in fiscal 2015 and 2014 will not be deductible for tax purposes.
| Goodwill (in millions): | Instrumentation | Digital Imaging | Aerospace and Defense Electronics | Engineered Systems | Total | |||||||||||||||
| Balance at December 29, 2013 | $ | 549.5 | $ | 318.5 | $ | 145.6 | $ | 24.2 | $ | 1,037.8 | ||||||||||
| Current year acquisitions | 142.8 | — | — | — | 142.8 | |||||||||||||||
| Foreign currency changes | (12.2 | ) | (16.3 | ) | (1.1 | ) | (0.4 | ) | (30.0 | ) | ||||||||||
| Balance at December 28, 2014 | 680.1 | $ | 302.2 | $ | 144.5 | $ | 23.8 | $ | 1,150.6 | |||||||||||
| Current and prior year acquisitions (a) | 11.8 | 19.2 | — | — | 31.0 | |||||||||||||||
| Foreign currency changes | (11.1 | ) | (28.9 | ) | (1.0 | ) | (0.4 | ) | (41.4 | ) | ||||||||||
| Balance at January 3, 2016 | $ | 680.8 | $ | 292.5 | $ | 143.5 | $ | 23.4 | $ | 1,140.2 |
(a) Includes $3.4 million related to the completion of the Bolt purchase price allocation in 2015.
| 2015 | 2014 | |||||||||||||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||
| Other acquired intangible assets (in millions): | ||||||||||||||||||||||||
| Proprietary technology | $ | 198.6 | $ | 114.2 | $ | 84.4 | $ | 202.8 | $ | 99.7 | $ | 103.1 | ||||||||||||
| Customer list/relationships | 114.3 | 58.8 | 55.5 | 117.6 | 51.0 | 66.6 | ||||||||||||||||||
| Patents | 0.7 | 0.6 | 0.1 | 0.7 | 0.6 | 0.1 | ||||||||||||||||||
| Non-compete agreements | 0.9 | 0.9 | — | 0.9 | 0.9 | — | ||||||||||||||||||
| Trademarks | 3.4 | 2.1 | 1.3 | 3.4 | 1.9 | 1.5 | ||||||||||||||||||
| Backlog | 12.5 | 12.5 | — | 13.2 | 12.7 | 0.5 | ||||||||||||||||||
| Other acquired intangible assets subject to amortization | 330.4 | 189.1 | 141.3 | 338.6 | 166.8 | 171.8 | ||||||||||||||||||
| Other acquired intangible assets not subject to amortization | ||||||||||||||||||||||||
| Trademarks | 102.0 | — | 102.0 | 105.8 | — | 105.8 | ||||||||||||||||||
| Total other acquired intangible assets: | $ | 432.4 | $ | 189.1 | $ | 243.3 | $ | 444.4 | $ | 166.8 | $ | 277.6 |
Amortizable other intangible assets are amortized on a straight-line basis over their estimated useful lives ranging from one to 15 years. Consistent with Teledyne’s growth strategy, we seek to acquire companies in markets characterized by high
barriers to entry and that include specialized products not likely to be commoditized. Given our markets and highly engineered nature of our products, the rates of new technology development and customer acquisition and/or attrition are often not volatile. As such, we believe the value of acquired intangible assets decline in a linear, as opposed to an accelerated fashion, and we believe amortization on a straight-line basis is appropriate.
The Company recorded $30.6 million, $32.0 million and $31.5 million in amortization expense in 2015, 2014 and 2013, respectively, for other acquired intangible assets. The expected future amortization expense for the next five years is as follows (in millions): 2016 - $27.6; 2017 - $25.9; 2018 - $22.9; 2019 - $15.5; 2020 - $13.7.
The estimated remaining useful lives by asset category as of January 3, 2016, are as follows:
| Intangibles subject to amortization | Weighted average remaining useful life in years | |
| Proprietary technology | 4.9 | |
| Customer list/relationships | 5.4 | |
| Patents | 5.3 | |
| Trademarks | 8.0 | |
| Total intangibles subject to amortization | 5.1 |
Note 4. Financial Instruments
The Company had no cash equivalents at January 3, 2016 or December 28, 2014. The Company has categorized its cash equivalents, if any, as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets. The fair value of the Company’s forward currency contracts as of January 3, 2016 and December 28, 2014, are disclosed in Note 2, “Hedging Activities/Derivative Instruments,” of the Notes to the Consolidated Financial Statements below and are based on Level 2 inputs. The fair value of the Company’s senior unsecured notes as described in Note 9, “Long-Term Debt,” of the Notes to the Consolidated Financial Statements approximated the carrying value based upon Level 2 inputs at January 3, 2016 and December 28, 2014. The fair value of the Company’s credit facility, term loans and other debt, also described in Note 9, at January 3, 2016 and December 28, 2014, approximates the carrying value due to the variable market rate used to calculate interest payments. The Company does not have any other significant financial assets or liabilities that are measured at fair value. The carrying value of other on-balance-sheet financial instruments approximates fair value, and the cost, if any, to terminate off-balance sheet financial instruments (primarily letters of credit) is not significant.
Note 5. Accounts Receivable
| Accounts receivable (in millions): | Balance at year-end | |||||||
| 2015 | 2014 | |||||||
| Commercial and other receivables | $ | 325.5 | $ | 357.5 | ||||
| U.S. Government and prime contractors contract receivables: | ||||||||
| Billed receivables | 19.9 | 17.3 | ||||||
| Unbilled receivables | 33.9 | 33.7 | ||||||
| 379.3 | 408.5 | |||||||
| Reserve for doubtful accounts | (6.3 | ) | (7.8 | ) | ||||
| Total accounts receivable, net | $ | 373.0 | $ | 400.7 |
The billed contract receivables from the U.S. Government and prime contractors contain $12.9 million and $12.6 million at January 3, 2016, and December 28, 2014, respectively, due to long-term contracts. The unbilled contract receivables from the U.S. Government and prime contractors contain $33.8 million and $29.4 million at January 3, 2016, and December 28, 2014, respectively, due to long-term contracts.
Unbilled contract receivables represent accumulated costs and profits earned but not yet billed to customers. The Company believes that substantially all such amounts will be billed and collected within one year.
Note 6. Inventories
| Inventories (in millions) | Balance at year-end | |||||||
| 2015 | 2014 | |||||||
| Raw materials and supplies | $ | 141.6 | $ | 143.1 | ||||
| Work in process | 149.4 | 153.5 | ||||||
| Finished goods | 45.8 | 43.3 | ||||||
| 336.8 | 339.9 | |||||||
| Progress payments | (12.3 | ) | (11.6 | ) | ||||
| Reduction to LIFO cost basis | (15.3 | ) | (16.5 | ) | ||||
| Total inventories, net | $ | 309.2 | $ | 311.8 |
Inventories at cost determined on the LIFO method were $96.6 million at January 3, 2016, and $98.1 million at December 28, 2014. The remainder of the inventories using average cost or the FIFO methods, were $240.2 million at January 3, 2016, and $241.8 million at December 28, 2014. Certain inventory costs are also reflective of the estimates used in applying the percentage-of-completion revenue recognition method.
The Company recorded $1.2 million in LIFO income in 2015. The Company recorded less than $0.1 million in LIFO income in 2014 and LIFO expense of $0.7 million in 2013.
Total inventories at current cost were net of reserves for excess, slow moving and obsolete inventory of $58.8 million and $55.3 million at January 3, 2016, and December 28, 2014, respectively. Judgment is required when establishing reserves to reduce the carrying amount of inventory to market or net realizable value. Inventory reserves are recorded when inventory is considered to be excess or obsolete based upon an analysis of actual on-hand quantities on a part-level basis to forecasted product demand and historical usage.
Inventories, before progress payments, related to long-term contracts were $73.8 million and $40.3 million at January 3, 2016, and December 28, 2014, respectively. Progress payments related to long-term contracts were $12.3 million and $1.5 million at January 3, 2016, and December 28, 2014, respectively. Under the contractual arrangements by which progress payments are received, the customer has an ownership right in the inventories associated with specific contracts.
Note 7. Supplemental Balance Sheet Information
| Property, plant and equipment (in millions): | Balance at year-end | |||||||
| 2015 | 2014 | |||||||
| Land | $ | 32.9 | $ | 33.7 | ||||
| Buildings | 182.0 | 175.3 | ||||||
| Equipment and software | 561.2 | 545.0 | ||||||
| 776.1 | 754.0 | |||||||
| Accumulated depreciation and amortization | (454.8 | ) | (417.5 | ) | ||||
| Total property, plant and equipment, net | $ | 321.3 | $ | 336.5 |
The following table presents the balance of selected components of Teledyne’s balance sheet (in millions):
| Balance sheet items | Balance sheet location | January 3, 2016 | December 28, 2014 | ||||||
| Deferred tax assets | Prepaid expenses and other current assets | $ | — | $ | 42.8 | ||||
| Income tax receivable | Prepaid expenses and other current assets | $ | 28.8 | $ | 13.6 | ||||
| Deferred compensation assets | Other assets | $ | 47.9 | $ | 49.6 | ||||
| Salaries and wages | Accrued liabilities | $ | 89.5 | $ | 108.7 | ||||
| Customer deposits and credits | Accrued liabilities | $ | 37.6 | $ | 47.9 | ||||
| Product warranty reserves | Accrued liabilities | $ | 14.0 | $ | 14.9 | ||||
| Accrued pension obligation | Other long-term liabilities | $ | 46.7 | $ | 14.2 | ||||
| Accrued postretirement benefits | Other long-term liabilities | $ | 9.6 | $ | 11.6 | ||||
| Deferred tax liabilities | Other long-term liabilities | $ | 37.9 | $ | 77.3 | ||||
| Deferred compensation liabilities | Other long-term liabilities | $ | 43.9 | $ | 45.8 |
Note 8. Stockholders’ Equity
| Common stock and treasury stock activity: | Stock | Treasury Stock | ||||
| 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 | ||||
| Acquired | — | 2,561,815 | ||||
| Issued | — | (420,830 | ) | |||
| Balance, January 3, 2016 | 37,697,865 | 3,183,266 |
Shares issued include stock options exercised as well as shares issued under certain compensation plans.
Treasury Stock
In October 2011, the Company’s Board of Directors authorized a stock repurchase program to repurchase up to 2,500,000 shares of the Company’s common stock. In 2014, the Company purchased 469,290 shares of common stock in open market purchases for $45.0 million. Following the open market purchases, in September 2014, the Company entered into a $101.6 million accelerated share repurchase (“ASR”) agreement with a financial institution (“ASR Counterparty”) in a privately negotiated transaction for 1,030,000 shares of the Company’s common stock. 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. In May 2015, the September 2014 ASR agreement was settled and Teledyne received 78,522 shares of common stock on June 3, 2015.
On January 27, 2015, the Company’s Board of Directors authorized an additional stock repurchase program authorizing the Company to repurchase up to an additional 2,500,000 shares of its common stock. 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. 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. In November 2015, the February 2015 ASR was settled with the Company making a payment of $1.2 million. In November 2015, the Company entered into a $100.5 million ASR agreement with a financial institution in a privately negotiated transaction for 1,100,000 shares of the Company's common stock. Pursuant to the ASR agreement, the Company advanced $100.5 million to the ASR counterparty and received 1,045,000 shares of common stock, which used $95.5 million of the $100.5 million advanced, representing 95% of the estimated shares to be repurchased under the ASR agreement. On February 19, 2016, the November 2015 ASR was settled and Teledyne received 135,374 shares of common stock.
The up-front payments were accounted for as a reduction to stockholders’ equity in the Company’s Consolidated Balance Sheet in the period the payments were made. The total number of shares of common stock repurchased under each ASR is based on the average of the daily volume-weighted average prices of the common stock during the term of the respective 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. The Company has treated the ASRs as a treasury share repurchase of common stock in the period the shares were delivered for purposes of calculating earnings per share and as a forward contract indexed to its own common stock. The ASRs meet all of the applicable criteria for equity classification, and, therefore, is not accounted for as a derivative instrument.
In 2015, the Company spent $243.8 million to repurchase a total of 2,561,815 shares of its common stock. In 2014, the Company spent $146.6 million to repurchase a total of 1,396,290 shares of its common stock under the ASR agreement, as well as the open market purchases. Teledyne has 3,183,266 shares of treasury stock at January 3, 2016.
On January 26, 2016, the Company’s Board of Directors authorized an additional stock repurchase program authorizing the Company to repurchase up to an additional 3,000,000 shares of its common stock. The 2015 and 2016 stock repurchase authorizations are expected to remain open continuously, with respect to the shares remaining thereunder, and the number of shares repurchased 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. Future repurchases are expected to 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 2015, 2014 or 2013.
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 year life.
No stock options were granted in 2015. Stock option compensation expense is recorded on a straight line basis over the appropriate vesting period, generally three years. The Company recorded $12.2 million, $14.0 million, and $10.7 million for stock option expense, for 2015, 2014 and 2013, respectively. The Company issues shares of common stock upon the exercise of stock options.
The fair value of stock options is determined by using the a lattice-based option pricing model. 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.
| Stock option valuation assumptions: | 2014 | 2013 | |||
| Expected dividend yield | — | — | |||
| Expected volatility | 30.7 | % | 31.9 | % | |
| Risk-free interest rate | 1.7 | % | 0.9 | % | |
| Expected life in years | 7.4 | 7.3 |
Based on the assumptions used in the valuation of stock options, the grant date weighted average fair value of stock options granted in 2014 and 2013 was $36.19 and $27.17, respectively.
Stock option transactions for Teledyne’s employee stock option plans are summarized as follows:
| 2015 | 2014 | 2013 | ||||||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||
| Beginning balance | 2,499,708 | $ | 63.85 | 2,419,372 | $ | 53.77 | 2,203,005 | $ | 45.90 | |||||||||||
| Granted | — | $ | — | 567,008 | $ | 94.22 | 573,724 | $ | 75.17 | |||||||||||
| Exercised | (333,527 | ) | $ | 50.59 | (406,167 | ) | $ | 44.01 | (313,265 | ) | $ | 37.10 | ||||||||
| Canceled or expired | (80,328 | ) | $ | 85.26 | (80,505 | ) | $ | 74.72 | (44,092 | ) | $ | 57.68 | ||||||||
| Ending balance | 2,085,853 | $ | 65.15 | 2,499,708 | $ | 63.85 | 2,419,372 | $ | 53.77 | |||||||||||
| Options exercisable at end of period | 1,609,109 | $ | 58.30 | 1,477,205 | $ | 49.81 | 1,414,002 | $ | 43.40 |
The following table provides certain information with respect to stock options outstanding and stock options exercisable at January 3, 2016, 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 | |||||||||||
| $30.01-$40.00 | 233,519 | $ | 38.44 | 1.0 | 233,519 | $ | 38.44 | |||||||||
| $40.01-$50.00 | 459,481 | $ | 44.63 | 4.7 | 459,481 | $ | 44.63 | |||||||||
| $50.01-$60.00 | 182,544 | $ | 50.81 | 2.3 | 182,544 | $ | 50.81 | |||||||||
| $60.01-$70.00 | 298,175 | $ | 64.73 | 6.4 | 298,175 | $ | 64.73 | |||||||||
| $70.01-$80.00 | 427,028 | $ | 75.17 | 7.4 | 276,774 | $ | 75.17 | |||||||||
| $90.00-$95.74 | 485,106 | $ | 94.27 | 8.4 | 158,616 | $ | 94.27 | |||||||||
| 2,085,853 | $ | 65.15 | 5.7 | 1,609,109 | $ | 58.30 |
Non-Employee Director Stock Compensation Plan
Teledyne also sponsors a stock plan for non-employee directors pursuant to which non-employee directors received annual stock options and received stock or stock options until January 1, 2015 in lieu of their respective retainer and meeting fees. The stock options become exercisable one year after issuance and have a maximum 10 year life.
Stock option transactions for Teledyne’s non-employee director stock option plans are summarized as follows:
| 2015 | 2014 | 2013 | ||||||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||
| Beginning balance | 351,169 | $ | 51.76 | 324,381 | $ | 45.06 | 308,908 | $ | 39.35 | |||||||||||
| Granted | — | $ | — | 45,010 | $ | 89.19 | 42,166 | $ | 71.22 | |||||||||||
| Exercised | (53,152 | ) | $ | 39.99 | (18,088 | ) | $ | 24.59 | (26,363 | ) | $ | 20.86 | ||||||||
| Canceled or expired | — | $ | — | (134 | ) | $ | 61.80 | (330 | ) | $ | 40.70 | |||||||||
| Ending balance | 298,017 | $ | 53.86 | 351,169 | $ | 51.76 | 324,381 | $ | 45.06 | |||||||||||
| Options exercisable at end of period | 298,017 | $ | 53.86 | 310,159 | $ | 46.88 | 282,215 | $ | 41.07 |
The following table provides certain information with respect to stock options outstanding and stock options exercisable at January 3, 2016, under the non-employee director stock option plan:
| Stock Options Outstanding and Exercisable | |||||||||
| Range of Exercise Prices | Shares | Weighted Average Exercise Price | Remaining life in years | ||||||
| $15.53-$20.00 | 966 | $ | 15.53 | 3.1 | |||||
| $20.01-$30.00 | 26,842 | $ | 26.03 | 3.2 | |||||
| $30.01-$40.00 | 49,813 | $ | 33.64 | 3.3 | |||||
| $40.01-$50.00 | 84,589 | $ | 46.08 | 4.0 | |||||
| $50.01-$60.00 | 30,797 | $ | 53.65 | 2.8 | |||||
| $60.01-$70.00 | 39,010 | $ | 64.36 | 6.7 | |||||
| $70.01-$80.00 | 32,000 | $ | 75.13 | 7.3 | |||||
| $80.01-$94.24 | 34,000 | $ | 94.06 | 8.3 | |||||
| 298,017 | $ | 53.86 | 4.9 |
The total pretax intrinsic value of options exercised during 2015 and 2014 (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was $19.3 million and $23.2 million, respectively. At January 3, 2016, the intrinsic value of stock options outstanding was $59.5 million and the intrinsic value of stock options exercisable was $59.3 million. During 2015 and 2014, the amount of cash received from the exercise of stock options was $19.0 million and $18.3 million, respectively.
At January 3, 2016, there was $9.1 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 0.9 years.
Following each Annual Meeting of Stockholders beginning with the 2015 Annual Meeting, non-employee directors each receive restricted stock units valued at $110,000 (or valued at $55,000 for a person who becomes a director for the first time after the date of the Annual Meeting). The restricted stock units generally vest one year following the date of grant and are settled in shares of common stock on the date of vesting unless a director has elected to defer settlement of the award until his or her separation from Board service. In 2015, we issued 9,534 restricted stock units to non-employee directors.
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). Participants in the performance share program may elect to pay taxes due with respect to an installment payment with awarded cash, by reducing the number of awarded shares, or a combination thereof.
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, up to 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 2012, the performance cycle for the three-year period ending December 31, 2014, was set. Under the plan, and based on actual performance, the number of shares that could be issued in three equal installments in 2015, 2016 and 2017, was 22,981. This amount has been reduced by forfeitures to 7,921. In 2015, the Company issued 1,944 shares. In 2016, the Company issued 864 shares and 1,883 remain to be issued in 2017.
In February 2015, the performance cycle for the three-year period ending December 31, 2017, was set. Under the plan, the target number of shares that could be issued in three equal installments in 2018, 2019 and 2020, was 48,794. The maximum number of shares that could be issued in three equal installments in 2018, 2019 and 2020, was 97,588.
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 $2.3 million, $6.2 million and $3.2 million in compensation expense related to the PSP program for fiscal years 2015, 2014 and 2013, 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 January 3, 2016, total of 109,170 shares of restricted stock were issued and outstanding.
| Restricted stock: | Shares | Weighted average fair value per share | |||||
| 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 | ||||
| Granted | 43,588 | $ | 96.28 | ||||
| Issued | (29,642 | ) | $ | 51.38 | |||
| Forfeited/Canceled | (13,502 | ) | $ | 82.33 | |||
| Balance, January 3, 2016 | 109,170 | $ | 83.58 |
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 $4.0 million, $2.8 million and $2.1 million in compensation expense related to the restricted stock award program for fiscal years 2015, 2014 and 2013, respectively. At January 3, 2016, there was $3.6 million of total unrecognized compensation cost related to non-vested awards which is expected to be recognized over a weighted-average period of approximately 1.6 years.
Note 9. Long-Term Debt
At January 3, 2016, Teledyne had $755.5 million in long-term debt outstanding. At December 28, 2014, Teledyne had $609.8 million in long-term debt outstanding.
December 2014, the Company issued $125.0 million of senior unsecured notes which consisted of $30.0 million of 2.61% senior unsecured notes due December 2019, and $95.0 million of 3.09% senior unsecured notes due December 2021. In December 2015, the Company amended the $750.0 million credit facility to extend the maturity from March 2018 to December 2020. The other material terms of the credit facility, including covenants, remain unchanged. Excluding interest and fees, no payments are due under the credit facility until it matures. The credit agreements require the Company to comply with various financial and operating covenants, including maintaining certain consolidated leverage and interest coverage ratios. Borrowings under our credit facility and term loans are at variable rates which are, at our option, tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered Rate) plus an applicable rate or a base rate as defined in our credit agreements. Eurocurrency rate loans may be denominated in U.S. dollars or an alternative currency as defined in the agreement. Eurocurrency or LIBOR-based loans under the facility typically have terms of one, two, three or six months and the interest rate for each such loan is subject to change if the loan is continued or converted following the applicable maturity date. The Company has not drawn any loans with a term longer than three months under the credit facility. Base rate loans have interest rates that primarily fluctuate with changes in the prime rate. Interest rates are also subject to change based on our consolidated leverage ratio as defined in the credit agreement. The credit agreement also provides for facility fees that vary between 0.12% and 0.25% of the credit line, depending on our consolidated leverage ratio as calculated from time to time.
Teledyne also has a $5.0 million uncommitted credit line which permits credit extensions up to $5.0 million plus an incremental $2.0 million solely for standby letters of credit. This credit line is utilized, as needed, for periodic cash needs. There were no outstanding funding advances under the uncommitted credit line at January 3, 2016, or December 28, 2014. The Company also has $8.6 million outstanding under capital leases, of which $1.2 million is current. At year-end 2015, Teledyne had $12.8 million in outstanding letters of credit.
Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and certain outstanding letters of credit, was $588.2 million at January 3, 2016. The credit agreement and term loans requires the Company to comply with various financial and operating covenants and at January 3, 2016, the Company was in compliance with these covenants.
Total interest expense including credit facility fees and other bank charges was $24.0 million in 2015, $19.1 million in 2014 and $20.9 million in 2013.
Teledyne estimates the fair value of its long-term debt based on debt of similar type, rating and maturity and at comparable interest rates. The Company’s long-term debt was considered a level 2 fair value hierarchy and is valued based on
observable market data. The estimated fair value of Teledyne’s long-term debt at January 3, 2016, and December 28, 2014, approximated the carrying value.
| Long-Term Debt (in millions): | January 3, 2016 | December 28, 2014 | |||||
| $750.0 million revolving credit facility, due December 2020, weighted average rate of 1.67% at January 3, 2016, and 1.24% at December 28, 2014 | $ | 150.5 | $ | 105.0 | |||
| Term Loans due through March 2019, weighted average rate of 1.55% at January 3, 2016, and 1.28% at December 28, 2014 | 190.0 | 200.0 | |||||
| 4.04% Senior Notes due September 2015 | — | 75.0 | |||||
| 4.74% Senior Notes due September 2017 | 100.0 | 100.0 | |||||
| 2.61% Senior Notes due December 2019 | 30.0 | 30.0 | |||||
| 5.30% Senior Notes due September 2020 | 75.0 | 75.0 | |||||
| 2.81% Senior Notes due November 2020 | 25.0 | — | |||||
| 3.09% Senior Notes due December 2021 | 95.0 | 95.0 | |||||
| 3.28% Senior Notes due November 2022 | 100.0 | — | |||||
| Other debt | — | 14.7 | |||||
| Total long-debt | 765.5 | 694.7 | |||||
| Current portion of long-term debt | (10.0 | ) | (84.9 | ) | |||
| Total long-term debt, net of current portion | $ | 755.5 | $ | 609.8 |
No minimum principal payments on the $750.0 million revolving credit facility are required until December 2020. The Company began making quarterly minimum principal payments on the $200.0 million term loans in 2015. Future minimum principal payments on long-term debt are as follows: 2016 - $10.0 million; - 2017 - $115.0 million; 2018 - $170.5 million; 2019 - $175.0 million; 2020 - $100.0 million; 2020 and beyond - $195.0 million. The Company has no sinking fund requirements.
Note 10. Income Taxes
Income before income taxes included income from domestic operations of $213.8 million for 2015, $221.4 million for 2014 and $176.7 million for 2013. Income before taxes included income from foreign operations of $44.4 million for 2015, $60.7 million for 2014 and $47.3 million for 2013.
| Income tax provision (benefit) - in millions: | 2015 | 2014 | 2013 | |||||||||
| Current | ||||||||||||
| Federal | $ | 54.4 | $ | 57.4 | $ | 21.6 | ||||||
| State | 5.3 | (1.1 | ) | 3.5 | ||||||||
| Foreign | 4.0 | 9.3 | 0.2 | |||||||||
| Total current | 63.7 | 65.6 | 25.3 | |||||||||
| Deferred | ||||||||||||
| Federal | 3.5 | (0.2 | ) | 18.2 | ||||||||
| State | (2.5 | ) | 1.0 | (2.3 | ) | |||||||
| Foreign | (2.0 | ) | 0.1 | (1.7 | ) | |||||||
| Total deferred | (1.0 | ) | 0.9 | 14.2 | ||||||||
| Provision for income taxes | $ | 62.7 | $ | 66.5 | $ | 39.5 |
The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:
| Tax rate reconciliation: | 2015 | 2014 | 2013 | ||||||
| U.S. federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
| State and local taxes, net of federal benefit | 1.9 | 2.5 | 1.9 | ||||||
| Research and development tax credits | (3.4 | ) | (3.3 | ) | (4.5 | ) | |||
| Investment tax credits | (1.2 | ) | (1.9 | ) | (2.4 | ) | |||
| Qualified production activity deduction | (2.2 | ) | (2.0 | ) | (1.7 | ) | |||
| Foreign rate differential | (2.1 | ) | (3.7 | ) | (3.4 | ) | |||
| Net accruals (reversals) for unrecognized tax benefits | (2.1 | ) | (1.4 | ) | (5.4 | ) | |||
| Other | (1.6 | ) | (1.6 | ) | (1.8 | ) | |||
| Effective income tax rate | 24.3 | % | 23.6 | % | 17.7 | % |
Deferred income taxes result from temporary differences in the recognition of income and expense for financial and income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax benefits or costs to be recognized when those temporary differences reverse.
The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and expense were as follows (in millions):
| Deferred income tax assets:(a) | 2015 | 2014 | ||||||
| Current: | ||||||||
| Accrued liabilities | $ | — | $ | 20.3 | ||||
| Inventory valuation | — | 14.3 | ||||||
| Accrued vacation | — | 11.4 | ||||||
| Deferred compensation and other benefits plans | — | 0.9 | ||||||
| Intangible amortization | — | 0.6 | ||||||
| Other | — | 0.9 | ||||||
| Valuation allowance | — | (2.9 | ) | |||||
| Long-term: | ||||||||
| Accrued liabilities | 31.3 | 12.5 | ||||||
| Inventory valuation | 17.3 | — | ||||||
| Accrued vacation | 10.5 | — | ||||||
| Deferred compensation and other benefit plans | 16.8 | 11.4 | ||||||
| Postretirement benefits other than pensions | 4.8 | 5.9 | ||||||
| Tax credit and NOL carryforward amounts | 49.1 | 53.5 | ||||||
| Valuation allowance | (18.8 | ) | (20.3 | ) | ||||
| Total deferred income tax assets | 111.0 | 108.5 | ||||||
| Deferred income tax liabilities: | ||||||||
| Current: | ||||||||
| Other items | — | 2.7 | ||||||
| Long-term: | ||||||||
| Property, plant and equipment differences | 26.5 | 28.8 | ||||||
| Intangible amortization | 111.6 | 111.5 | ||||||
| Other | 3.3 | — | ||||||
| Total deferred income tax liabilities | 141.4 | 143.0 | ||||||
| Net deferred income tax liabilities | $ | (30.4 | ) | $ | (34.5 | ) |
| a) | In accordance with new accounting standards, all deferred tax assets and liabilities are now classified as non-current. Prior periods were not adjusted. |
We intend to indefinitely reinvest the earnings of our material foreign subsidiaries in our operations outside of the United States. The cash that the Company's foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including acquisitions. We estimate that future domestic cash generation will be sufficient to meet future domestic cash requirements. At January 3, 2016, the amount of undistributed foreign earnings was $193.3 million, of which we have not recorded a deferred tax liability of approximately $49.7 million. Should we decide to repatriate the foreign
earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.
In assessing the need for a valuation allowance, we consider all positive and negative evidence, including recent financial performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in carryback periods and tax planning strategies. Based on a review of such information, management believes that it is possible that some portion of deferred tax assets will not be realized as a future benefit and therefore has recorded a valuation allowance. The valuation allowance for deferred tax assets decreased by $4.4 million in 2015, primarily related to the utilization of foreign tax credit carryforwards and evidence for future utilization of the remaining foreign tax credit carryforwards, as well as the impact of foreign exchange rates on the valuation allowance in foreign entities.
At January 3, 2016, the Company had approximately $52.0 million of net operating loss carryforward from foreign entities primarily from the Company's Danish entity, which has no expiration date. The Company had foreign capital loss carryforward in the amount of $3.9 million which has no expiration date. Also the Company had aggregate Canadian federal and provincial investment tax credits of $24.2 million, which have expiration dates of 2027 to 2035. In addition, the Company had domestic federal and state net operating loss carryforward of $7.1 million and $119.3 million, respectively. Generally, federal net operating loss carryforward amounts are limited in their use by earnings of certain acquired subsidiaries, and have expiration dates ranging from 2026 to 2035 and the state net operating loss carryforward amounts have expiration dates ranging from 2016 to 2035. Finally, the Company had federal research and development credit carryforward in the amount of $0.8 million which will expire between 2032 and 2035 and state tax credits of $5.3 million, of which $3.4 million have no expiration date and $1.9 million have expiration dates ranging from 2016 to 2027. The Company also had a foreign tax credit carryforward in the amount of $1.3 million with an expiration date of 2022.
| Unrecognized tax benefits (in millions): | 2015 | 2014 | 2013 | |||||||||
| Beginning of year | $ | 32.3 | $ | 35.4 | $ | 42.6 | ||||||
| Increase in prior year tax positions (a) | 2.1 | 4.3 | 3.5 | |||||||||
| Increase for tax positions taken during the current period | 1.6 | 0.9 | 0.9 | |||||||||
| Reduction related to settlements with taxing authorities | (1.5 | ) | (2.8 | ) | (4.8 | ) | ||||||
| Reduction related to lapse of the statute of limitations | (5.0 | ) | (4.8 | ) | (6.2 | ) | ||||||
| Impact of exchange rate changes | (0.7 | ) | (0.7 | ) | (0.6 | ) | ||||||
| End of year | $ | 28.8 | $ | 32.3 | $ | 35.4 | ||||||
| a) Includes the impact of acquisitions in all years. |
The Company anticipates the total unrecognized tax benefit for various federal and state tax items may be reduced by $7.0 million due to the expiration of statutes of limitation for various federal, state and foreign tax issues in the next 12 months.
We recognized net tax benefits for interest and penalties related to unrecognized tax benefits within the provision for income taxes in our statements of operations of $0.6 million, $0.2 million and $2.2 million, for 2015, 2014 and 2013, respectively. Interest and penalties in the amount of $2.1 million, $2.9 million and $3.4 million were recognized in the 2015, 2014 and 2013 statement of financial position, respectively. Substantially all of the unrecognized tax benefits as of January 3, 2016, if recognized would affect our effective tax rate
We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. The Company has substantially concluded on all U.S. federal income tax matters for all years through 2011, California income tax matters for all years through 2010 and Canadian income tax matters for all years through 2007.
Note 11. Pension Plans and Postretirement Benefits
Pension Plans
Teledyne has a defined benefit pension plan covering substantially all U.S. employees hired before January 1, 2004, or approximately 18% of Teledyne’s active employees. As of January 1, 2004, new hires participate in a defined contribution plan only. The Company also has several foreign-based defined benefit pension plans.
Teledyne’s domestic pension expense was $2.0 million in 2015, compared with pension income of $1.7 million in 2014 and $16.6 million in 2013. In the first quarter of 2015, Teledyne froze its non-qualified pension plan for top executives which resulted in a one-time gain of $1.2 million. In accordance with U.S. Government Cost Accounting Standards (“CAS”), $13.8 million, $13.8 million and $14.5 million was recoverable from certain government contracts, for 2015, 2014 and 2013, respectively. Teledyne did not make any cash contributions to its domestic pension plan in 2015 or in 2014. In 2013, Teledyne made a voluntary pretax cash contribution to its domestic plan of $83.0 million, prior to any recovery from the U.S. Government. In 2016, we are not required, and are not planning, to make any cash contributions to the domestic
qualified pension plan.
In 2014, the Company offered lump-sum payments out of the qualified pension plan to certain plan participants whose employment with Teledyne had terminated. Additionally, the qualified pension plan was amended in 2015 to allow participants who retire in the future to elect a lump-sum payment. In 2015 and 2014, the Company made lump sum payments of approximately $10.5 million and $32.4 million, respectively, from the domestic plan assets to certain participants in the domestic plan as a result of these lump sum offers. In 2014, the Society of Actuaries released revised mortality tables, which update life expectancy assumptions. In consideration of these tables, in 2014, we modified the mortality assumptions used in determining our pension and post-retirement benefit obligations. The impact of these mortality assumptions increased our pension obligation and increased future pension expense.
The Company’s contributions associated with 401(k) plans were $10.1 million, $9.5 million and $9.1 million, for 2015, 2014 and 2013, respectively.
| Net periodic benefit (income) expense - in millions: | Domestic | Foreign | ||||||||||||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
| Service cost - benefits earned during the period | $ | 12.4 | $ | 11.7 | $ | 14.4 | $ | 0.9 | $ | 0.8 | $ | 0.9 | ||||||||||||
| Interest cost on benefit obligation | 37.8 | 40.3 | 36.3 | 1.7 | 2.2 | 1.9 | ||||||||||||||||||
| Expected return on plan assets | (74.4 | ) | (73.7 | ) | (70.1 | ) | (2.2 | ) | (2.6 | ) | (2.0 | ) | ||||||||||||
| Amortization of prior service cost | (6.0 | ) | (4.6 | ) | (4.6 | ) | — | — | — | |||||||||||||||
| Amortization of actuarial loss | 33.4 | 24.6 | 40.6 | 0.6 | — | 0.1 | ||||||||||||||||||
| Curtailment | (1.2 | ) | — | — | — | — | — | |||||||||||||||||
| Net periodic benefit (income) expense | $ | 2.0 | $ | (1.7 | ) | $ | 16.6 | $ | 1.0 | $ | 0.4 | $ | 0.9 |
The expected long-term rate of return on plan assets is reviewed annually, taking into consideration the Company’s asset allocation, historical returns on the types of assets held, and the current economic environment. We determined the discount rate based on a model which matches the timing and amount of expected benefit payments to maturities of high-quality corporate bonds priced as of the pension plan measurement date. The yields on the bonds are used to derive a discount rate for the obligation.
The following assumptions were used to measure the net benefit income/cost within each respective year:
| Pension Plan Assumptions: | Weighted average discount rate | Weighted average increase in future compensation levels | Expected weighted-average long-term rate of return | ||||||
| Domestic plan - 2015 | 4.50 | % | 2.75 | % | 8.25 | % | |||
| Domestic plan - 2014 | 5.40 | % | 2.75 | % | 8.25 | % | |||
| Domestic plan - 2013 | 4.40 | % | 2.75 | % | 8.25 | % | |||
| Foreign plans 2015 | 1.20% - 3.50% | 1.30% - 2.40% | 1.80% - 6.40% | ||||||
| Foreign plans 2014 | 2.10% - 4.30% | 1.75% - 2.50% | 3.00% - 6.40% | ||||||
| Foreign plans 2013 | 1.80% - 4.20% | 1.75% - 2.50% | 3.00% - 5.50% |
For its domestic pension plans the Company is projecting a long-term rate of return on plan assets of 8.00% in 2016. For its foreign based pension plans the Company is projecting a long-term rate of return on plan assets will range from 1.40% to 6.5% in 2016.
| Domestic | Foreign | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Changes in benefit obligation (in millions): | ||||||||||||||||
| Benefit obligation - beginning of year | $ | 878.4 | $ | 768.9 | $ | 61.1 | $ | 60.3 | ||||||||
| Service cost - benefits earned during the year | 12.4 | 11.7 | 0.9 | 0.8 | ||||||||||||
| Interest cost on projected benefit obligation | 37.8 | 40.3 | 1.7 | 2.2 | ||||||||||||
| Actuarial (gain) loss | (33.8 | ) | 134.5 | (0.9 | ) | 11.4 | ||||||||||
| Benefits paid(a) | (57.2 | ) | (78.6 | ) | (2.8 | ) | (2.4 | ) | ||||||||
| Plan amendments(b) | (17.0 | ) | 1.6 | (0.2 | ) | (0.1 | ) | |||||||||
| Other - including foreign currency | (0.2 | ) | — | (3.2 | ) | (11.1 | ) | |||||||||
| Benefit obligation - end of year | $ | 820.4 | $ | 878.4 | $ | 56.6 | $ | 61.1 | ||||||||
| Accumulated benefit obligation - end of year | $ | 817.8 | $ | 875.5 | $ | 53.7 | $ | 59.2 |
| (a) | The 2015 and 2014 amounts include lump sum payments to certain participants of $10.5 million and $32.4 million, respectively. |
| (b) | The $17.0 million amount reflects the impact of actions taken in 2015 whereby Teledyne amended the qualified pension plan to allow participant to elect a lump-sum payment form upon retirement. |
The key assumptions used to measure the benefit obligation at each respective year-end were:
| Key assumptions: | Domestic Plan | Foreign Plans | |||||||||||||
| 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||
| Discount rate | 4.91 | % | 4.50 | % | 5.40 | % | 0.90% - 3.60% | 1.20% - 3.50% | 2.10% - 4.30% | ||||||
| Salary growth rate | 2.75 | % | 2.75 | % | 2.75 | % | 1.00% - 2.40% | 1.70% - 2.40% | 1.75% - 2.50% |
| Domestic | Foreign | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Changes in plan assets (in millions): | ||||||||||||||||
| Fair value of plan assets - beginning of year | $ | 957.5 | $ | 986.3 | $ | 47.6 | $ | 52.1 | ||||||||
| Actual return on plan assets | (12.1 | ) | 47.5 | 0.7 | 4.7 | |||||||||||
| Employer contribution - other benefit plan | 2.2 | 2.3 | 0.7 | 3.3 | ||||||||||||
| Foreign currency changes | — | — | (2.4 | ) | (3.5 | ) | ||||||||||
| Benefits paid | (57.2 | ) | (78.6 | ) | (2.8 | ) | (2.4 | ) | ||||||||
| Other | — | — | — | (6.6 | ) | |||||||||||
| Fair value of net plan assets - end of year | $ | 890.4 | $ | 957.5 | $ | 43.8 | $ | 47.6 |
The measurement date for the Company’s pension plans is December 31.
The following table sets forth the funded status of the pension plans and amounts recognized in the consolidated balance sheets at year end 2015 and 2014 qualified plans, foreign plans and U.S. unfunded non-qualified plans for benefits provided to certain employees (in millions):
| Domestic | Foreign | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Funded status | $ | 70.0 | $ | 79.1 | $ | (12.8 | ) | $ | (13.5 | ) | ||||||
| Amounts recognized in the consolidated balance sheets: | ||||||||||||||||
| Prepaid pension asset long-term (a) | $ | 111.0 | $ | 86.1 | $ | — | $ | — | ||||||||
| Accrued pension obligation long-term | (33.8 | ) | — | (12.8 | ) | (13.5 | ) | |||||||||
| Accrued pension obligation short-term | (2.2 | ) | (1.8 | ) | — | — | ||||||||||
| Other long-term liabilities | (5.0 | ) | (5.2 | ) | — | — | ||||||||||
| Net amount recognized | $ | 70.0 | $ | 79.1 | $ | (12.8 | ) | $ | (13.5 | ) | ||||||
| Amounts recognized in accumulated other comprehensive loss: | ||||||||||||||||
| Prior service credit | $ | (36.7 | ) | $ | (27.0 | ) | $ | (0.3 | ) | $ | (0.1 | ) | ||||
| Net loss | 398.6 | 379.6 | 13.0 | 12.9 | ||||||||||||
| Net amount recognized, before tax effect | $ | 361.9 | $ | 352.6 | $ | 12.7 | $ | 12.8 |
(a) Includes the long-term non-qualified unfunded domestic pension plan obligation of $36.7 million at year-end 2014. This plan was frozen in 2015.
Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows:
| (in millions) | 2015 | 2014 | |||||
| Projected benefit obligation | $ | 97.6 | $ | 105.0 | |||
| Accumulated benefit obligation | $ | 94.7 | $ | 102.9 | |||
| Fair value of plan assets | $ | 43.8 | $ | 47.7 |
At year-end 2015 and 2014 the Company had a non-cash reduction to stockholders’ equity of $232.3 million and $227.3 million, respectively, related to its pension and postretirement plans. The non-cash reductions to stockholders’ equity did not affect net income and were recorded net of deferred taxes of $3.0 million in 2015 and $56.2 million in 2014.
At January 3, 2016, the estimated amounts of the minimum liability adjustment that are expected to be recognized as components of net periodic benefit cost during 2016 for the pension plans are: net loss $27.2 million and net prior service credit $6.1 million.
| Estimated future pension plan benefit payments (in millions): | Domestic | Foreign | ||||||
| 2016 | $ | 57.0 | $ | 2.3 | ||||
| 2017 | 58.6 | 2.3 | ||||||
| 2018 | 58.7 | 2.5 | ||||||
| 2019 | 59.0 | 2.2 | ||||||
| 2020 | 59.2 | 2.4 | ||||||
| 2021-2025 | 299.3 | 12.8 | ||||||
| Total | $ | 591.8 | $ | 24.5 |
The following table sets forth the percentage of year-end market value by asset class for the pension plans:
| Market value by asset class: | Domestic Plan Assets % to Total | Foreign Plan Assets % to Total | ||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||
| Equity instruments | 59 | % | 59 | % | 75 | % | 62 | % | ||||
| Fixed income instruments | 29 | 30 | 15 | 11 | ||||||||
| Alternates and other | 12 | 11 | 10 | 27 | ||||||||
| Total | 100 | % | 100 | % | 100 | % | 100 | % |
The Company has an active management policy for a portion of the pension assets in the domestic pension plan. The
long term asset allocation target for the domestic plan consists of 70% in equity instruments including a portion in alternatives and 30% in fixed income instruments. The balance in equity instruments for the domestic plan can range from 45% to 75% before rebalancing is required under the Company’s policy. The investment policy for the plan based in the United Kingdom is set by the Company along with the trustees of the foreign plan. The current long-term asset allocation target for the plan based in the United Kingdom includes a target of 60% in equity instruments including a portion in alternatives and 40% in fixed income instruments and other.
The pension plan’s investments are stated at fair value. Plan investments that are considered a level 1 fair value hierarchy and are valued at quoted market prices in active markets. Plan investments that are considered a level 2 fair value hierarchy and are valued based on observable market data. Plan investments that would be considered a level 3 fair value hierarchy are valued based on management’s own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
The fair values of the Company’s net pension assets, by fair value hierarchy, for both the U.S and foreign pension plans as of January 3, 2016, by asset category are as follows (in millions):
| Asset category:(a) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash and cash equivalents (b) | $ | — | $ | 30.3 | $ | — | $ | 30.3 | ||||||||
| Equity securities: | ||||||||||||||||
| U.S. equity | 147.5 | 94.4 | — | 241.9 | ||||||||||||
| International equity | 38.0 | 155.9 | — | 193.9 | ||||||||||||
| Alternatives | — | 108.7 | 2.2 | 110.9 | ||||||||||||
| Mutual funds (c) | 111.7 | 23.7 | — | 135.4 | ||||||||||||
| U.S. government securities | 73.1 | 0.1 | — | 73.2 | ||||||||||||
| U.S. government futures | 0.5 | — | — | 0.5 | ||||||||||||
| Corporate bonds | — | 101.7 | — | 101.7 | ||||||||||||
| Senior secured loans | — | 4.0 | — | 4.0 | ||||||||||||
| Mortgage-backed securities | — | 15.9 | — | 15.9 | ||||||||||||
| High-yield bonds | — | 11.7 | — | 11.7 | ||||||||||||
| Insurance contracts related to foreign plans | — | 14.8 | — | 14.8 | ||||||||||||
| Fair value of net plan assets at the end of the year | $ | 370.8 | $ | 561.2 | $ | 2.2 | $ | 934.2 |
(a) There were $15.3 million of transfers of plan assets between the three levels of the fair value hierarchy during the year.
(b) Reflects cash and cash equivalents held in overnight cash investments.
(c) 18% of mutual funds invest in fixed income types of securities; 82% invest in equity securities.
The fair values of the Company’s net pension assets, by fair value hierarchy, for both the U.S and foreign pension plans as of December 31, 2014, by asset category are as follows (in millions):
| Asset category: (a) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Cash and cash equivalents (b) | $ | — | $ | 57.2 | $ | — | $ | 57.2 | ||||||||
| Equity securities: | ||||||||||||||||
| U.S. equity | 183.5 | 98.6 | — | 282.1 | ||||||||||||
| International equity | 37.0 | 101.9 | 1.9 | 140.8 | ||||||||||||
| Alternatives | — | 115.2 | 1.9 | 117.1 | ||||||||||||
| Mutual funds (c) | 166.8 | 8.0 | — | 174.8 | ||||||||||||
| U.S. government securities | 77.6 | — | — | 77.6 | ||||||||||||
| U.S. government futures | (0.3 | ) | — | — | (0.3 | ) | ||||||||||
| Corporate bonds | — | 107.3 | — | 107.3 | ||||||||||||
| Senior secured loans | — | 4.1 | — | 4.1 | ||||||||||||
| Mortgage-backed securities | — | 15.6 | — | 15.6 | ||||||||||||
| High-yield bonds | — | 12.9 | — | 12.9 | ||||||||||||
| Insurance contracts related to foreign plans | — | 15.9 | — | 15.9 | ||||||||||||
| Fair value of net plan assets at the end of the year | $ | 464.6 | $ | 536.7 | $ | 3.8 | $ | 1,005.1 |
(a) There were no transfers of plan assets between the three levels of the fair value hierarchy during the year.
(b) Reflects cash and cash equivalents held in overnight cash investments.
(c) 25% of mutual funds invest in fixed income types of securities; 75% invest in equity securities.
U.S. equities are valued at the closing price reported in an active market on which the individual securities are traded. U.S. equities and non-U.S. equities are also valued at the net asset value provided by the independent administrator or custodian of the commingled fund. The net asset value is based on the value of the underlying equities, which are traded on an active market. Corporate bonds are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments. Fixed income investments are also valued at the net asset value provided by the independent administrator or custodian of the fund. The net asset value is based on the underlying assets, which are valued using inputs such as the closing price reported, if traded on an active market, values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments. Alternative investments are primarily valued at the net asset value as determined by the independent administrator or custodian of the fund. The net asset value is based on the underlying investments, which are valued using inputs such as quoted market prices of identical instruments or values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that utilizes observable inputs, such as current yields of similar instruments.
Postretirement Plans
The Company sponsors several postretirement defined benefit plans covering certain salaried and hourly employees. The plans provide health care and life insurance benefits for certain eligible retirees.
| Net period postretirement benefit cost (income) - in millions: | 2015 | 2014 | 2013 | |||||||||
| Service cost - benefits earned during the period | $ | — | $ | — | $ | — | ||||||
| Interest cost on benefit obligation | 0.5 | 0.6 | 0.6 | |||||||||
| Amortization of prior service cost | — | (0.2 | ) | (0.5 | ) | |||||||
| Amortization of actuarial gain | (0.2 | ) | (0.5 | ) | (0.3 | ) | ||||||
| Net periodic benefit income | $ | 0.3 | $ | (0.1 | ) | $ | (0.2 | ) |
| 2015 | 2014 | |||||||
| Changes in benefit obligation (in millions): | ||||||||
| Benefit obligation - beginning of year | $ | 12.8 | $ | 11.9 | ||||
| Interest cost on projected benefit obligation | 0.5 | 0.6 | ||||||
| Actuarial (gain) loss | (1.3 | ) | 1.6 | |||||
| Benefits paid | (1.3 | ) | (1.3 | ) | ||||
| Benefit obligation - end of year | $ | 10.7 | $ | 12.8 |
The measurement date for the Company’s postretirement plans is December 31.
| Future postretirement plan benefit payments (in millions): | ||||
| 2016 | $ | 1.1 | ||
| 2017 | 1.1 | |||
| 2018 | 1.1 | |||
| 2019 | 1.0 | |||
| 2020 | 1.0 | |||
| 2021-2025 | 4.0 | |||
| Total | $ | 9.3 |
The following table sets forth the funded status and amounts recognized in Teledyne’s consolidated balance sheets for the postretirement plans at year-end 2015 and 2014 (in millions):
| 2015 | 2014 | |||||||
| Funded status: | ||||||||
| Funded status | $ | (10.7 | ) | $ | (12.8 | ) | ||
| Unrecognized net gain | (4.2 | ) | (3.1 | ) | ||||
| Accrued benefit cost | $ | (14.9 | ) | $ | (15.9 | ) | ||
| Amounts recognized in the consolidated balance sheets: | ||||||||
| Accrued postretirement benefits (long-term) | $ | (9.6 | ) | $ | (11.6 | ) | ||
| Accrued postretirement benefits (short-term) | (1.1 | ) | (1.2 | ) | ||||
| Accumulated other comprehensive income | (4.2 | ) | (3.1 | ) | ||||
| Net amount recognized | $ | (14.9 | ) | $ | (15.9 | ) |
At January 3, 2016, the amounts in the AOCI that have not yet been recognized as components of net periodic benefit income for the retiree medical plans are: net gain $4.2 million and net prior service credit of less than $0.1 million. At January 3, 2016, the estimated amortization from AOCI expected to be recognized as components of net periodic benefit income during 2015 for the retiree medical plans are: net gain $0.3 million and net prior service cost of less than $0.1 million.
The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care plans is 7.0% in 2016 and was assumed to decrease to 5.0% by the year 2020 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point increase in the assumed health care cost trend rates would result in an increase in the annual service and interest costs by less than $0.1 million for 2015 and would result in an increase in the postretirement benefit obligation by $0.4 million at January 3, 2016. A one percentage point decrease in the assumed health care cost trend rates would result in a decrease in the annual service and interest costs by less than $0.1 million for 2015 and would result in a decrease in the postretirement benefit obligation by $0.3 million at January 3, 2016.
Note 12. Business Segments
The Company has four reportable segments: Instrumentation; Digital Imaging; Aerospace and Defense Electronics; and Engineered Systems. The Company manages, evaluates and aggregates its operating segments for segment reporting purposes primarily on the basis of product and service type, production process, distribution methods, type of customer, management organization, sales growth potential and long-term profitability. The Instrumentation segment provides monitoring and control instruments for marine, environmental, industrial and other applications, electronic test and measurement equipment and harsh environment interconnect products. The Digital Imaging segment includes high-performance sensors, cameras and systems, within the visible, infrared and X-ray spectra, for use in industrial, government and medical applications, as well as MEMS. It also includes our sponsored and centralized research laboratories benefiting government programs and businesses. The Aerospace and Defense Electronics segment provides sophisticated electronic components and subsystems and communications products, including defense electronics, harsh environment interconnects, data acquisition and communications equipment for aircraft and components and subsystems for wireless and satellite communications, as well as general aviation batteries. The Engineered Systems segment provides innovative systems engineering and integration, advanced technology application, software development and manufacturing solutions for defense, space, environmental and energy applications. The Engineered Systems segment also designs and manufactures electrochemical energy systems and small turbine engines.
Segment results include net sales and operating income by segment but excludes noncontrolling interest, equity income or loss, unusual non-recurring legal matter settlements, interest income and expense, gains and losses on the disposition of assets, sublease rental income and non-revenue licensing and royalty income, domestic and foreign income taxes and corporate office expenses. Corporate expense includes various administrative expenses relating to the corporate office and certain nonoperating expenses not allocated to our segments.
During 2013 and continuing into 2014 and 2015, in an effort to reduce ongoing costs and improve operating performance we took actions to consolidate and relocate certain facilities and reduce headcount across various businesses, reducing our exposure to weak end markets and high cost locations. During 2013, we incurred pretax charges totaling $24.0 million for severance and facility consolidation expense and environmental reserves. The charges were comprised of $10.4 million in severance related costs and $13.6 million in facility closure and relocation costs, which included $5.3 million of environmental reserves. For 2013 the charges impacted each business segment as follows: Aerospace and Defense Electronics, $15.7 million; Digital Imaging, $3.9 million; Instrumentation, $2.5 million; and Engineered Systems, $1.9 million. We incurred $4.4 million in similar expenses in 2014 . For 2014 the charges impacted the following business segments: Digital Imaging, $2.7 million;
Instrumentation $1.0 million; and Aerospace and Defense Electronics, $0.9 million. We incurred approximately $8.4 million in similar expenses in 2015. For 2015 the charges impacted each business segment as follows: Aerospace and Defense Electronics, $1.2 million; Digital Imaging, $3.2 million; Instrumentation, $3.9 million; and Engineered Systems, $0.1 million. While the 2015 actions were substantially completed by year-end, we continue to seek cost reductions in our businesses.
Identifiable assets are those assets used in the operations of the segments. Corporate assets primarily consist of cash and cash equivalents, deferred taxes, net pension assets/liabilities and other assets.
Information on the Company’s business segments was as follows (in millions):
| Sales: | 2015 | 2014 | 2013 | ||||||||
| Instrumentation | $ | 1,051.1 | $ | 1,115.5 | $ | 1,022.8 | |||||
| Digital Imaging | 379.0 | 403.6 | 414.8 | ||||||||
| Aerospace and Defense Electronics | 593.4 | 603.0 | 625.1 | ||||||||
| Engineered Systems | 274.6 | 271.9 | 275.9 | ||||||||
| Total net sales | $ | 2,298.1 | $ | 2,394.0 | $ | 2,338.6 | |||||
| Income before taxes: | 2015 | 2014 | 2013 | ||||||||
| Instrumentation | $ | 171.0 | $ | 181.6 | $ | 162.0 | |||||
| Digital Imaging | 40.0 | 37.1 | 28.2 | ||||||||
| Aerospace and Defense Electronics | 84.8 | 88.3 | 65.7 | ||||||||
| Engineered Systems | 26.1 | 31.4 | 22.0 | ||||||||
| Corporate expense | (40.2 | ) | (43.9 | ) | (37.6 | ) | |||||
| Operating income | 281.7 | 294.5 | 240.3 | ||||||||
| Interest and debt expense, net | (23.9 | ) | (19.0 | ) | (20.4 | ) | |||||
| Other income, net | 0.4 | 6.6 | 4.1 | ||||||||
| Income before taxes | $ | 258.2 | $ | 282.1 | $ | 224.0 |
| Depreciation and amortization: | 2015 | 2014 | 2013 | |||||||||
| Instrumentation | $ | 41.2 | $ | 41.1 | $ | 38.2 | ||||||
| Digital Imaging | 26.1 | 29.6 | 30.3 | |||||||||
| Aerospace and Defense Electronics | 15.0 | 15.9 | 16.5 | |||||||||
| Engineered Systems | 3.5 | 3.7 | 4.2 | |||||||||
| Corporate | 4.5 | 4.0 | 1.9 | |||||||||
| Total depreciation and amortization | $ | 90.3 | $ | 94.3 | $ | 91.1 |
| Capital expenditures: | 2015 | 2014 | 2013 | |||||||||
| Instrumentation | $ | 20.9 | $ | 17.0 | $ | 22.0 | ||||||
| Digital Imaging | 9.2 | 10.3 | 20.2 | |||||||||
| Aerospace and Defense Electronics | 9.1 | 8.8 | 15.3 | |||||||||
| Engineered Systems | 5.7 | 4.3 | 3.6 | |||||||||
| Corporate | 2.1 | 3.1 | 11.5 | |||||||||
| Total capital expenditures | $ | 47.0 | $ | 43.5 | $ | 72.6 |
| Identifiable assets: | 2015 | 2014 | 2013 | |||||||||
| Instrumentation | $ | 1,339.6 | $ | 1,415.4 | $ | 1,204.5 | ||||||
| Digital Imaging | 634.9 | 708.4 | 745.1 | |||||||||
| Aerospace and Defense Electronics | 451.6 | 462.5 | 436.9 | |||||||||
| Engineered Systems | 92.2 | 84.9 | 92.3 | |||||||||
| Corporate (a) | 200.2 | 191.0 | 272.3 | |||||||||
| Total identifiable assets | $ | 2,718.5 | $ | 2,862.2 | $ | 2,751.1 | ||||||
| (a) The amount for 2015, 2014 and 2013 includes $77.2 million, $86.3 million and $222.0 million prepaid pension asset, respectively. |
Information on the Company’s sales by country of origin and long-lived assets by major geographic area was as follows (in millions):
| Sales by country: | 2015 | 2014 | 2013 | |||||||||
| United States | $ | 1,805.4 | $ | 1,852.0 | $ | 1,776.8 | ||||||
| Canada | 208.8 | 230.1 | 221.7 | |||||||||
| United Kingdom | 124.6 | 139.8 | 174.2 | |||||||||
| All other countries | 159.3 | 172.1 | 165.9 | |||||||||
| Total sales | $ | 2,298.1 | $ | 2,394.0 | $ | 2,338.6 |
| Long-lived assets: | 2015 | 2014 | 2013 | |||||||||
| United States | $ | 1,332.5 | $ | 1,364.7 | $ | 1,320.2 | ||||||
| Canada | 249.9 | 310.5 | 354.1 | |||||||||
| United Kingdom | 127.3 | 120.6 | 131.5 | |||||||||
| All other countries | 139.3 | 128.2 | 146.2 | |||||||||
| Total long-lived assets | $ | 1,849.0 | $ | 1,924.0 | $ | 1,952.0 |
The all other countries category primarily consists of the operations in Europe. Long-lived assets consist of property, plant and equipment, goodwill, acquired intangible assets, prepaid pension assets and other long-term assets including deferred compensation assets but excluding any deferred tax assets.
Product Lines
The Instrumentation segment includes three product lines: Environmental Instrumentation, Marine Instrumentation and Test and Measurement Instrumentation. Beginning in the first quarter of 2014, within the Instrumentation segment, one business unit previously reported in the environmental instrumentation product line is now reported as part of the test and measurement instrumentation product line. Total sales for the business unit for 2013 were $9.4 million. Previously reported product line data has been restated to reflect this change. The Digital Imaging segment contains one product line as does the Aerospace and Defense Electronics segment. The Engineered Systems segment includes three product lines: Engineered Products and Services, Turbine Engines and Energy Systems.
The tables below provide a summary of the sales by product line for the Instrumentation segment and the Engineered Systems segment (in millions):
| Instrumentation: | 2015 | 2014 | 2013 | |||||||||
| Environmental Instrumentation | $ | 268.7 | $ | 268.4 | $ | 248.6 | ||||||
| Marine Instrumentation | 614.0 | 654.8 | 580.4 | |||||||||
| Test and Measurement Instrumentation | 168.4 | 192.3 | 193.8 | |||||||||
| Total | $ | 1,051.1 | $ | 1,115.5 | $ | 1,022.8 | ||||||
| Engineered Systems: | 2015 | 2014 | 2013 | |||||||||
| Engineered Products and Services | $ | 215.4 | $ | 211.4 | $ | 217.5 | ||||||
| Turbine Engines | 18.7 | 26.5 | 26.0 | |||||||||
| Energy Systems | 40.5 | 34.0 | 32.4 | |||||||||
| Total | $ | 274.6 | $ | 271.9 | $ | 275.9 |
Sales to the U.S. Government included sales to the U.S. Department of Defense of $447.2 million in 2015, $472.8 million in 2014, and $487.9 million in 2013. Total sales to international customers were $1,020.4 million in 2015, $1,069.3 million in 2014, and $1,031.8 million in 2013. Of these amounts, sales by operations in the United States to customers in other countries were $628.2 million in 2015, $624.0 million in 2014, and $566.0 million in 2013. There were no sales to individual countries outside of the United States in excess of 10 percent of the Company’s sales. Sales between business segments generally were priced at prevailing market prices and were $19.4 million, $20.1 million and $16.0 million for 2015, 2014 and 2013, respectively.
Note 13. Lease Commitments
The Company leases buildings and equipment under capital and operating leases. The present value of the minimum capital lease payments, net of the current portion, totaled $7.4 million at January 3, 2016. Operating lease agreements, which include leases for manufacturing facilities and office space frequently include renewal options and require the Company to pay for utilities, taxes, insurance and maintenance expense. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements.
At January 3, 2016, future minimum lease payments for capital leases and for operating leases with non-cancelable terms of more than one year were as follows (in millions):
| Lease Commitments: | Capital | Operating | ||||||
| 2016 | $ | 1.5 | $ | 22.2 | ||||
| 2017 | 1.3 | 19.9 | ||||||
| 2018 | 1.4 | 16.9 | ||||||
| 2019 | 1.3 | 15.2 | ||||||
| 2020 | 1.1 | 14.6 | ||||||
| Thereafter | 4.0 | 77.1 | ||||||
| Total minimum lease payments | 10.6 | $ | 165.9 | |||||
| Less: | ||||||||
| Imputed interest | (2.0 | ) | ||||||
| Current portion | (1.2 | ) | ||||||
| Present value of minimum capital lease payments, net of current portion | $ | 7.4 |
The 2015 property, plant and equipment accounts included $11.8 million of property leased under capital leases and $6.4 million of related accumulated depreciation. The 2014 property, plant and equipment accounts included $12.4 million of property leased under capital leases and $5.4 million of related accumulated depreciation. Rental expense under operating leases, net of sublease income, was $24.5 million in 2015, $25.5 million in 2014, and $25.8 million in 2013.
Note 14. Commitments and Contingencies
The Company is subject to federal, state and local environmental laws and regulations which require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws.
In accordance with the Company’s accounting policy disclosed in Note 2, environmental liabilities are recorded when the Company’s liability is probable and the costs are reasonably estimable. In many cases, however, investigations are not yet at a stage where the Company has been able to determine whether it is liable or, if liability is probable, to reasonably estimate the loss or range of loss, or certain components thereof. Estimates of the Company’s liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required, and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceeds, it is likely that adjustments in the Company’s accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company’s results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, however, management does not believe that future environmental costs in excess of those accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the Company’s financial condition or liquidity.
At January 3, 2016, the Company’s reserves for environmental remediation obligations totaled $8.7 million, of which $4.7 million is included in current accrued liabilities. The Company periodically evaluates whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and will complete remediation of all sites with which it has been identified in up to thirty years.
Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) may be asserted against the Company related to its U.S. Government contract work, including claims based on business practices and cost
classifications and actions under the False Claims Act. Although such claims are generally resolved by detailed fact-finding and negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue. Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government contracts based on the results of investigations. However, although the outcome of these matters cannot be predicted with certainty, management does not believe there is any audit, review or investigation currently pending against the Company of which management is aware that is likely to result in suspension or debarment of the Company, or that is otherwise likely to have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.
A number of other lawsuits, claims and proceedings have been or may be asserted against the Company, including those pertaining to product liability, acquisitions, patent infringement, commercial contracts, employment and employee benefits. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition.
Note 15. Subsequent Events
On January 26, 2016, Teledyne’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to an additional 3,000,000 shares of its common stock. See Note 8 to the Consolidated Financial Statements for additional information about our stock repurchase program.
Note 16. Quarterly Financial Data (Unaudited)
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||
| Fiscal year 2015 (a) | (in millions, except per-share amounts) | |||||||||||||||
| Sales | $ | 565.0 | $ | 577.7 | $ | 555.4 | $ | 600.0 | ||||||||
| Gross profit | $ | 219.1 | $ | 220.0 | $ | 209.6 | $ | 221.6 | ||||||||
| Net income | $ | 43.7 | $ | 48.0 | $ | 48.3 | $ | 55.5 | ||||||||
| Noncontrolling interest | $ | — | $ | 0.3 | $ | — | $ | — | ||||||||
| Net income attributable to Teledyne | $ | 43.7 | $ | 48.3 | $ | 48.3 | $ | 55.5 | ||||||||
| Basic earnings per share attributable to Teledyne: | $ | 1.22 | $ | 1.37 | $ | 1.37 | $ | 1.59 | ||||||||
| Diluted earnings per share attributable to Teledyne: | $ | 1.20 | $ | 1.34 | $ | 1.34 | $ | 1.57 | ||||||||
| a) Fiscal year 2015 was a 53-week year, each quarter contained 13 weeks except the fourth quarter which contained 14 weeks. | ||||||||||||||||
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||
| Fiscal year 2014 (a) | (in millions, except per-share amounts) | |||||||||||||||
| Sales | $ | 573.5 | $ | 597.1 | $ | 601.1 | $ | 622.3 | ||||||||
| Gross profit | $ | 221.8 | $ | 228.7 | $ | 225.7 | $ | 230.7 | ||||||||
| Net income | $ | 46.0 | $ | 55.8 | $ | 54.9 | $ | 58.9 | ||||||||
| Noncontrolling interest | $ | (0.2 | ) | $ | 0.3 | $ | 0.7 | $ | 1.3 | |||||||
| Net income attributable to Teledyne | $ | 45.8 | $ | 56.1 | $ | 55.6 | $ | 60.2 | ||||||||
| Basic earnings per share attributable to Teledyne: | $ | 1.22 | $ | 1.50 | $ | 1.49 | $ | 1.65 | ||||||||
| Diluted earnings per share attributable to Teledyne: | $ | 1.20 | $ | 1.47 | $ | 1.47 | $ | 1.62 | ||||||||
| a) Fiscal year 2014 was a 52-week year, each quarter contained 13 weeks. | ||||||||||||||||
Schedule II VALUATION AND QUALIFYING ACCOUNTS
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended January 3, 2016, December 28, 2014 and December 29, 2013
(In millions)
| Additions | |||||||||||||||||
| Description | Balance at beginning of period | Charged to costs and expenses | Acquisitions | Deductions and other | Balance at end of period | ||||||||||||
| Fiscal 2015 | |||||||||||||||||
| Reserve for doubtful accounts | $ | 7.8 | 0.9 | 0.3 | (2.7 | ) | $ | 6.3 | |||||||||
| Environmental reserves | $ | 9.7 | 0.7 | — | (1.6 | ) | $ | 8.8 | |||||||||
| Fiscal 2014 | |||||||||||||||||
| Reserve for doubtful accounts | $ | 5.2 | 3.6 | 1.9 | (2.9 | ) | $ | 7.8 | |||||||||
| Environmental reserves | $ | 9.1 | 0.5 | 0.9 | (0.8 | ) | $ | 9.7 | |||||||||
| Fiscal 2013 | |||||||||||||||||
| Reserve for doubtful accounts | $ | 4.7 | 0.9 | 1.6 | (2.0 | ) | $ | 5.2 | |||||||||
| Environmental reserves | $ | 3.2 | 6.2 | — | (0.3 | ) | $ | 9.1 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized as of February 29, 2016.
| Teledyne Technologies Incorporated (Registrant) | ||
| By: | /s/ Robert Mehrabian | |
| Robert Mehrabian | ||
| Chairman, President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| /s/ Robert Meharabian | Chairman, President and | |||||
| Robert Mehrabian | Chief Executive Officer (Principal Executive Officer) and Director | February 29, 2016 | ||||
| /s/ Susan L. Main | Senior Vice President and | |||||
| Susan L. Main | Chief Financial Officer (Principal Financial Officer) | February 29, 2016 | ||||
| /s/ Cynthia Belak | Vice President and | |||||
| Cynthia Belak | Controller (Principal Accounting Officer) | February 29, 2016 | ||||
| * | Director | February 29, 2016 | ||||
| Roxanne S. Austin | ||||||
| * | Director | February 29, 2016 | ||||
| Frank V. Cahouet | ||||||
| * | Director | February 29, 2016 | ||||
| Charles Crocker | ||||||
| * | Director | February 29, 2016 | ||||
| Kenneth C. Dahlberg | ||||||
| * | Director | February 29, 2016 | ||||
| Simon M. Lorne | ||||||
| * | Director | February 29, 2016 | ||||
| Robert A. Malone | ||||||
| * | Director | February 29, 2016 | ||||
| Paul D. Miller | ||||||
| * | Director | February 29, 2016 | ||||
| Jane C. Sherburne | ||||||
| * | Director | February 29, 2016 | ||||
| Michael T. Smith | ||||||
| * | Director | February 29, 2016 | ||||
| Wesley W. von Schack | ||||||
| *By: | /s/ Melanie S. Cibik | |||||
| Melanie S. Cibik Pursuant to Power of Attorney filed as Exhibit 24.1 |
EXHIBIT INDEX
| Exhibit No. | Description | |
| 2.1 | Separation and Distribution Agreement dated as of November 29, 1999 by and among Allegheny Teledyne Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc. and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated as of November 29, 1999 (File No. 1-15295)) | |
| 2.2 | Purchase Agreement by and among Teledyne Technologies Incorporated, Technify Motor (USA) Ltd. and AVIC International Holding Corporation, dated as of December 11, 2010 (incorporated by reference to Exhibit 2.2 to the Company’s Annual Report on Form 10-K dated January 2, 2011(File No. 1-15295)) | |
| 2.3 | Arrangement Agreement, dated December 22, 2010, between Teledyne Technologies Incorporated, Teledyne Canada, Inc. and DALSA Corporation (incorporated by reference to Exhibit 2.01 to the Company’s Current Report on Form 8-K dated February 12, 2011(File No. 1-15295)) | |
| 2.4 | Amending Agreement, dated January 17, 2011, between Teledyne Technologies Incorporated, Teledyne Canada, Inc. and DALSA Corporation (incorporated by reference to Exhibit 2.02 to the Company’s Current Report on Form 8-K dated February 12, 2011(File No. 1-15295)) | |
| 2.5 | Agreement and Plan of Merger, by and among Teledyne Technologies Incorporated, Luna Merger Sub, Inc., and LeCroy Corporation, dated as of May 28, 2012 (incorporated by reference to the Company’s Current Report on Form 8-K dated as of May 28, 2012(File No. 1-15295)) | |
| 2.6 | Agreement and Plan of Merger, dated as of September 3, 2014 among Teledyne Technologies Incorporated, Lighting Merger Sub, Inc. and Bolt Technology Corporation (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 3, 2014 (File No. 1-15295)) | |
| 3.1 | Restated Certificate of Incorporation of Teledyne Technologies Incorporated (including Certificate of Designation of Series A Junior Participating Preferred Stock) (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2000 (File No. 1-15295)) | |
| 3.2 | Amended and Restated Bylaws of Teledyne Technologies Incorporated (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2014 (File No. 1-15295)) | |
| 10.1 | Employee Benefits Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A (Amendment No. 1) dated as of November 29, 1999 (File No. 1-15295))† | |
| 10.2 | Teledyne Technologies Incorporated 1999 Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2000 (File No. 1-15295))† | |
| 10.3 | Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2000 (File No. 1-15295))† | |
| 10.4 | Amendment No. 1 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-15295)† | |
| 10.5 | Amendment No. 2 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-15295)† | |
| 10.6 | Amendment No. 3 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended December 29, 2002 (File No. 1-15295)† | |
| 10.7 | Amendment No. 4 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the period ended September 28, 2003) (File No. 1-15295)† | |
| 10.8 | Teledyne Technologies Incorporated 2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 30, 2001 (File No. 1-15295))† | |
| 10.9 | Administrative Rules of the 2002 Stock Incentive Plan Related to Non-Employee Director Stock Compensation (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K dated January 23, 2007 (File No. 1-5295))† | |
| 10.10 | Teledyne Technologies Incorporated 2008 Incentive Award Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement filed March 7, 2008 (File No. 1-15295))† | |
| 10.11 | Teledyne Technologies Incorporated Administrative Rules of the 2008 Incentive Award Plan Related to Non-Employee Director Stock Compensation (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2008 (File No. 1-15295))† | |
| 10.12 | Administrative Rules for the Teledyne Technologies Incorporated Restricted Stock Award Program under the 2008 Incentive Award Plan, effective as of January 20, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 20, 2009 (File No. 1-15295))† | |
| 10.13 | Form of Stock Option Agreement under the 2008 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 19, 2010 (File No.1-15295))† | |
| 10.14 | Summary Plan Description for the Teledyne Technologies Incorporated Performance Service Plan under the 2008 Incentive Award Plan for the 2012-2014 performance cycle (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012 (File No. 1-15295))† | |
| 10.15 | Teledyne Technologies Incorporated Amended and Restated 2008 Incentive Award Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement filed March 8, 2012 (File No. 1-15295))† | |
| 10.16 | Administrative Rules of the Teledyne Technologies Incorporated Amended and Restated 2008 Incentive Award Plan Related to Non-Employee Director Stock Compensation (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2012 (File No. 1-15295))† | |
| 10.17 | Form of Stock Option Agreement under the Teledyne Technologies Incorporated Amended and Restated 2008 Incentive Award Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2012 (File No. 1-15295))† | |
| 10.18 | Administrative Rules related to the Restricted Stock Award Program under the Teledyne Technologies Incorporated Amended and Restated 2008 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 22, 2013 (File No. 1-15295))† | |
| 10.19 | Form of Restricted Stock Award Agreement under the Teledyne Technologies Incorporated Amended and Restated 2008 Incentive Award Plan (incorporated by reference to Exhibit 10.35 to the Company’s Annual Report Form 10-K for the year ended December 30, 2012) (File No. 1-15295))† | |
| 10.20 | Restricted Stock Award Agreement, dated October 22, 2013, by and between Teledyne Technologies Incorporated and Dr. Robert Mehrabian (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated October 22, 2013) (File No. 1-15295))† | |
| 10.21 | Teledyne Technologies Incorporated 2014 Incentive Award Plan (incorporated by reference to Annex A of the Company’s Definitive Proxy Statement filed March 5, 2014 (File No. 1-15295))† | |
| 10.22 | Form of stock option agreement and conditions under the Teledyne Technologies Incorporated 2014 Incentive Award Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated April 23, 2014 File No. 1-15295))† | |
| 10.23 | Administrative Rules of the Teledyne Technologies Incorporated 2014 Incentive Plan Related to Non-Employee Director Stock Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated April 23, 2014 (File No. 1-15295))† | |
| 10.24 | Standing resolutions of the Nominating and Governance Committee related to non-employee director compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 31, 2014 (File No. 1-15295))† | |
| 10.25 | Administrative Rules of the 2014 Incentive Award Plan Related to Non-Employee Director Restricted Stock Unit Awards and Fees (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated December 31, 2014 (File No. 1-15295))† | |
| 10.26 | Administrative Rules for the Restricted Stock Award Program under the 2014 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295))† | |
| 10.27 | Form of Restricted Stock Award Agreement under the 2014 Incentive Award Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295))† | |
| 10.28 | Form of Restricted Stock Unit Agreement under the 2014 Incentive Award Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295))† | |
| 10.29 | Summary Plan Description for the 2015-2017 Performance Share Program (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295))† | |
| 10.30 | Summary Plan Description for the 2015-2017 Performance Share Program (Canadian Participants) (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295))† | |
| 10.31 | Fifth Amended and Restated Employment Agreement, dated October 22, 2013, by and between Teledyne Technologies Incorporated and Dr. Robert Mehrabian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 22, 2013) (File No. 1-15295)† | |
| 10.32 | Amendment One, dated as of September 28, 2015, to the Fifth Amended and Restated Employment Agreement between Teledyne Technologies Incorporated and Robert Mehrabian. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated September 28, 2015) (File No. 1-15295))† | |
| 10.33 | Letter agreement with Rex Geveden, dated May 16, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 16, 2014 (File No. 1-15295))† | |
| 10.34 | Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between Teledyne Technologies Incorporated and Robert Mehrabian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 31, 2011 (File No. 1-15295))† | |
| 10.35 | Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between Teledyne Technologies Incorporated and Al Pichelli (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 31, 2011 (File No. 1-15295))† | |
| 10.36 | Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between Teledyne Technologies Incorporated and Rex Geveden (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 31, 2011 (File No. 1-15295))† | |
| 10.37 | Amended and Restated change in Control Severance Agreement dated January 31, 2011, by and between Teledyne Technologies Incorporated and Susan L. Main (incorporated by reference to Exhibit 10.12 to Company's Annual Report on Form 10-K for the fiscal years ended December 29, 2013 (File No. 1-15295))† | |
| 10.38 | Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between Teledyne Technologies Incorporated and Melanie Cibik (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for the fiscal year end December 29, 2013 (File No. 1-15295))† | |
| 10.39 | Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between Teledyne Technologies Incorporated and Jason Vanwees*† | |
| 10.40 | Teledyne Technologies Incorporated Executive Deferred Compensation Plan, as originally effective as of November 29, 1999, as amended and restated effective December 31, 2004 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2008)(File No. 1-15295)† | |
| 10.41 | Teledyne Technologies Incorporated Pension Equalization/Benefit Restoration Plan, as originally effective as of November 29, 1999, as amended and restated effective December 31, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 31, 2008(File No. 1-15295))† | |
| 10.42 | Teledyne Technologies Pension Equalization/Benefit Restoration Plan - Resolutions of the Plan Administration Committee (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 31, 2014 (File No. 1-15295))† | |
| 10.43 | Form of Amendment to Stock Options, dated October 1, 2007, by and between Teledyne Technologies Incorporated and directors Frank V. Cahouet, Charles Crocker, Simon M. Lorne, Paul D. Miller and Michael T. Smith (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007 (File No. 1-15295))† |
| 10.44 | Note Purchase Agreement, dated May 12, 2010, by and among Teledyne Technologies Incorporated and the Purchasers identified therein (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2010 (File No. 1-15295)) | |
| 10.45 | Amended and Restated Credit Agreement, dated as of March 1, 2013, by and among Teledyne Technologies Incorporated (Teledyne), certain subsidiaries of Teledyne as Designated Borrowers, certain subsidiaries of Teledyne as Guarantors, the Lender parties thereto and Bank of America, N.A. as Administrative Agent, Swing-Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated March 1, 2013) (File No. 1-15295)) | |
| 10.46 | First Amendment to Amended and Restated Credit Facility, dated as of December 4, 2015, by and among Teledyne, certain subsidiaries of Teledyne, the lender parties thereto and Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 4, 2015 (File No. 1-15295)) | |
| 10.47 | Amendment Agreement, dated November 21, 2013, by and among Teledyne Technologies Incorporated and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 21, 2013) (File No. 1-15295)) | |
| 10.48 | Loan Agreement, dated October 22, 2012, among Teledyne Technologies Incorporated, as borrower, certain of its subsidiaries, as guarantors, and U.S. Bank National Association., as lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 22, 2012 (File No. 1-15295)) | |
| 10.49 | Amendment Agreement, dated November 21, 2013, by and among Teledyne Technologies Incorporated and U.S. Bank, National Association(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 21, 2013) (File No. 1-15295)) | |
| 10.50 | Note Purchase Agreement, dated September 23, 2014, by and among Teledyne Technologies Incorporated and the Purchasers identified therein (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on September 23, 2014 (File No. 1-15295)) | |
| 10.51 | Form of Indemnification Agreement executed by each of the Company’s directors and named executive officers (incorporated by reference to the Company’s Current Report on Form 8-K dated April 22, 2009 (File No. 1-15295))† | |
| 10.53 | Note Purchase Agreement, dated August 27, 2015, by and among Teledyne Technologies Incorporated and the Purchasers identified therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 27, 2015) (File No. 1-15295)) | |
| 14.1 | Teledyne Technologies Incorporated Global Code of Ethical Conduct - this code of ethics may be accessed via the Company’s website at www.teledyne.com/aboutus/ethics.pd | |
| 14.2 | Code of Ethics for Financial Executives - this code of ethics may be accessed via the Company’s website at www.teledyne.com/aboutus/ethics.asp | |
| 14.3 | Directors Code of Business Conduct and Ethics - this code of ethics may be accessed via the Company’s website at www.teledyne.com/aboutus/ethics.asp | |
| 21 | Subsidiaries of Teledyne Technologies Incorporated* | |
| 23.1 | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm * | |
| 23.2 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm* | |
| 24.1 | Power of Attorney - Directors* | |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* | |
| 101.INS | XBRL Instance Document** | |
| 101.SCH | XBRL Taxonomy Extension Schema Document** | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
| * | Submitted electronically herewith. |
| ** | Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language) for the year ended January 3, 2016: (i) the Consolidated Statement of Income, (ii) the Consolidated Balance Sheet, (iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statement of Comprehensive Income (Loss), (v) the Consolidated Statement of Cash Flows, (vi) Notes to Consolidated Financial Statements and (vii) Financial Schedule of Valuation and Qualifying Accounts. |
| † | Denotes management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K. |
Previous: Item 14. Principal Accountant Fees and Services.