Item 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 55 of this Report, which is incorporated herein by reference.

(2) Financial Statement Schedules

See Schedule II captioned “Valuation and Qualifying Accounts” on page 98 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.

See Item 15(a)(2) above.

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INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION



			Page
Financial Statements and Related Information:
Management Statement			56
Report of Independent Registered Public Accounting Firm			57
Report of Independent Registered Public Accounting Firm			58

Consolidated Statements of Income			60
Consolidated Statements of Comprehensive Income			60
Consolidated Balance Sheets			61
Consolidated Statements of Stockholders’ Equity			62
Consolidated Statements of Cash Flows			63
Notes to Consolidated Financial Statements			64
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts			98

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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 December 29, 2019. 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 scientific imaging businesses of Roper Technologies, Inc., the gas and flame detection businesses of 3M Company or the Micralyne acquisitions in 2019. These acquisitions, which are included in the 2019 consolidated financial statements of the Company, constituted approximately 12% of total assets, 4% of total revenues and 3% of net income of the Company as of and for the fiscal year ended December 29, 2019. 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 December 29, 2019, 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 57 of this Annual Report.

Date: February 21, 2020



/s/ ALDO PICHELLI
Aldo Pichelli
President and Chief Executive Officer

Date: February 21, 2020



/s/ SUSAN L. MAIN
Susan L. Main
Senior Vice President and Chief Financial Officer

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Teledyne Technologies Incorporated

Thousand Oaks, California

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Teledyne Technologies Incorporated and subsidiaries (the “Company”) as of December 29, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 29, 2019, of the Company and our report dated February 21, 2020, expressed an unqualified opinion on those financial statements and financial statement schedule.

As described in 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 the scientific imaging businesses of Roper Technologies, Inc., the gas and flame detection businesses of 3M Company, and the Micralyne acquisition, which were acquired on February 5, 2019, August 1, 2019 and August 30, 2019, respectively, and whose financial statements constitute approximately 12% of total assets, 4% of total revenues, and 3% of net income of the consolidated financial statement amounts as of and for the year ended December 29, 2019. Accordingly, our audit did not include the internal control over financial reporting for the 2019 acquisitions.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Los Angeles, California

February 21, 2020

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Teledyne Technologies Incorporated

Thousand Oaks, California

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Teledyne Technologies Incorporated and subsidiaries (the "Company") as of December 29, 2019 and December 30, 2018, the related consolidated statements of income, comprehensive income, shareholders' equity, and cash flows, for each of the three years in the period ended December 29, 2019, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 2019 and December 30, 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2019, 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) (PCAOB), the Company's internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition, effective January 1, 2018, due to adoption of FASB ASC Topic 606, Revenue from Contracts with Customers.

Also as discussed in Note 2 to the consolidated financial statements, effective December 31, 2018, the Company adopted FASB ASC Topic 842, Leases, using the modified retrospective approach.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Acquisitions — The Scientific Imaging Businesses of Roper Technologies, Inc. and the Gas and Flame Detection Businesses of 3M Company – Intangible Assets – Refer to Notes 2 and 3 to the financial statements

Critical Audit Matter Description

During 2019, the Company completed three acquisitions for net consideration of $484.0 million. The most significant of these were (1) the acquisition of the scientific imaging businesses of Roper Technologies, Inc. for net consideration of $224.8 million and (2) the acquisition of the gas and flame detection businesses of 3M Company for net consideration of $233.5 million. Auditing the Company’s 2019 acquisitions involved a high degree of auditor judgment and complexity to test management’s identification and preliminary valuation of acquired intangibles, specifically revenue projections used within the fair valuation of certain intangible assets assumed.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to (1) the identification of acquired intangibles and (2) revenue projections used to estimate the fair value of the intangible assets acquired included the following, among others:

We tested the effectiveness of controls over the identification of acquired intangibles and management’s controls over the revenue projections used to estimate the fair value of the intangible assets acquired.
With the assistance of our fair value specialists, we read each of the purchase agreements and evaluated and challenged management’s identification of the acquired intangible assets.
We evaluated the reasonableness of the revenue projections by comparing them to (1) third-party historical financial data, (2) current economic factors and analyst reports of the Company and companies in its peer group, (3) evidence obtained in other areas of the audit, such as assumptions used by the Company in its budgeting process, and (4) the Company’s similar historical acquisitions.
We performed a sensitivity analysis by varying projected revenue assumptions.
With the assistance of our fair value specialists, we performed an analysis comparing the projected revenues of comparable companies within the acquired companies’ industries to management’s projected revenues used within the valuation models.
With the assistance of our fair value specialists, we tested the underlying source information and mathematical accuracy of the calculations.

/s/ Deloitte & Touche LLP

Los Angeles, California

February 21, 2020

We have served as the Company's auditor since 2015.

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TELEDYNE TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per-share amounts)


	For the Fiscal Year
	2019		2018		2017
Net Sales	$	3,163.6	$	2,901.8	$	2,603.8
Costs and expenses
Cost of sales	1,920.3		1,791.0		1,624.0
Selling, general and administrative expenses	751.6		694.2		658.1
Total costs and expenses	2,671.9		2,485.2		2,282.1
Operating income	491.7		416.6		321.7
Interest and debt expense, net	(21.0)		(25.5)		(33.1)
Non-service retirement benefit income	8.0		13.5		13.9
Other expense, net	(5.0)		(10.7)		(15.5)
Income before income taxes	473.7		393.9		287.0
Provision for income taxes	71.4		60.1		59.8




Net income	$	402.3	$	333.8	$	227.2











Basic earnings per common share	$	11.08	$	9.32	$	6.45
Weighted average common shares outstanding	36.3		35.8		35.2




Diluted earnings per common share	$	10.73	$	9.01	$	6.26
Weighted average diluted common shares outstanding	37.5		37.0		36.3

The accompanying notes are an integral part of these financial statements.

TELEDYNE TECHNOLOGIES INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)



	For the Fiscal Year
	2019		2018		2017
Net income	$	402.3	$	333.8	$	227.2
Other comprehensive income (loss):
Foreign exchange translation adjustment	31.1		(79.5)		96.8
Hedge activity, net of tax	2.6		(5.4)		3.3
Pension and postretirement benefit adjustments, net of tax	(16.3)		(31.4)		21.8
Other comprehensive income (loss)(a)	17.4		(116.3)		121.9
Comprehensive income	$	419.7	$	217.5	$	349.1

(a) Net of income tax benefit of $6.6 million in 2019, income tax benefit of $10.6 million for 2018 and income tax expense of $12.7 million for 2017.

The accompanying notes are an integral part of these financial statements.

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TELEDYNE TECHNOLOGIES INCORPORATED

CONSOLIDATED BALANCE SHEETS

For the Fiscal Years Ended December 29, 2019 and December 30, 2018

(In millions, except share amounts)


	2019		2018
Assets
Current Assets
Cash	$	199.5	$	142.5
Accounts receivable, net	460.4		416.5
Unbilled receivables, net	200.5		145.3
Inventories, net	393.4		364.3

Prepaid expenses and other current assets	59.9		45.8

Total Current Assets	1,313.7		1,114.4
Property, plant and equipment, net	487.9		442.6
Goodwill	2,050.5		1,735.2
Acquired intangible assets, net	430.8		344.3
Prepaid pension assets	71.8		88.2
Operating lease right-of-use assets	127.1		—
Other assets, net	98.0		84.6
Total Assets	$	4,579.8	$	3,809.3
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	271.1	$	227.8
Accrued liabilities	391.5		355.6
Current portion of long-term debt and other debt	100.6		137.4

Total Current Liabilities	763.2		720.8
Long-term debt	750.0		610.1
Long-term operating lease liabilities	119.3		—

Other long-term liabilities	232.6		248.7
Total Liabilities	1,865.1		1,579.6
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value; authorized 15,000,000 shares; outstanding shares-none	—		—
Common stock, $0.01 par value; authorized 125,000,000 shares; Issued shares: 37,697,865 at December 29, 2019, and December 30, 2018; outstanding shares: 36,547,966 at December 29, 2019, and 36,087,297 at December 30, 2018	0.4		0.4
Additional paid-in capital	360.5		343.7
Retained earnings	2,926.0		2,523.7
Treasury stock, 1,149,899 at December 29, 2019 and 1,610,568 at December 30, 2018	(96.4)		(144.9)
Accumulated other comprehensive loss	(475.8)		(493.2)


Total Stockholders’ Equity	2,714.7		2,229.7
Total Liabilities and Stockholders’ Equity	$	4,579.8	$	3,809.3

The accompanying notes are an integral part of these financial statements.

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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




















































Balance, January 1, 2017	$	0.4	$	335.7	$	(242.9)	$	1,912.4	$	(451.2)	$	1,554.4
Net income	—		—		—		227.2		—		227.2
Other comprehensive income, net of tax	—		—		—		—		121.9		121.9
Treasury stock issued	—		(42.2)		42.2		—		—		—
Stock-based compensation	—		24.9		—		—		—		24.9
Exercise of stock options	—		18.9		—		—		—		18.9
Balance, December 31, 2017	0.4		337.3		(200.7)		2,139.6		(329.3)		1,947.3


Net income	—		—		—		333.8		—		333.8
Other comprehensive loss, net of tax	—		—		—		—		(116.3)		(116.3)
Treasury stock issued	—		(55.8)		55.8		—		—		—
Stock-based compensation	—		37.2		—		—		—		37.2
Exercise of stock options and other	—		25.0		—		(0.6)		—		24.4
Cumulative effect of new accounting standards	—		—		—		50.9		(47.6)		3.3
Balance, December 30, 2018	0.4		343.7		(144.9)		2,523.7		(493.2)		2,229.7
Net income	—		—		—		402.3		—		402.3
Other comprehensive income, net of tax	—		—		—		—		17.4		17.4
Treasury stock issued	—		(48.5)		48.5		—		—		—
Stock-based compensation	—		30.7		—		—		—		30.7
Exercise of stock options	—		34.6		—		—		—		34.6
Balance, December 29, 2019	$	0.4	$	360.5	$	(96.4)	$	2,926.0	$	(475.8)	$	2,714.7

The accompanying notes are an integral part of these financial statements.

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TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)



	For the Fiscal Year
	2019		2018		2017
Operating Activities
Net income	$	402.3	$	333.8	$	227.2

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	111.9		113.0		113.0

Stock-based compensation	30.7		25.1		18.8




Changes in operating assets and liabilities, excluding the effect of businesses acquired:
Accounts receivable	(58.8)		(66.7)		(19.6)
Inventories	12.2		(1.7)		(7.4)
Prepaid expenses and other assets	2.8		7.6		(3.6)
Accounts payable	29.6		39.9		12.4
Accrued liabilities	5.9		17.8		16.2
Deferred and income taxes payable, net	(53.8)		(26.4)		28.1
Long-term assets	(8.1)		4.9		(13.8)
Other long-term liabilities	11.9		(13.7)		(2.2)


Other, net	(4.5)		13.3		5.6


Net cash provided by operating activities	482.1		446.9		374.7
Investing Activities
Purchases of property, plant and equipment	(88.4)		(86.8)		(58.5)
Purchase of businesses and other investments, net of cash acquired	(484.0)		(3.1)		(774.1)
Other, net	0.5		1.3		1.4





Net cash used in investing activities	(571.9)		(88.6)		(831.2)
Financing Activities
Net proceeds (payments) on credit facility	96.0		(136.0)		165.0
Proceeds from other debt	—		11.5		100.0
Payments on other debt	(137.2)		(182.0)		(139.3)
Proceeds from issuance of term loans and senior notes	150.0		—		268.0

Proceeds from stock options exercised	34.6		37.2		24.9



Other, net	(1.7)		(2.0)		(4.5)
Net cash provided by (used in) financing activities	141.7		(271.3)		414.1
Effect of exchange rate changes on cash	5.1		(15.4)		14.7
Change in cash	57.0		71.6		(27.7)
Cash—beginning of period	142.5		70.9		98.6
Cash—end of period	$	199.5	$	142.5	$	70.9

The accompanying notes are an integral part of these financial statements.

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TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 29, 2019

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 aerospace and defense, factory automation, air and water quality environmental monitoring, electronics design and development, oceanographic research, deepwater oil and gas exploration and production, medical imaging and pharmaceutical research. The products include digital imaging sensors, cameras and systems within the visible, infrared and X-ray spectra, monitoring and control instrumentation for marine and environmental applications, harsh environment interconnects, electronic test and measurement equipment, 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, France, the Netherlands and the United Kingdom: 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.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Teledyne and its majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated.

Fiscal Year

The Company operates on a 52- or 53-week fiscal year convention ending on the Sunday nearest to December 31. Fiscal year 2019 was a 52-week fiscal year and ended on December 29, 2019. Fiscal year 2018 was a 52-week fiscal year and ended on December 30, 2018. Fiscal year 2017 was a 52-week fiscal year and ended on December 31, 2017. References to the years 2019, 2018 and 2017 are intended to refer to the respective fiscal year unless otherwise noted.

Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) 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 sales returns and allowances, 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.

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Accumulated Other Comprehensive Income/(Loss)

The following table summarizes the changes in accumulated balances of other comprehensive income/(loss) (“AOCI”) for the fiscal years ended December 29, 2019, and December 30, 2018 (in millions):


	Foreign Currency Translation		Cash Flow Hedges and other		Pension and Postretirement Benefits		Total





Balance as of December 31, 2017	$	(102.0)	$	0.5	$	(227.8)	$	(329.3)

Other comprehensive income (loss) before reclassifications	(79.5)		1.0		—		(78.5)
Amounts reclassified from AOCI	—		(6.4)		(31.4)		(37.8)
Net other comprehensive loss	(79.5)		(5.4)		(31.4)		(116.3)
Reclassification of stranded income tax effects	—		—		(47.6)		(47.6)
Balance as of December 30, 2018	(181.5)		(4.9)		(306.8)		(493.2)
Other comprehensive income before reclassifications	31.1		7.6		—		38.7
Amounts reclassified from AOCI	—		(5.0)		(16.3)		(21.3)
Net other comprehensive income (loss)	31.1		2.6		(16.3)		17.4
Balance as of December 29, 2019	$	(150.4)	$	(2.3)	$	(323.1)	$	(475.8)

The reclassification out of AOCI for the fiscal years ended December 29, 2019, and December 30, 2018, are as follows (in millions):


	December 29, 2019		December 30, 2018
	Amount reclassified from AOCI		Amount reclassified from AOCI		Financial Statement Presentation
Gain on cash flow hedges:
Gain recognized in income on derivatives	$	(6.9)	$	(8.7)	See Note 2
Income tax impact	1.9		2.3		Provision for income taxes
Total	$	(5.0)	$	(6.4)

Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost	$	(5.9)	$	(6.1)	See Note 11
Amortization of net actuarial loss	30.9		31.5		See Note 11
Pension adjustments	(47.1)		(66.6)		See Note 11
Total before tax	(22.1)		(41.2)
Income tax impact	5.8		9.8
Net of tax	$	(16.3)	$	(31.4)

Revenue Recognition

We determine the appropriate method by which we recognize revenue by analyzing the nature of the products or services being provided as well as the terms and conditions of contracts or arrangements entered into with our customers. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A contract’s transaction price is allocated to each distinct good or service (i.e., performance obligation) identified in the contract, and each performance obligation is valued based on its estimated relative standalone selling price. For standard products or services, list prices generally represent the standalone selling price. For performance obligations where list price is not available, we typically use the expected cost plus a margin approach to estimate the standalone selling price for that performance obligation. Approximately 60% of our revenue is recognized at a point in time, with the remaining 40% recognized over time.

Revenue recognized at a point in time relates primarily to the sale of standard or minimally customized products, with control transferring to the customer generally upon the transfer of title. This type of revenue arrangement is typical for our commercial contracts within the Instrumentation, Digital Imaging, and Aerospace and Defense Electronics segments, and to a lesser extent for certain commercial contracts within the Engineered Systems segment relating to the sale of standard hydrogen/oxygen gas generators. In limited circumstances, customer specified acceptance criteria exist. If we cannot objectively demonstrate that the product meets those specifications prior to the shipment, the revenue is deferred until customer acceptance is obtained. The transaction price in these arrangements can include variable consideration, such as product returns and sales allowances. The estimation of this variable consideration and determination of whether to include estimated amounts as a

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reduction in the transaction price is based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

Revenue recognized over time relates primarily to contracts to design, develop and/or manufacture highly engineered products used in both defense and commercial applications. This type of revenue arrangement is typical of our U.S. government contracts and to a lesser extent for certain commercial contracts, with both contract types occurring across all segments. The customer typically controls the work in process as evidenced either by contractual termination clauses or by our right to payment for costs incurred to date plus a reasonable profit for products or services that do not have an alternative use. As control transfers continuously over time on these contracts, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We generally use the cost-to-cost measure of progress as this measure best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. The transaction price in these arrangements may include estimated amounts of variable consideration, including award fees, incentive fees, contract amounts not yet funded, or other provisions that can either increase or decrease the transaction price. We estimate variable consideration at the amount to which we expect to be entitled, and we include estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the estimation uncertainty is resolved. The estimation of this variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

The majority of our over time contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Over time contracts are often modified to account for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of our contract modifications on over time contracts are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

For over time contracts using cost-to-cost, we have an Estimate at Completion (“EAC”) process in which management reviews the progress and execution of our performance obligations. This EAC process requires management judgment relative to assessing risks, estimating contract revenue, determining reasonably dependable cost estimates, and making assumptions for schedule and technical issues. Since certain contracts extend over a longer period of time, the impact of revisions in cost and revenue estimates during the progress of work may adjust the current period earnings through 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 majority of revenue recognized over time uses an EAC process. The net aggregate effects of these changes in estimates on contracts accounted for under the cost-to-cost method in 2019 was approximately $20.2 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue, and, to a lesser degree, cost of sales, within the Digital Imaging operating segment. The net aggregate effects of these changes in estimates on contracts accounted for under the cost-to-cost method in 2018 was approximately $4.4 million of favorable operating income, primarily related to changes in estimates that favorably impacted revenue. None of the effects of changes in estimates on any individual contract were material to the consolidated statements of income for any period presented.

While extended or non-customary warranties do not represent a significant portion of our revenue, we recognize warranty services as a separate performance obligations when it is material to the contract. When extended or non-customary warranties represents a separate performance obligation, the revenue is deferred and recognized ratably over the extended warranty period.

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity). As of December 29, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,834.8 million. The Company expects approximately 75% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 25% recognized thereafter.

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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 Costs

Some of the Company’s products are subject to standard 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):	2019		2018		2017
Balance at beginning of year	$	21.0	$	21.1	$	18.4
Product warranty expense	13.1		10.0		6.0
Deductions	(14.2)		(10.1)		(6.4)
Acquisitions	4.9		—		3.1
Balance at end of year	$	24.8	$	21.0	$	21.1

Research and Development and Bid and Proposal Costs

Selling, general and administrative expenses include Company-funded research and development and bid and proposal costs which are expensed as incurred and were $209.6 million in 2019, $185.6 million in 2018 and $177.7 million in 2017.

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.

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Net Income Per Common Share

Basic and diluted earnings per share were computed based on net income. 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:	2019		2018		2017



Net income	$	402.3	$	333.8	$	227.2
Basic earnings per common share:
Weighted average common shares outstanding	36.3		35.8		35.2



Basic earnings per common share	$	11.08	$	9.32	$	6.45
Diluted earnings per share:
Weighted average common shares outstanding	36.3		35.8		35.2
Effect of diluted securities (primarily stock options)	1.2		1.2		1.1
Weighted average diluted common shares outstanding	37.5		37.0		36.3



Diluted earnings per common share	$	10.73	$	9.01	$	6.26

For 2019, 1,620 stock options were excluded in the computation of diluted earnings per share because they had exercise prices that were greater than the weighted average market price of the Company’s common stock during the year. For 2018, 2,580 stock options were excluded in the computation of diluted earnings per share because they had exercise prices that were greater than the weighted average market price of the Company’s common stock during the year. For 2017, no stock options were excluded in the computation of diluted earnings per share.

For 2019, 2018 and 2017, stock options to purchase 2.0 million, 2.1 million and 2.3 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.

No contingent shares under the restricted stock or performance share compensation plans were excluded from fully diluted shares outstanding for 2019, 2018 or 2017.

Cash

Cash totaled $199.5 million at December 29, 2019, of which $139.7 million was held by foreign subsidiaries.

Accounts Receivable, Unbilled Receivables and Contract Liabilities

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities, which are included in accrued liabilities and other long-term liabilities) on the Consolidated Balance Sheet. Under the typical payment terms of our over time contracts, the customer pays us either performance-based payments or progress payments. Amounts billed and due from our customers are classified as receivables on the Consolidated Balance Sheet. We may receive interim payments as work progresses, although for some contracts, we may be entitled to receive an advance payment. We recognize a liability for these interim and advance payments in excess of revenue recognized and present it as a contract liability which is included within accrued liabilities and other long-term liabilities on the Consolidated Balance Sheet, which represented $126.8 million and $17.9 million as of December 29, 2019 and $111.5 million and $15.3 million as of December 30, 2018, respectively. Contract liabilities typically are not considered a significant financing component because these cash advances are used to meet working capital demands that can be higher in the early stages of a contract, and these cash advances protect us from the other party failing to adequately complete some or all of its obligations under the contract. When revenue recognized exceeds the amount billed to the customer, we record an unbilled receivable (contract asset) for the amount we are entitled to receive based on our enforceable right to payment. The unbilled receivable balance increased from the beginning of the year by $55.2 million, or 38.0%, primarily due to work performed ahead of billings on certain over time revenue contracts primarily in our Aerospace and Defense Electronics. Contract liabilities increased from the beginning of the year by $17.9 million, or 14.1%. The Company recognized revenue of $75.7 million during the year ended December 29, 2019 from contract liabilities that existed at the beginning of year. The Company recognizes the incremental costs of obtaining or fulfilling a contract as expense when incurred if the amortization period of the asset is one year or less. Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

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Accounts receivable is presented net of an allowance for doubtful accounts of $10.2 million at December 29, 2019, and $6.8 million at December 30, 2018. Expense recorded for the allowance for doubtful accounts was $1.3 million, $0.6 million and $4.2 million for 2019, 2018 and 2017, 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. Trade credit is extended based upon evaluations of each customer’s ability to perform its obligations, which are updated periodically.

Inventories

Inventories are stated at the lower of cost or net realizable value. The majority of inventory values are 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. 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 was $74.5 million in 2019, $73.5 million in 2018 and $65.9 million in 2017.

Goodwill, Acquired Intangible Assets and Other Long-lived 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 acquired 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 indefinite-lived intangible assets in the fourth quarter of each year, or more often as circumstances require. The Company uses qualitative and quantitative approaches when testing goodwill for impairment. For selected reporting units under the qualitative approach, the Company performs a qualitative evaluation of events and circumstances impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if the Company determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise the Company performs a quantitative impairment test. The Company performs quantitative tests for reporting units at least once every three years. However, for certain reporting units the Company may perform a quantitative impairment test every year.

The two-step quantitative 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. The results of our annual impairment tests of goodwill indicated that no impairment existed in 2019, 2018 or 2017.

The Company reviews intangible and other long-lived assets subject to depreciation or amortization for impairment whenever events or circumstances indicate that the carrying value of the asset may not be recoverable. Acquired intangible assets with finite lives are amortized and reflected in the segment’s operating income over their estimated useful lives. The Company assesses 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. Recorded impairment charges to intangible or other long-lived assets were not material in 2019, 2018 or 2017.

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 December 29, 2019 and December 30, 2018, $63.0 million and $52.4 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 $65.6 million and $56.1 million, as of December 29, 2019 and December 30, 2018, respectively, and are recorded in other non-current assets.

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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 in the period incurred. 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. The Company’s reserves for environmental remediation obligations totaled $6.0 million at both December 29, 2019 and December 30, 2018. The short term amount is included in current accrued liabilities and the long-term amount is included in long-term accrued liabilities.

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 AOCI.

Derivative Instruments and Hedging Activities

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 foreign currency risk objective is to protect the U.S. 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, and in British pounds for our U.K. companies. These contracts are designated and qualify as cash flow hedges. The Company has also converted a U.S. dollar denominated, variable rate debt obligation into a euro fixed rate obligation using a receive-float, pay fixed cross currency swap. These cross currency swaps are designated as cash flow hedges. In addition, the Company has converted domestic U.S. variable rate debt to fixed rate debt using a receive variable, pay fixed interest rate swap. The interest rate swap is also designated as a cash flow hedge.

The effectiveness of the cash flow hedge forward contracts, 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 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 revenue in our consolidated statements of income. Net deferred gains recorded in AOCI, net of tax, for forward contracts that will mature in the next 12 months total $0.8 million. These gains are expected to be offset by anticipated losses in the value of the forecasted underlying hedged item. Amounts related to the cross currency swaps and interests rate swap expected to be reclassified from AOCI into income in the next 12 months total $5.9 million.

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, due to missed forecasts.

As of December 29, 2019, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars totaling $75.7 million. These foreign currency forward contracts have maturities ranging from March 2020 to February 2021. Teledyne had foreign currency forward contracts designated as cash flow hedges to buy British pounds and to sell U.S. dollars totaling $17.1 million. These foreign currency forward contracts have maturities ranging from March 2020 to February 2021. Together these contracts had a fair value of $1.1 million.

The cross currency swaps have notional amounts of €113.0 million and $125.0 million, and €135.0 million and $150.0 million, and mature in March 2023 and October 2024, respectively. The interest rate swap has a notional amount of $125.0 million U.S. dollars and matures in March 2023.

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In addition, the Company utilizes foreign currency forward contracts which are not designated as hedging instruments for accounting purposes to mitigate foreign exchange rate risk associated with foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. As of December 29, 2019, Teledyne primarily 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	$	7.9	U.S. Dollars	US$	6.2
Euros	€	35.8	U.S. Dollars	US$	39.2


Great Britain Pounds	£	44.9	U.S. Dollars	US$	55.5
Canadian Dollars	$	11.9	Euros	€	8.2



Danish Krone	Kr.	66.2	U.S. Dollars	US$	9.7
Great Britain Pounds	£	9.1	Euros	€	10.3

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, 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 2019 and 2018 was as follows (in millions):


	2019		2018
Net gain recognized in AOCI - foreign exchange contracts (a)	$	9.3	$	1.2
Net gain recognized in AOCI - interest rate contracts	$	0.8	$	—
Net gain (loss) reclassified from AOCI into revenue/cost of sales - foreign exchange contracts	$	(1.8)	$	2.1
Net gain reclassified from AOCI into interest expense - foreign exchange contracts	$	2.4	$	2.4
Net gain reclassified from AOCI into interest expense -interest rate contracts	$	0.2	$	—
Net gain reclassified from AOCI into other income and expense, net - foreign exchange contracts (b)	$	6.0	$	4.2
Net foreign exchange loss recognized in revenue, net - foreign exchange contracts (c)	$	(0.5)	$	(0.5)

(a)Effective portion

(b)Amount reclassified to offset earnings impact of liability hedged by cross currency swap

(c)Amount excluded from effectiveness testing (recorded in other income and expense in 2018)

The effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for 2019 and 2018 was a gain of $4.9 million and a loss of $24.8 million, respectively.

The Company has elected to use the income approach to value the derivatives, using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR and EURIBOR) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and EURIBOR cash and swap rates, foreign currency forward rates and cross currency basis spreads). Mid-market pricing is used as a practical expedient for fair value measurements. The fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments and did not have a material impact on the fair value of these derivative instruments. Both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.

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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	December 29, 2019		December 30, 2018
Derivatives designated as hedging instruments:
Cash flow forward contracts	Other assets	$	1.3	$	—
Interest rate contracts	Other current assets	0.2		—
Interest rate contracts	Other non-current assets	0.3		—
Cash flow forward contracts	Accrued liabilities	(0.1)		(4.2)
Cash flow cross currency swaps	Other current assets	5.4		—
Cash flow cross currency swaps	Other non-current liabilities	(7.8)		—
Cash flow cross currency swaps	Accrued liabilities	0.3		(6.3)

Total derivatives designated as hedging instruments		(0.4)		(10.5)
Derivatives not designated as hedging instruments:
Non-designated forward contracts	Other current assets	0.1		—
Non-designated forward contracts	Accrued liabilities	(0.4)		(0.6)
Total derivatives not designated as hedging instruments		(0.3)		(0.6)
Total liability derivatives		$	(0.7)	$	(11.1)

Supplemental Cash Flow Information

Cash payments for federal, foreign and state income taxes were $110.1 million for 2019, which are net of $7.1 million in tax refunds. Cash payments for federal, foreign and state income taxes were $64.7 million for 2018, which are net of $7.6 million in tax refunds. Cash payments for federal, foreign and state income taxes were $36.7 million for 2017, which are net of $8.5 million in tax refunds. Cash payments for interest and credit facility fees totaled $23.4 million, $28.1 million and $32.4 million for 2019, 2018 and 2017, respectively.

Fair Value Measurements

Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The Company 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, 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.

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Related Party Transactions

For all periods presented, the Company had no material related party transactions that required disclosure.

Recent Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). The guidance requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. We adopted the guidance on December 31, 2018, the beginning of our 2019 fiscal year, using the modified retrospective transition method. Prior period comparative information was not adjusted. In addition, we elected the package of practical expedients permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification. The adoption of this guidance did not have a material impact related to existing leases and as a result, a cumulative-effect adjustment was not recorded. Also, the adoption of the guidance did not have a material impact on our results of operations or cash flows. Upon adoption, on December 31, 2018, we recognized right-of-use assets of $128.4 million and a total lease liability of $139.8 million for operating leases. For additional discussion of the application of this guidance, see Note 13 of the Notes to Consolidated Financial Statements.

In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to address a specific consequence of the Tax Cuts and Jobs Act (“Tax Act”) by allowing a reclassification from AOCI to retained earnings for stranded tax effects resulting from the Tax Act reduction of the U.S. federal corporate income tax rate. The guidance is effective for all entities for annual periods beginning after December 15, 2018, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. In the third quarter of 2018, Teledyne elected to early adopt this ASU and elected to reclassify, in the period of enactment, stranded tax effects totaling $47.6 million from AOCI to retained earnings in its consolidated balance sheet. The reclassification amount primarily included income tax effects related to our pension and postretirement benefit plans. Income tax effects remaining in AOCI will be released into earnings as the related pretax amounts are reclassified to earnings.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities.” This guidance better aligns an entity’s risk management activities and financial reporting for hedging relationships and expands and refines hedge accounting for both nonfinancial and financial risk components. This guidance also simplifies and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. We adopted the guidance as of December 31, 2018, the beginning of our 2019 fiscal year using the modified retrospective approach, there was no cumulative adjustment to retained earnings related to hedge ineffectiveness for the year ended December 31, 2018. Additionally, as a result of the adoption, we no longer disclose the ineffective portion of the change in fair value of our derivative financial instruments. The entire change in the fair value of the cash flow hedging instruments aside from components excluded from the assessment of hedge effectiveness will now be recorded in other comprehensive income and subsequently reclassified to earnings in the period the hedged item impacts earnings. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which eliminates the computation of the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record a goodwill impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The new standard, will be effective for the Company prospectively for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect the adoption of this standard will reduce the complexity surrounding the evaluation of goodwill for impairment. The impact of this new standard for the Company will depend on the outcomes of future goodwill impairment tests.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). The new guidance is effective for reporting periods beginning after December 15, 2019. The standard replaces the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. We plan to adopt the new credit loss standard effective December 30, 2019, the beginning of our 2020 fiscal year. We do not expect the new guidance to have a material effect on our financial position, results of operations or cash flows.

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In May 2014, the FASB issued ASU No. 2014-09 (Topic 606), 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 superseded most current revenue recognition guidance under Topic 605, Revenue Recognition. The Company adopted the requirements of Topic 606 as of January 1, 2018, using the modified retrospective transition method which required a cumulative-effect adjustment as of the date of adoption. Comparative disclosures with periods prior to adoption (i.e., fiscal year 2017) are not required due to our use of the modified retrospective transition method.

Note 3. Business Acquisitions, Goodwill and Acquired Intangible Assets

The Company spent $484.0 million, $3.1 million and $774.1 million on acquisitions and other investments, net of cash acquired, in 2019, 2018 and 2017, respectively.

2019 Acquisitions

On February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for $224.8 million in cash. The acquired businesses include Princeton Instruments, Photometrics and Lumenera. The acquired businesses provide a range of imaging solutions, primarily for life sciences, academic research and customized original equipment manufacturer industrial imaging solutions. Princeton Instruments and Photometrics manufacture state-of-the-art cameras, spectrographs and optics for advanced research in physical sciences, life sciences research and spectroscopy imaging. Applications and markets include materials analysis, quantum technology and cell biology imaging using fluorescence and chemiluminescence. Lumenera primarily provides rugged USB-based customized cameras for markets such as traffic management, as well as life sciences applications. Principally located in the United States and Canada, the acquired businesses are part of the Digital Imaging segment.

On August 1, 2019, we acquired the gas and flame detection businesses of 3M Company for $233.5 million in cash. The gas and flame detection businesses includes Oldham, Simtronics, Gas Measurement Instruments, Detcon and select Scott Safety products. The gas and flame detection businesses provides a portfolio of fixed and portable industrial gas and flame detection instruments used in a variety of industries including petrochemical, power generation, oil and gas, food and beverage, mining and waste water treatment. Principally located in France, the United Kingdom and the United States, the acquired businesses are part of the Environmental Instrumentation product line of the Instrumentation segment.

On August 30, 2019, we acquired Micralyne Inc. (“Micralyne”) for $25.7 million in cash. Micralyne is a foundry providing MEMS devices. In particular, Micralyne possesses unique microfluidic technology for biotech applications, as well as capabilities in non-silicon-based MEMS (e.g. gold, polymers) often required for human body compatibility. Based in Edmonton, Alberta, Canada, the acquired business is part of the Digital Imaging segment.

2017 Acquisitions

On March 28, 2017, Teledyne completed the acquisition of all of the outstanding common stock of e2v technologies plc (“e2v”) for $770.7 million, including stock options and assumed debt, net of $24.4 million of cash acquired. e2v provides high performance image sensors and custom camera solutions and application specific standard products for the machine vision market. In addition, e2v provides high performance space qualified imaging sensors and arrays for space science and astronomy. e2v also produces components and subsystems that deliver high reliability radio frequency power generation for healthcare, industrial and defense applications. Finally, e2v provides high reliability semiconductors and board-level solutions for use in aerospace, space and communications applications. Teledyne funded the acquisition of e2v with borrowings under its credit facility and cash on hand as well as $100.0 million in a newly issued term loan.

Most of e2v’s operations are included in the Digital Imaging and Aerospace and Defense Electronics segments. The Instrumentation segment includes a small portion of e2v’s operations. Principally located in Chelmsford, United Kingdom and Grenoble, France, e2v had sales of approximately £236 million for its fiscal year ended March 31, 2016. e2v’s results have been included since the date of the acquisition and include $274.2 million in net sales and operating income of $37.3 million, which included $8.3 million in acquisition-related costs and $11.2 million in additional intangible asset amortization expense for 2017.

Fiscal year 2017 includes pretax charges of $27.0 million related to the acquisition of e2v, which included $13.0 million in transaction costs, including stamp duty, advisory, legal and other consulting fees and other costs recorded to selling, general and administrative expenses, $5.7 million in inventory fair value step-up amortization expense recorded to cost of sales, $2.3 million in bank bridge facility commitment expense recorded to interest expense and $6.0 million related to a foreign currency option contract expense to hedge the e2v purchase price recorded as other expense. Of these amounts, $8.0 million impacted the Digital Imaging segment and $0.3 million impacted the Aerospace and Defense segment operating results. Fiscal year 2016 includes pretax charges of $7.9 million related to the acquisition of e2v, of which, $1.9 million was recorded to selling, general and administrative expenses, $0.5 million was recorded to interest expense and $5.5 million was recorded as other expense.

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The following table presents proforma net sales, net income and earnings per share data assuming e2v was acquired at the beginning of the 2017 fiscal year:


	Fiscal Year (a)
(Unaudited - in millions, except per share amounts)	2017
Net sales	$	2,696.8
Net income	$	209.8
Basic earnings per common share	$	5.96
Diluted earnings per common share	$	5.78
(a) The above unaudited proforma information is presented for the e2v acquisition as it is considered a material acquisition.

On July 20, 2017, a subsidiary of Teledyne acquired assets of Scientific Systems, Inc. (“SSI”) for an initial cash payment of $31.0 million. A subsequent cash payment of $0.3 million related to a purchase price adjustment was made in 2017. Headquartered in State College, PA, SSI manufactures precision components and specialized subassemblies used primarily in analytical and diagnostic instrumentation, such as High Performance Liquid Chromatography systems and specific medical devices and is part of the Instrumentation segment.

The results of these acquisitions have been included in Teledyne’s results since the dates of their respective acquisition.

Other

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 acquisitions primarily from borrowings under its credit facilities, issuance of senior notes and term loans and cash on hand.

Teledyne’s goodwill was $2,050.5 million at December 29, 2019, and $1,735.2 million at December 30, 2018. The increase in the balance of goodwill in 2019 resulted from recent acquisitions and the impact of exchange rate changes. Teledyne’s net acquired intangible assets were $430.8 million at December 29, 2019, and $344.3 million at December 30, 2018. The increase in the balance of acquired intangible assets in 2019 primarily resulted from recent acquisitions, partially offset by the amortization of acquired intangible assets and the impact of exchange rate changes. The Company’s cost to acquire the 2019 and 2017 acquisitions 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 fair value of all the acquired identifiable assets and liabilities summarized below for the 2019 acquisitions is provisional pending finalization of the Company’s acquisition accounting, including the finalization of the valuation of the intangible assets acquired, identification and measurement of certain inventory and property, plant and equipment balances, identification and measurement of certain liabilities, including the potential for loss contingencies and uncertain tax positions, if any, as well as the measurement of tax basis in certain jurisdictions and the resulting deferred taxes that might arise from book and tax basis differences, if any. The Company believes that such preliminary allocations provide a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but the Company is waiting for additional information necessary to finalize its fair value determination of these acquired identifiable assets and liabilities.

The following tables show the purchase price (net of cash acquired), provisional goodwill acquired and provisional intangible assets acquired for the acquisitions made in 2019 (in millions):


	2019
Acquisitions	Acquisition Date	Cash Paid (a)		Goodwill Acquired		Acquired Intangible Assets
Scientific imaging businesses	February 5, 2019	$	224.8	$	149.9	$	52.4
Gas and flame detection businesses	August 1, 2019	233.5		147.7		69.0
Micralyne Inc.	August 30, 2019	25.7		7.3		0.9
Total		$	484.0	$	304.9	$	122.3
(a) Net of cash acquired and any purchase price adjustments.

The majority of the goodwill resulting from the acquisition of the scientific imaging businesses will be deductible for tax purposes. Goodwill resulting from the acquisition of the gas and flame detection businesses and Micralyne will not be deductible for tax purposes.

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Provisional fair values allocated to the assets acquired and liabilities assumed (in millions):	2019
Current assets, excluding cash acquired	$	83.0
Property, plant and equipment	30.7
Goodwill	304.9
Acquired intangible assets	122.3
Other long-term assets	7.1
Total assets acquired	548.0
Current liabilities	(33.4)
Long-term liabilities	(30.6)
Total liabilities assumed	(64.0)

Cash paid, net of cash acquired	$	484.0

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 2019 (dollars in millions; amounts considered provisional as discussed above):


	2019
Intangibles subject to amortization:	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	81.8	9.8
Customer list/relationships	27.9		11.9
Backlog	0.7		1.5

Total intangibles subject to amortization	110.4		10.3

Intangibles not subject to amortization:
Trademarks	11.9		n/a


Total acquired intangible assets	$	122.3	n/a

Goodwill	$	304.9	n/a


Goodwill (in millions):	Instrumentation		Digital Imaging		Aerospace and Defense Electronics		Engineered Systems		Total












Balance at December 31, 2017	$	756.4	$	815.6	$	182.0	$	22.7	$	1,776.7
Current year acquisitions	1.8		—		—		—		1.8
Foreign currency changes and other (a)	(3.5)		(5.9)		(33.5)		(0.4)		(43.3)
Balance at December 30, 2018	754.7		809.7		148.5		22.3		1,735.2
Current year acquisitions	147.7		157.2		—		—		304.9
Foreign currency changes and other (a)	3.5		(4.2)		15.8		(4.7)		10.4
Balance at December 29, 2019	$	905.9	$	962.7	$	164.3	$	17.6	$	2,050.5

(a) Certain prior period balances have been recast due to a business realignment affecting the Aerospace and Defense Electronics segment the Digital Imaging segment and the Engineered Systems segment in 2019 and the Aerospace and Defense Electronics segment and the Digital Imaging segment Systems segment in 2018. Please refer to Note 12 Business Segments of the Notes to Consolidated Financial Statements included in this Form 10-K for further information.

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	2019										2018
	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Acquired intangible assets (in millions):
Proprietary technology	$	397.5	$	207.6	$	189.9	$	313.7	$	179.8	$	133.9
Customer list/relationships	177.6		101.4		76.2		148.8		90.9		57.9
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	4.1		3.3		0.8		3.9		3.0		0.9
Backlog	16.4		16.1		0.3		15.6		15.6		—
Acquired intangible assets subject to amortization	597.2		329.9		267.3		483.6		290.8		192.8
Acquired intangible assets not subject to amortization:
Trademarks	163.5		—		163.5		151.5		—		151.5
Total acquired intangible assets	$	760.7	$	329.9	$	430.8	$	635.1	$	290.8	$	344.3

Amortizable acquired 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 $37.4 million, $39.5 million and $41.4 million in amortization expense in 2019, 2018 and 2017, respectively, for acquired intangible assets. The expected future amortization expense, including provisional amounts for the 2019 acquisitions, for the next five years is as follows (in millions): 2020 - $38.5; 2021 - $37.1; 2022 - $34.3; 2023 - $30.5; 2024 - $28.7.

The estimated remaining useful lives by asset category as of December 29, 2019, are as follows:


Acquired intangibles subject to amortization						Weighted average remaining useful life in years
Proprietary technology						6.7
Customer list/relationships						7.0
Patents						2.9
Backlog						1.0
Trademarks						3.3
Total acquired intangibles subject to amortization						6.7

Note 4. Financial Instruments

The Company had no cash equivalents at December 29, 2019 or December 30, 2018. The fair value of the Company’s forward currency contracts as of December 29, 2019 and December 30, 2018, are disclosed in Note 2, under “Derivative Instruments and Hedging Activities,” of the Notes to Consolidated Financial Statements and are based on Level 2 inputs. 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 fair value of the Company’s senior unsecured notes as described in Note 9, “Long-Term Debt,” of the Notes to Consolidated Financial Statements approximated the carrying value based upon Level 2 inputs and is valued based on observable market data at December 29, 2019 and December 30, 2018. The fair value of the Company’s credit facility, term loans and other debt, also described in Note 9, at December 29, 2019 and December 30, 2018, approximated 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.

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Note 5. Accounts Receivable and Unbilled Receivables


Accounts Receivable and Unbilled Receivables (in millions):	Balance at year-end
	2019		2018
Commercial and other billed receivables	$	440.1	$	381.9
U.S. Government and prime contractors billed receivables	30.5		41.3
	470.6		423.2
Allowance for doubtful accounts	(10.2)		(6.7)
Account receivable, net	$	460.4	$	416.5

Commercial and other unbilled receivables	$	143.9	$	96.4
U.S. Government and prime contractors unbilled receivables	56.5		48.9
Unbilled receivables, net	$	200.4	$	145.3

Note 6. Inventories


Inventories (in millions):	Balance at year-end
	2019		2018

Raw materials and supplies	$	231.2	$	205.6
Work in process	108.3		117.5
Finished goods	61.7		50.5
	401.2		373.6

Reduction to LIFO cost basis	(7.8)		(9.3)
Total inventories, net	$	393.4	$	364.3

Inventories at cost determined on the LIFO method were $40.0 million at December 29, 2019, and $42.3 million at December 30, 2018. The remainder of the inventories using average cost or the FIFO methods, were $361.2 million at December 29, 2019, and $331.3 million at December 30, 2018.

The Company recorded LIFO income of $1.6 million, $0.1 million and $2.9 million in 2019, 2018 and 2017, respectively.

Note 7. Supplemental Balance Sheet Information


Property, plant and equipment (in millions):	Balance at year-end
	2019		2018
Land	$	68.1	$	59.6
Buildings	280.6		254.7
Equipment and software and other	763.1		694.3
	1,111.8		1,008.6
Accumulated depreciation and amortization	(623.9)		(566.0)
Total property, plant and equipment, net	$	487.9	$	442.6

The following table presents selected balance sheet components (in millions):


Balance sheet items	Balance sheet location	December 29, 2019		December 30, 2018



Salaries and wage accruals	Accrued liabilities	$	124.1	$	116.5
Customer related accruals, deposits and credits	Accrued liabilities	$	127.0	$	111.6



Deferred tax liabilities	Other long-term liabilities	$	34.0	$	51.2

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Note 8. Stockholders’ Equity


Common stock and treasury stock activity:	Common Stock	Treasury Stock












Balance, January 1, 2017	37,697,865	2,587,103

Issued	—	(429,471)
Balance, December 31, 2017	37,697,865	2,157,632
Issued	—	(547,064)
Balance, December 30, 2018	37,697,865	1,610,568
Issued	—	(460,669)
Balance, December 29, 2019	37,697,865	1,149,899

Shares issued include stock options exercised as well as shares issued under certain compensation plans.

Treasury Stock

In January 2016, the Company’s Board of Directors authorized a stock repurchase program authorizing the Company to repurchase up to 3,000,000 shares of its common stock. 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, if any, are expected to be funded with cash on hand and borrowings under the Company’s credit facility. No repurchases were made in 2019, 2018 or 2017. Up to approximately three million shares may be repurchased under the stock repurchase program.

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 2019, 2018 or 2017.

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.

Stock Options

Stock option compensation expense is recorded on a straight line basis over the appropriate vesting period, generally three years except for stock options that were granted after 2018 to Teledyne’s President and Chief Executive Officer and Teledyne’s Executive Chairman, which were expensed immediately. The Company recorded $26.1 million, $19.8 million, and $14.2 million for stock option expense, for 2019, 2018 and 2017, respectively. The Company issues shares of common stock upon the exercise of stock options. On January 21, 2020, the Company granted 245,985 stock options to its employees at an exercise price of $383.33 per share.

The total pretax intrinsic value of options exercised during 2019 and 2018 (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) was $82.5 million and $69.6 million, respectively. At December 29, 2019, the intrinsic value of stock options outstanding was $431.5 million and the intrinsic value of stock options exercisable was $315.2 million. During 2019 and 2018, the amount of cash received from the exercise of stock options was $34.6 million and $37.2 million, respectively.

At December 29, 2019, there was $25.6 million of total unrecognized compensation cost related to non-vested stock option awards which is expected to be recognized over a weighted-average period of 1.3 years.

The fair value of stock options is determined by using 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:	2019		2018		2017
Expected dividend yield	—		—		—
Expected volatility	26.7	%	31.0	%	32.3	%
Risk-free interest rate	2.47% to 2.70%		1.99% to 2.58%		1.0 % to 2.5%
Expected life in years	6.6		6.8		7.2

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Based on the assumptions used in the valuation of stock options, the grant date weighted average fair value of stock options granted in 2019, 2018 and 2017 was $72.00, $71.89 and $48.45, respectively.

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



	2019				2018					2017
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Beginning balance	2,064,740	$	104.66	2,285,703	$	83.73	2,175,442	$	70.44
Granted	390,789	$	217.58	376,065	$	192.28	543,880	$	123.40
Exercised	(429,654)	$	80.31	(516,927)	$	71.95	(390,835)	$	63.96
Canceled or expired	(37,299)	$	181.62	(80,101)	$	129.85	(42,784)	$	92.79
Ending balance	1,988,576	$	130.67	2,064,740	$	104.66	2,285,703	$	83.73
Options exercisable at end of period	1,242,205	$	94.04	1,257,766	$	78.26	1,443,241	$	70.35

The following table provides certain information with respect to stock options outstanding and stock options exercisable at December 29, 2019, under the stock option plans:


	Stock Options Outstanding							Stock Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining life in years	Shares	Weighted Average Exercise Price
$20.70-$49.99	120,459	$	44.70	1.2	120,459	$	44.70
$50.00-$99.99	786,518	$	80.73	4.5	786,518	$	80.73
$100.00-$149.99	386,443	$	123.40	7.2	239,913	$	123.39
$150.00-$199.99	314,364	$	192.00	8.2	94,214	$	191.97
$200.00-$237.01	380,792	$	217.69	9.1	1,101	$	228.84



	1,988,576	$	130.67	6.3	1,242,205	$	94.04

Performance Shares

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 an exception for retirement). Participants in the PSP program can elect to receive a cash payment in lieu of awarded shares to pay income taxes due with respect to an installment payment. The cash payment in lieu of awarded shares is based on the then current market value of Teledyne stock.

In February 2015, the performance cycle for the three-year period ending December 31, 2017, was set. Under the plan, and based on actual performance, the Company issued 6,481 shares in 2018, 8,586 shares in 2019 and 7,673 shares in February 2020.

In February 2018, the performance cycle for the three-year period ending December 31, 2020, was set. Under the plan, and based on actual performance, the maximum number of shares that could be issued in three equal installments in 2021, 2022 and 2023, is 59,427.

The estimated 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 estimated expense for these shares was calculated using a lattice-based 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 (for the 2018 performance cycle, the comparator is the Russell 1000). 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 $7.5 million, $5.1 million and $4.6 million in compensation expense related to the PSP program for fiscal years 2019, 2018 and 2017, respectively.

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Restricted Stock

Under Teledyne’s restricted stock award program key officers and 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 by death, retirement or disability) during the restricted period, the stock grant is forfeited.

The estimated expense for restricted stock awards to employees is based on a lattice-based 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 (for awards granted after 2017 the comparator is the Russell 1000). No adjustment to the estimated expense will be made regardless of actual performance. The Company recorded $3.0 million, $2.7 million and $2.7 million in compensation expense related to restricted stock awards to employees, for fiscal years 2019, 2018 and 2017, respectively. At December 29, 2019, there was $3.3 million of total estimated unrecognized compensation cost related to non-vested awards which is expected to be recognized over a weighted-average period of approximately 1.5 years.

The following table shows restricted stock award activity for grants made to employees:


Restricted Stock:	Shares	Weighted average fair value per share
Balance, January 1, 2017	97,044	$	83.68
Granted	24,232	$	114.74
Issued	(30,704)	$	87.98
Forfeited/Canceled	(2,136)	$	82.58
Balance, December 31, 2017	88,436	$	90.72
Granted	16,733	$	176.64
Issued	(28,855)	$	92.74
Forfeited/Canceled	(2,094)	$	135.48
Balance, December 30, 2018	74,220	$	108.05
Granted	17,522	$	200.00
Issued	(35,330)	$	72.91

Balance, December 29, 2019	56,412	$	158.62

In December 2016, Teledyne granted 16,045 restricted stock units with a grant date fair value of $2.0 million to Teledyne’s then Chief Executive Officer, which vest in equal annual installments over three years. The calculated expense for restricted stock units is based on the market price of a share of Teledyne common stock at the grant date, which is recognized over the vesting period and was $0.6 million in 2019, $0.7 million in 2018 and $0.7 million in 2017. In both December 2019 and December 2018, we issued 2,697 shares under the plan and 2,651 shares were withheld to pay income taxes. In December 2017, we issued 2,389 shares under the plan and 2,960 shares were withheld to pay income taxes.

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. The annual expense related to non-employee director’s restricted stock units was approximately $1.0 million for each of 2019, 2018 and 2017.

The following table shows restricted stock award activity for grants made to non-employee directors:


Directors Restricted Stock:	Shares	Weighted average fair value per share








Balance, January 1, 2017	11,307	$	97.16
Granted	7,371	$	134.26
Issued	(10,305)	$	96.00

Balance, December 31, 2017	8,373	$	131.25
Granted	5,112	$	193.39
Issued	(5,733)	$	134.26
Balance, December 30, 2018	7,752	$	170.00
Granted	4,155	$	251.23
Issued	(2,840)	$	193.39
Balance, December 29, 2019	9,067	$	199.90

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Note 9. Long-Term Debt


Long-Term Debt (in millions):	December 29, 2019		December 30, 2018
$750.0 million credit facility, due March 2024, weighted average rate of 2.80% at December 29, 2019 and 5.50% at December 30, 2018	$	125.0	$	29.0

Term loan repaid October 2019, variable rate of 3.63% at December 30, 2018, swapped to a Euro fixed rate of 0.7055%	—		100.0

Term loan due October 2024, variable rate of 2.702% at December 29, 2019, swapped to a Euro fixed rate of 0.612%	150.0		—
2.61% Fixed Rate Senior Notes repaid December 2019	—		30.0
5.30% Fixed Rate Senior Notes due September 2020	75.0		75.0
2.81% Fixed Rate Senior Notes due November 2020	25.0		25.0
3.09% Fixed Rate Senior Notes due December 2021	95.0		95.0
3.28% Fixed Rate Senior Notes due November 2022	100.0		100.0
0.70% €50 Million Fixed Rate Senior Notes due April 2022	56.0		57.2
0.92% €100 Million Fixed Rate Senior Notes due April 2023	111.9		114.4
1.09% €100 Million Fixed Rate Senior Notes due April 2024	111.9		114.4
Other debt	2.0		8.8
Debt issuance costs	(1.2)		(1.3)
Total long-debt	850.6		747.5
Current portion of long-term debt and other debt	(100.6)		(137.4)
Total long-term debt, net of current portion	$	750.0	$	610.1

Maturities of long-term debt as of December 29, 2019 (dollars in millions):


Fiscal year
2020	$	100.6
2021	95.4
2022	156.0
2023	111.9
2024	386.9
Thereafter	1.0
Total principal payments	851.8
Debt issuance costs	(1.2)
Total debt	$	850.6

The Company has no sinking fund requirements.

On March 15, 2019, Teledyne amended its $750.0 million credit agreement to extend the maturity date from December 2020 to March 2024. While the borrowing capacity remains at $750.0 million, the amendment permits Teledyne to increase the aggregate amount of the borrowing capacity by up to $250.0 million subject to certain conditions. Excluding interest and fees, no payments are due under the $750.0 million unsecured credit facility (“credit facility”) until it matures. 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 facility 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. Available borrowing capacity under the credit facility, which is reduced by borrowings and certain outstanding letters of credit, was $598.3 million at December 29, 2019. The credit agreement and term loans requires the Company to comply with various financial and operating covenants and at December 29, 2019, the Company was in compliance with these covenants. At December 29, 2019, Teledyne had $29.2 million in outstanding letters of credit.

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In October 2019, Teledyne and its subsidiary, Teledyne Netherlands B.V., as borrowers, entered into an Amended and Restated Term Loan Credit Agreement (the “Amended Term Loan Credit Agreement”) that amends and restates the Term Loan Credit Agreement dated as of March 17, 2017. Pursuant to the Amended Term Loan Credit Agreement, the lenders thereunder made unsecured term loans in an aggregate principal amount of $150.0 million, denominated in US dollars, $100.0 million of which was used to repay outstanding loans, which had a maturity date of October 30, 2019. Also, on October 30, 2019, Teledyne entered into a cross currency swap to effectively convert the $150.0 million term loan to a €135.2 million denominated instrument with a fixed euro interest rate of 0.612%.

Total interest expense including credit facility fees and other bank charges was $22.0 million in 2019, $29.2 million in 2018 and $35.5 million in 2017.

Note 10. Income Taxes

On December 22, 2017, the Tax Act was enacted, which significantly revised the U.S. corporate income tax by, among other things, lowering corporate income tax rates, implementing the territorial tax system and imposing a tax on deemed repatriation of non-U.S. earnings. The repatriation tax resulted in a net tax expense of $26.2 million and the remeasurement of U.S. deferred tax assets and liabilities resulted in a net tax benefit of $21.5 million, for a net provisional charge of $4.7 million recorded in the fourth quarter of 2017. The Company finalized its assessment of the Tax Act during the fourth quarter of 2018, resulting in a decrease of $0.8 million to the provisional charge and the repatriation tax. The $12.0 million balance of the repatriation tax at outstanding at December 30, 2018 was paid in February 2019.

Income before income taxes included income from domestic operations of $295.9 million for 2019, $243.7 million for 2018 and $187.2 million for 2017. Income before taxes included income from foreign operations of $177.8 million for 2019, $150.2 million for 2018 and $99.8 million for 2017.


Income tax provision/(benefit) - (in millions):	2019		2018		2017
Current
Federal	$	66.0	$	22.9	$	54.0
State	10.6		8.1		6.4
Foreign	28.4		31.8		22.8
Total current	105.0		62.8		83.2
Deferred
Federal	(37.0)		2.3		(10.7)
State	(2.3)		0.6		(3.6)
Foreign	5.7		(5.6)		(9.1)
Total deferred	(33.6)		(2.7)		(23.4)
Provision for income taxes	$	71.4	$	60.1	$	59.8

The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:


Tax rate reconciliation:	2019		2018		2017
U.S. federal statutory income tax rate	21.0	%	21.0	%	35.0	%
State and local taxes, net of federal benefit	2.1		1.9		1.8
Research and development tax credits	(2.1)		(2.3)		(3.2)
Investment tax credits	(1.1)		(1.2)		(1.5)
Qualified production activity deduction	—		—		(1.3)
Foreign rate differential	0.7		1.1		(4.2)
Net reversals for unrecognized tax benefits	(0.6)		(0.3)		(0.8)
Stock-based compensation	(3.3)		(3.3)		(3.1)
U.S. export sales	(2.4)		(1.3)		—
Provisional charges related to U.S. tax reform	—		(0.2)		1.6
Other	0.8		(0.1)		(3.5)
Effective income tax rate	15.1	%	15.3	%	20.8	%

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.

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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:	2019		2018
Long-term:
Accrued liabilities	$	20.5	$	20.3
Inventory valuation	14.5		11.9
Accrued vacation	7.8		7.8
Deferred compensation and other benefit plans	30.2		20.0
Postretirement benefits other than pensions	1.8		2.5
Operating lease liabilities	33.5		—
Capitalization of research and development	38.8		—
Tax credit and net operating loss carryforward	30.2		43.8

Valuation allowance	(6.1)		(5.4)
Total deferred income tax assets	171.2		100.9

Deferred income tax liabilities:
Long-term:
Property, plant and equipment differences	16.0		20.5

Intangible amortization	133.5		112.0
Operating lease right-of-use assets	33.5		—
Other	5.5		7.1
Total deferred income tax liabilities	188.5		139.6

Net deferred income tax liabilities	$	17.3	$	38.7

We intend to reinvest indefinitely 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. Due to the Tax Act, U.S. federal and applicable state income taxes have been accrued for the deemed repatriation. At December 29, 2019, the amount of undistributed foreign earnings was $309.5 million, for which we have not recorded a deferred tax liability of approximately $1.4 million for corporate income taxes which would be due if reinvested foreign earnings were repatriated. Should we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that we would no longer indefinitely reinvest the earnings 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 increased by $0.7 million in 2019, primarily related to the evidence for future utilization of the remaining investment tax credits.

At December 29, 2019, the Company had approximately $43.6 million of net operating loss carryforward primarily from the Company’s entity in Denmark, which has no expiration date. The Company had foreign capital loss carryforward in the amount of $2.1 million which has no expiration date. Also the Company had aggregate Canadian federal and provincial investment tax credits of $8.6 million, which have expiration dates of 2030 to 2040. In addition, the Company had domestic federal and state net operating loss carryforward of $3.8 million and $105.6 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 2030 to 2037 and the state net operating loss carryforward amounts have expiration dates ranging from 2020 to 2039. Finally, the Company had federal research and development credit carryforward in the amount of $0.9 million which will expire between 2032 and 2035 and state tax credits of $10.6 million, of which $9.7 million have no expiration date and $0.8 million have expiration dates ranging from 2023 to 2033.

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Unrecognized tax benefits (in millions):	2019		2018		2017
Beginning of year	$	25.0	$	26.0	$	24.5
Increase in prior year tax positions (a)	4.2		2.3		0.5
Increase for tax positions taken during the current period	4.3		2.1		9.8
Reduction related to settlements with taxing authorities	(4.6)		(0.1)		—
Reduction related to lapse of the statute of limitations	(4.3)		(5.2)		(8.8)
Impact of exchange rate changes	(0.1)		(0.1)		—

End of year	$	24.5	$	25.0	$	26.0
a) Includes the impact of acquisitions in all years.

The Company anticipates the total unrecognized tax benefit for various federal, state and foreign tax items may be reduced by $3.4 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 and expense for interest and penalties related to unrecognized tax benefits within the provision for income taxes in our statements of operations of $0.3 million of benefit, $0.3 million of expense and $0.5 million of benefit, for 2019, 2018 and 2017, respectively. Interest and penalties in the amount of $1.1 million, $1.7 million and $1.4 million were recognized in the 2019, 2018 and 2017 statement of financial position, respectively. Substantially all of the unrecognized tax benefits as of December 29, 2019, 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 2015, United Kingdom income tax matters for all years through 2017, France income tax matters for all years through 2016 and Canadian income tax matters for all years through 2011.

Note 11. Pension Plans and Postretirement Benefits

Pension Plans

As of December 29, 2019, Teledyne has a defined benefit pension plan covering substantially all U.S. employees hired before January 1, 2004, or approximately 10% of Teledyne’s active employees. As of January 1, 2004, new hires participate in a defined contribution plan only. The Company also has several small domestic non-qualified and foreign-based defined benefit pension plans.

In 2018 and 2017, the Company’s U.S. domestic qualified pension plan purchased group annuity contracts from insurance companies and paid a total annuity premium of $17.8 million in 2018 and $19.0 million in 2017. These annuity contracts transfer the obligation to the insurance companies to guarantee the full payment of all annuity payments to existing retired pension plan participants or their surviving beneficiaries. These annuity contracts assume all investment risk associated with the assets that were delivered as the annuity contract premiums. These annuity contracts covered 321 and 412 existing retired pension plan participants for 2018 and 2017, respectively, at the time of purchase. No annuity contracts were purchased in 2019.

The domestic qualified pension plan allows participants to elect a lump-sum payment at retirement. In 2019, 2018 and 2017, the Company made lump sum payments of $17.2 million, $18.6 million and $21.7 million, respectively, from the domestic qualified pension plan assets to certain participants in the plan. Each year beginning with 2014, the Society of Actuaries released revised mortality tables, which updated life expectancy assumptions. In consideration of these tables, each year the Company reviews the mortality assumptions used in determining our pension and post-retirement obligations.


	Domestic										Foreign
	2019		2018		2017		2019		2018		2017
Service cost - benefits earned during the period (in millions)	$	8.5	$	9.8	$	10.2	$	0.9	$	0.9	$	1.0

	Domestic										Foreign
Pension non-service income (in millions):	2019		2018		2017		2019		2018		2017
Interest cost on benefit obligation	32.4		31.5		35.6		1.2		1.3		1.2
Expected return on plan assets	(64.8)		(70.0)		(71.3)		(1.4)		(1.7)		(2.1)
Amortization of prior service cost	(6.0)		(6.0)		(6.0)		0.1		(0.1)		(0.1)
Amortization of actuarial loss	30.6		31.1		28.6		0.3		0.4		0.6
Curtailment	—		—		—		(0.5)		(0.1)		(0.4)

Pension non-service income	$	(7.8)	$	(13.4)	$	(13.1)	$	(0.3)	$	(0.2)	$	(0.8)

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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, the current economic environment, and prospective expectations. 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 for the domestic qualified plan and the foreign plans:


Pension Plan Assumptions:	Weighted average discount rate	Weighted average increase in future compensation levels	Expected weighted-average long-term rate of return

Domestic plan - 2019	4.59%	2.75%	7.80%
Domestic plan - 2018	4.02%	2.75%	8.00%
Domestic plan - 2017	4.54%	2.75%	8.00%

Foreign plans - 2019	0.90% - 2.60%	1.00% - 2.50%	1.00% - 3.80%
Foreign plans - 2018	0.70% - 2.40%	1.00% - 2.50%	1.00% - 4.50%
Foreign plans - 2017	0.60% - 2.50%	1.00% - 2.50%	1.00% - 5.90%

See Note 15 of the Notes to Consolidated Financial Statements for information on the projected long-term rate of return on domestic plan assets for 2020. For its foreign based pension plans the Company is projecting a long-term rate of return on plan assets will range from 1.00% to 3.80% in 2020.


	Domestic						Foreign
	2019		2018		2019		2018
Changes in benefit obligation (in millions):
Benefit obligation - beginning of year	$	731.7	$	812.3	$	52.3	$	57.8
Service cost - benefits earned during the year	8.5		9.8		0.9		0.9
Interest cost on projected benefit obligation	32.4		31.5		1.2		1.3
Actuarial (gain) loss	93.1		(41.2)		5.6		(1.7)
Benefits paid	(60.0)		(80.7)		(2.0)		(1.9)
Plan amendments	—		—		—		1.1
Settlements/curtailments	—		—		1.9		(2.4)
Other - including foreign currency	—		—		0.4		(2.8)


Benefit obligation - end of year	$	805.7	$	731.7	$	60.3	$	52.3

Accumulated benefit obligation - end of year	$	801.3	$	728.5	$	56.3	$	53.7

The key assumptions used to measure the benefit obligation at each respective year-end were:


Key assumptions:	Domestic Plan								Foreign Plans
	2019		2018		2017		2019	2018	2017
Discount rate	3.41	%	4.59	%	4.02	%	0.20% - 1.80%	0.90% - 2.60%	0.70% - 2.40%
Salary growth rate	2.75	%	2.75	%	2.75	%	1.00% - 2.50%	1.00% - 2.50%	1.00% - 2.50%


	Domestic						Foreign
	2019		2018		2019		2018
Changes in plan assets (in millions):
Fair value of net plan assets - beginning of year	$	780.3	$	896.0	$	43.4	$	46.7
Actual return on plan assets	113.1		(37.0)		5.4		0.8

Employer contribution - other benefit plan	2.3		2.0		0.7		2.2
Foreign currency changes	—		—		0.6		(2.5)
Benefits paid	(60.0)		(80.7)		(2.0)		(1.9)
Other	—		—		(0.1)		(1.9)

Fair value of net plan assets - end of year	$	835.7	$	780.3	$	48.0	$	43.4

The measurement date for the Company’s pension plans is December 31.

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The following tables sets forth the funded status and amounts recognized in the consolidated balance sheets at year-end 2019 and 2018 for the domestic qualified and nonqualified pension plans and the foreign-based pension plans for benefits provided to certain employees (in millions):


	Domestic						Foreign
	2019		2018		2019		2018
Funded status	$	30.0	$	48.6	$	(12.3)	$	(8.9)

Amounts recognized in the consolidated balance sheets:
Prepaid pension asset long-term	$	71.8	$	88.2	$	—	$	—
Accrued pension obligation long-term	(33.8)		(31.8)		(11.7)		(8.6)
Accrued pension obligation short-term	(2.7)		(2.6)		(0.6)		(0.3)
Other long-term liabilities	(5.3)		(5.2)		—		—
Net amount recognized	$	30.0	$	48.6	$	(12.3)	$	(8.9)

Amounts recognized in accumulated other comprehensive loss:
Net prior service cost (credit)	$	(30.6)	$	(18.6)	$	(0.4)	$	0.8
Net loss	431.7		417.6		7.8		6.4
Net amount recognized, before tax effect	$	401.1	$	399.0	$	7.4	$	7.2

Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows (in millions):


	2019		2018
Projected benefit obligation	$	102.0	$	91.9
Accumulated benefit obligation	$	98.0	$	88.8
Fair value of plan assets	$	48.0	$	43.4

At year-end 2019 and 2018 the Company had an accumulated non-cash reduction to stockholders’ equity of $323.1 million and $306.8 million, respectively, related to its pension and postretirement plans. The accumulated non-cash reductions to stockholders’ equity did not affect net income and were recorded net of accumulated deferred taxes of $102.5 million at year end 2019 and $96.9 million at year end 2018.

At December 29, 2019, the estimated amounts of the minimum liability adjustment that are expected to be recognized as components of net periodic benefit cost during 2020 for the pension plans are: net loss $22.9 million and net prior service credit $6.0 million.


Estimated future pension plan benefit payments (in millions):	Domestic		Foreign
2020	$	55.0	$	2.5
2021	55.0		2.1
2022	56.6		2.1
2023	55.8		2.4
2024	55.4		2.5
2025-2029	271.7		12.6
Total	$	549.5	$	24.2

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
	2019		2018		2019		2018
Equity instruments	49	%	51	%	56	%	53	%
Fixed income instruments	31		34		25		27
Alternatives and other	20		15		19		20
Total	100	%	100	%	100	%	100	%

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The Company has an active management policy for the pension assets in the qualified domestic pension plan. As of December 29, 2019, the long term asset allocation target for the domestic plan consists of approximately 52% in equity instruments, approximately 34% in fixed income instruments and approximately 14% in alternatives.

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).

Certain investments measured at fair value using net asset values as a practical expedient are not required to be categorized in the fair value hierarchy table listed below. As such, the total fair value of these net asset values based investments has been included in the table below to permit reconciliation to the plan asset amounts previously disclosed.

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 29, 2019, by asset category are as follows (in millions):



Asset category:(a)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (b)	$	—	$	65.4	$	—	$	65.4


Equity securities	52.5		266.7		—		319.2


U.S. government securities and futures	128.3		6.6		—		134.9

Corporate bonds	—		47.4		—		47.4



Insurance contracts related to foreign plans	—		14.0		—		14.0
Fair value of net plan assets at the end of the year	$	180.8	$	400.1	$	—	$	580.9

Investments measured at net asset value:


Alternatives							$	195.3
Mutual funds (c)							29.7


Mortgage-backed securities							49.2
High yield bonds							28.7
Fair value of net plan assets at the end of the year							$	302.9

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) The mutual funds are invested 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 30, 2018, by asset category are as follows (in millions):



Asset category: (a)	Level 1		Level 2		Level 3		Total
Cash and cash equivalents (b)	$	—	$	53.0	$	—	$	53.0

Equity securities	56.3		233.6		—		289.9



U.S. government securities and futures	99.3		—		—		99.3

Corporate bonds	—		34.3		—		34.3




Insurance contracts related to foreign plans	—		12.0		—		12.0
Fair value of net plan assets at the end of the year	$	155.6	$	332.9	$	—	$	488.5

Investments measured at net asset value:


Alternatives							$	204.1
Mutual funds (c)							63.0

Senior secured loans							0.2
Mortgage-backed securities							42.8
High yield bonds							25.2
Fair value of net plan assets at the end of the year							$	335.3

(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.

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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.

See Note 15 to these Consolidated Financial Statements for information on the changes to our domestic qualified benefit plan effective January 1, 2020.

The Company’s contributions associated with its 401(k) plans were $13.4 million, $11.9 million and $9.8 million, for 2019, 2018 and 2017, respectively.

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. No service cost was incurred for these plans in 2019, 2018 or 2017.



Postretirement benefits non-service expense (in millions):	2019		2018		2017


Interest cost on benefit obligation	0.4		0.4		0.4

Amortization of actuarial gain	(0.3)		(0.3)		(0.4)


Postretirement benefits non-service expense	$	0.1	$	0.1	$	—



Changes in benefit obligation (in millions):	2019		2018
Benefit obligation - beginning of year	$	8.7	$	9.7
Interest cost on projected benefit obligation	0.4		0.4
Actuarial (gain) loss	0.1		(0.1)
Benefits paid	(1.2)		(1.3)
Other	0.1		—
Benefit obligation - end of year	$	8.1	$	8.7

The measurement date for the Company’s postretirement plans is December 31.


Future postretirement plan benefit payments (in millions):
2020	$	0.9
2021	0.8
2022	0.8
2023	0.7
2024	0.7
2025-2029	2.7
Total	$	6.6

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The following table sets forth the funded status and amounts recognized in Teledyne’s consolidated balance sheets for the postretirement plans at year-end 2019 and 2018 (in millions):



	2019		2018
Funded status:
Funded status	$	(8.1)	$	(8.7)

Unrecognized net gain	(2.2)		(2.5)
Accrued benefit cost	$	(10.3)	$	(11.2)

Amounts recognized in the consolidated balance sheets:
Accrued postretirement benefits (long-term)	$	(7.2)	$	(7.7)
Accrued postretirement benefits (short-term)	(0.9)		(1.0)
Accumulated other comprehensive income	(2.2)		(2.5)
Net amount recognized	$	(10.3)	$	(11.2)

At December 29, 2019, the amount in AOCI that has not yet been recognized as a component of net periodic benefit income for the retiree medical plans is a net gain $2.2 million and no net prior service credit. At December 29, 2019, the estimated amortization from AOCI expected to be recognized as components of net periodic benefit income during 2020 for the retiree medical plans is a net gain of $0.2 million and no net prior service cost.

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 6.25% in 2020 and was assumed to decrease to 5.0% by the year 2027 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 2019 and would result in an increase in the postretirement benefit obligation by $0.2 million at December 29, 2019. 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 2018 and would result in a decrease in the postretirement benefit obligation by $0.2 million at December 29, 2019.

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 micro electro-mechanical systems (“MEMS”) and high-performance, high-reliability semiconductors including analog-to-digital and digital-to-analog converters. 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.

In the third quarter of 2019, we realigned the segment reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. Total net sales for these products were $76.2 million for fiscal year 2018. Other immaterial changes included moving certain United Kingdom (U.K.) microwave product lines (previously within the Digital Imaging segment) and certain U.K. manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment. Total net sales for these U.K. product lines was less than $20.0 million for fiscal year 2018. The realignment had no impact on the Instrumentation segment or the Consolidated Financial Statements. Previously reported segment data has been adjusted to reflect these changes.

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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.

As part of a continuing effort to reduce costs and improve operating performance, the Company may take and has taken actions to consolidate and relocate certain facilities and reduce headcount across various businesses, reducing our exposure to weak end markets and high cost locations. At December 29, 2019, $1.5 million remains to be paid related to these actions.

The following pre-tax charges were incurred related to severance and facility consolidations (in millions):


	2019		2018		2017
Instrumentation	$	1.5	$	5.6	$	2.1
Digital Imaging	1.1		0.7		—
Aerospace and Defense Electronics	0.5		1.3		2.1
Engineered Systems	0.1		0.2		—
Total	$	3.2	$	7.8	$	4.2

Information on the Company’s business segments was as follows (in millions):



Net sales:	2019		2018		2017
Instrumentation	$	1,105.1	$	1,021.2	$	953.9
Digital Imaging	992.9		875.3		710.4
Aerospace and Defense Electronics	690.1		640.2		591.2
Engineered Systems	375.5		365.1		348.3
Total net sales	$	3,163.6	$	2,901.8	$	2,603.8

Operating income:	2019		2018		2017
Instrumentation	$	200.4	$	147.4	$	126.0
Digital Imaging	176.5		155.5		110.2
Aerospace and Defense Electronics	143.4		131.8		113.0
Engineered Systems	36.5		37.9		35.5

Corporate expense	(65.1)		(56.0)		(63.0)
Total operating income	$	491.7	$	416.6	$	321.7



Depreciation and amortization:	2019		2018		2017
Instrumentation	$	35.9	$	37.0	$	38.2
Digital Imaging	48.5		50.8		49.6
Aerospace and Defense Electronics	14.3		13.8		14.0
Engineered Systems	6.0		4.3		4.6
Corporate	7.2		7.1		6.6
Total depreciation and amortization	$	111.9	$	113.0	$	113.0


Capital expenditures:	2019		2018		2017
Instrumentation	$	18.9	$	14.8	$	13.7
Digital Imaging	45.2		35.8		23.4
Aerospace and Defense Electronics	19.0		18.7		9.3
Engineered Systems	3.6		13.6		7.4
Corporate	1.7		3.9		4.7
Total capital expenditures	$	88.4	$	86.8	$	58.5

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Identifiable assets are those assets used in the operations of the segments. Corporate assets primarily consist of cash, deferred taxes, pension assets and other assets.


Identifiable assets:	2019		2018		2017
Instrumentation	$	1,680.2	$	1,392.7	$	1,413.6
Digital Imaging	1,874.6		1,577.5		1,582.2
Aerospace and Defense Electronics	618.3		509.9		491.2
Engineered Systems	143.4		151.5		135.5
Corporate	263.3		177.7		223.9

Total identifiable assets	$	4,579.8	$	3,809.3	$	3,846.4

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 of origin:	2019		2018		2017
United States	$	2,179.6	$	2,044.9	$	1,849.4
Canada	301.0		294.8		266.1
United Kingdom	251.7		178.8		197.5
The Netherlands	134.2		105.3		68.0
All other countries	297.1		278.0		222.8
Total sales	$	3,163.6	$	2,901.8	$	2,603.8


Long-lived assets:	2019		2018		2017
United States	$	1,839.4	$	1,402.3	$	1,495.4
Canada	355.0		264.6		288.2
United Kingdom	492.2		414.9		487.9
France	367.1		353.8		370.2
All other countries	195.6		246.7		182.0
Total long-lived assets	$	3,249.3	$	2,682.3	$2,823.7

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. The all other countries category primarily consists of Teledyne’s operations in Europe.

Product Lines

The Instrumentation segment includes three product lines: Environmental Instrumentation, Marine Instrumentation and Test and Measurement Instrumentation. All other segments each contain one product line.

The tables below provide a summary of the sales by product line for the Instrumentation segment (in millions):



Instrumentation:	2019		2018		2017
Environmental Instrumentation	$	391.4	$	339.6	$	314.3
Marine Instrumentation	450.2		433.0		430.7
Test and Measurement Instrumentation	263.5		248.6		208.9
Total	$	1,105.1	$	1,021.2	$	953.9

Sales to the U.S. Government included sales to the U.S. Department of Defense of $545.5 million in 2019, $494.9 million in 2018, and $479.7 million in 2017. Total sales to international customers were $1,391.6 million in 2019, $1,353.7 million in 2018, and $1,208.5 million in 2017. Of these amounts, sales by operations in the United States to customers in other countries were $638.0 million in 2019, $600.5 million in 2018, and $555.5 million in 2017. 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 $30.3 million, $23.4 million and $22.8 million for 2019, 2018 and 2017, respectively.

We also disaggregate our revenue from contracts with customers by customer type, contract-type and geographic region for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. As we adopted Topic 606 during fiscal year 2018 using the modified retrospective transition method, prior period information was not adjusted for Topic 606 and comparative disclosures for disaggregated revenue are not required for the year prior to adoption.

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	Twelve Months Ended December 29, 2019										Twelve Months Ended December 30, 2018
	Customer Type								Customer Type
(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total
Net Sales:
Instrumentation	$	80.4	$	1,024.7	$	1,105.1	$	68.3	$	952.9	$	1,021.2
Digital Imaging	107.4		885.5		992.9		90.5		784.8		875.3
Aerospace and Defense Electronics	225.3		464.8		690.1		177.2		463.0		640.2
Engineered Systems	338.9		36.6		375.5		319.3		45.8		365.1
Total	$	752.0	$	2,411.6	$	3,163.6	$	655.3	$	2,246.5	$	2,901.8

a) Includes sales as a prime contractor or subcontractor.


	Twelve Months Ended December 29, 2019										Twelve Months Ended December 30, 2018
	Contract Type								Contract Type
(in millions)	Fixed Price		Cost Type		Total		Fixed Price		Cost Type		Total
Net Sales:
Instrumentation	$	1,094.4	$	10.7	$	1,105.1	$	1,001.0	$	20.2	$	1,021.2
Digital Imaging	903.1		89.8		992.9		795.5		79.8		875.3
Aerospace and Defense Electronics	687.8		2.3		690.1		637.4		2.8		640.2
Engineered Systems	168.9		206.6		375.5		165.8		199.3		365.1
Total	$	2,854.2	$	309.4	$	3,163.6	$	2,599.7	$	302.1	$	2,901.8


	Twelve Months Ended December 29, 2019														Twelve Months Ended December 30, 2018
	Geographic Region (a)												Geographic Region (a)
(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total
Net sales:
Instrumentation	$	899.7	$	164.8	$	40.6	$	1,105.1	$	835.0	$	134.6	$	51.6	$	1,021.2
Digital Imaging	316.1		299.4		377.4		992.9		239.3		270.2		365.8		875.3
Aerospace and Defense Electronics	588.3		100.8		1.0		690.1		605.5		32.5		2.2		640.2
Engineered Systems	375.5		—		—		375.5		365.1		—		—		365.1
Total	$	2,179.6	$	565.0	$	419.0	$	3,163.6	$	2,044.9	$	437.3	$	419.6	$	2,901.8

a) Net sales by geographic region of origin.

Note 13. Lease Commitments

Lease Commitments

We determine if an arrangement is a lease at inception. Effective December 31, 2018, operating leases are recorded as right-of-use assets, other long-term lease liabilities and current accrued liabilities in our consolidated balance sheets. Finance leases are included in property and equipment, current accrued liabilities, and other long-term liabilities in our consolidated balance sheets.

Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and use an implicit rate when readily available. Since most of our leases do not provide an implicit rate, we use the incremental borrowing rate to determine the present value of lease payments. The rate will take into consideration the underlying asset’s economic environment, including the length of the lease term and currency that the lease is payable in. Our lease agreements may include options to extend the lease term. We include those options to extend the lease term in determining the present value of the future lease payments when it is reasonably certain that we will exercise such option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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Many lease agreements contain renewal options at either a fixed cost, fixed increase or market value adjustment. For those leases with renewal options, we will include the renewal options that are reasonably certain to be exercised for purposes of calculating the lease liability and corresponding right-of-use asset. We evaluate the likelihood of exercising each renewal option based on many factors, including the length of the renewal option and the future new lease cost, if known, or the estimated future new lease cost if it is not a fixed amount.

Operating Leases

Teledyne has approximately 125 long-term operating lease agreements for manufacturing facilities and office space. These agreements frequently include one or more renewal options and may require the Company to pay for non-lease components such as utilities, taxes, insurance and maintenance expense. We account for lease and non-lease components as a single lease component when the payments are fixed. Variable payments included in the lease agreement are expensed as incurred. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements. At December 29, 2019, Teledyne has right-of-use assets of $127.1 million.

At December 29, 2019, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows (in millions):


Operating lease commitments:
2020	$	24.5
2021	23.0
2022	19.7
2023	16.9
2024	15.1
Thereafter	70.1
Total minimum lease payments	169.3
Less:
Imputed interest	(30.4)
Current portion (included in other current liabilities)	(19.6)
Present value of minimum lease payments, net of current portion	$	119.3

The weighted average remaining lease term for operating leases is approximately 9 years and the weighted average discount rate is 4.05%. Rental expense under operating leases, including leases with a term of 12 months or less, net of immaterial sublease income, was $26.5 million in 2019, $30.7 million in 2018 and $26.9 million in 2017.

Finance Leases and Subleases

Our finance leases and subleases are not material.

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.

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At December 29, 2019, the Company’s reserves for environmental remediation obligations totaled $6.0 million, of which $1.6 million is included in current accrued liabilities with the remainder included in long-term 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

The Company continues to manage the risks related to its defined benefit pension plan liabilities. Effective January 1, 2020, Teledyne restructured its domestic qualified defined benefit pension plan. The restructuring involved dividing our domestic qualified defined pension plan into two separate plans, one comprised primarily of inactive participants (the “inactive plan”) and the other comprised primarily of active participants (the “active plan”). The reorganization was made to facilitate a targeted investment strategy over time and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. As a result of the restructuring, the Company re-measured the assets and liabilities of the two plans, as required under U.S. GAAP, based on assumptions and market conditions on the January 1, 2020 effective date. Actuarial gains and losses associated with the active plan will continue to be amortized over the average remaining service period of the active participants, while the actuarial gains and losses associated with the inactive plan will be amortized over the average remaining life expectancy of the inactive participants which is currently approximately 17.7 years. Based on the new targeted investment strategy, the company is projecting for 2020 a long term rate of return on plan assets for the inactive plan of 6.71% and 7.80% for the active plan. As a primary result of these changes, the net pre-tax pension expense for all benefit plans is expected to decrease in 2020 by approximately $3.9 million to $2.6 million in pension income for 2020 from $1.3 million in pension expense in 2019.

On January 3, 2020, we acquired OakGate Technology, Inc. (“OakGate”) for $28.0 million in cash. Based in Loomis, California, OakGate provides software and hardware designed to test electronic data storage devices from development through manufacturing and end-use applications. The acquired business is part of the Test and Measurement product line of the Instrumentation segment.

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Note 16. Quarterly Financial Data (Unaudited)


Fiscal Year 2019 (a) (in millions, except per-share amounts)	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Sales	$	745.2	$	782.0	$	802.2	$	834.2
Costs and expenses
Cost of sales	463.9		463.6		487.7		505.1
Selling, general and administrative expenses	184.0		186.5		185.8		195.3
Total costs and expenses	647.9		650.1		673.5		700.4
Operating income	97.3		131.9		128.7		133.8
Interest and debt expense, net	(5.4)		(5.4)		(5.5)		(4.7)
Non-service retirement benefit income	2.2		2.0		1.9		1.9
Other expense, net	(1.2)		(0.6)		(1.7)		(1.5)
Income before income taxes	92.9		127.9		123.4		129.5
Provision for income taxes (b)	17.6		23.3		16.7		13.8

Net income	$	75.3	$	104.6	$	106.7	$	115.7

Basic earnings per common share	$	2.09	$	2.89	$	2.93	$	3.17

Diluted earnings per common share	$	2.02	$	2.80	$	2.84	$	3.06

a) Fiscal year 2019 was a 52-week fiscal-year, each quarter contained 13 weeks.

b) Includes $3.1 million in net discrete income tax benefits in the first quarter, $4.3 million in net discrete income tax benefits in the second quarter, $10.4 million in net discrete income tax benefits the third quarter and $8.3 million in net discrete income tax benefits in the fourth quarter.


Fiscal Year 2019 (in millions)	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Sales:
Instrumentation	$	256.5	$	264.1	$	282.9	$	301.6
Digital Imaging	232.4		248.4		244.0		268.1
Aerospace and Defense Electronics	166.6		176.0		177.1		170.4
Engineered Systems	89.7		93.5		98.2		94.1
Total net sales	$	745.2	$	782.0	$	802.2	$	834.2

Operating income:
Instrumentation	$	39.9	$	49.0	$	52.0	$	59.5
Digital Imaging	36.6		51.6		41.2		47.1
Aerospace and Defense Electronics	32.5		38.6		39.5		32.8
Engineered Systems	6.4		9.0		10.6		10.5
Corporate expense	(18.1)		(16.3)		(14.6)		(16.1)
Total operating income	$	97.3	$	131.9	$	128.7	$	133.8

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Fiscal Year 2018 (a) (in millions, except per-share amounts)	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Sales	$	695.6	$	732.5	$	725.3	$	748.4
Costs and expenses
Cost of sales	438.2		447.0		446.2		459.6
Selling, general and administrative expenses	169.0		174.0		173.6		177.6
Total costs and expenses	607.2		621.0		619.8		637.2
Operating income	88.4		111.5		105.5		111.2
Interest and debt expense, net	(7.1)		(6.7)		(6.0)		(5.7)
Non-service retirement benefit income	3.4		3.3		3.4		3.4
Other expense, net	(2.5)		(3.7)		(2.7)		(1.8)
Income before income taxes	82.2		104.4		100.2		107.1
Provision for income taxes (b)	15.7		18.5		9.9		16.0


Net income	$	66.5	$	85.9	$	90.3	$	91.1

Basic earnings per common share	$	1.87	$	2.40	$	2.52	$	2.53

Diluted earnings per common share	$	1.81	$	2.32	$	2.43	$	2.45

a) Fiscal year 2018 was a 52-week fiscal-year, each quarter contained 13 weeks.

b) Includes $2.1 million in net discrete income tax benefits in the first quarter, $3.4 million in net discrete income tax benefits in the second quarter, $11.4 million in net discrete income tax benefits the third quarter and $6.9 million in net discrete income tax benefits in the fourth quarter.


Fiscal Year 2018 (in millions)	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Net Sales:
Instrumentation	$	239.0	$	262.6	$	256.2	$	263.4
Digital Imaging	208.3		223.0		220.7		223.3
Aerospace and Defense Electronics	156.4		157.5		160.3		166.0
Engineered Systems	91.9		89.4		88.1		95.7
Total net sales	$	695.6	$	732.5	$	725.3	$	748.4

Operating income:
Instrumentation	$	27.8	$	40.9	$	35.7	$	43.0
Digital Imaging	33.8		43.1		42.3		36.3
Aerospace and Defense Electronics	30.8		32.6		33.0		35.4
Engineered Systems	8.9		8.7		9.6		10.7
Corporate expense	(12.9)		(13.8)		(15.1)		(14.2)
Total operating income	$	88.4	$	111.5	$	105.5	$	111.2

(a) The 2018 periods have been adjusted to reflect the realignment, in the third quarter of 2019, of the reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. Other immaterial changes included moving certain United Kingdom (U.K.) microwave product lines (previously within the Digital Imaging segment) and certain U.K. manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment.

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Schedule II VALUATION AND QUALIFYING ACCOUNTS

Schedule II

VALUATION AND QUALIFYING ACCOUNTS

For the Fiscal Years Ended December 29, 2019, December 30, 2018 and December 31, 2017

(In millions)


			Additions
Description	Balance at beginning of period		Charged to costs and expenses	Acquisitions	Deductions and other (a)	Balance at end of period
Fiscal Year 2019
Allowance for doubtful accounts	$	6.7	1.3	2.3	(0.1)	$	10.2
Environmental reserves	$	6.0	0.6	—	(0.6)	$	6.0

Fiscal Year 2018
Allowance for doubtful accounts	$	10.3	0.6	—	(4.2)	$	6.7
Environmental reserves	$	5.1	1.6	—	(0.7)	$	6.0

Fiscal Year 2017
Allowance for doubtful accounts	$	5.2	4.2	1.6	(0.7)	$	10.3
Environmental reserves	$	7.0	2.3	0.3	(4.5)	$	5.1

(a) Represents payments except the amounts for allowance for doubtful accounts primarily represents uncollectible accounts written-off, net of recoveries.

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