Item 1. Financial Statements

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Item 1. Financial Statements

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020

(Unaudited - Amounts in millions, except per-share amounts)


	Third Quarter				Nine Months
	2021		2020		2021		2020
Net sales	$	1,311.9	$	749.0	$	3,238.6	$	2,276.9
Costs and expenses
Cost of sales	787.7		458.5		1,943.3		1,411.7
Selling, general and administrative expenses	279.3		158.1		768.2		499.7
Acquired intangible asset amortization	55.3		9.9		97.9		29.2
Total costs and expenses	1,122.3		626.5		2,809.4		1,940.6
Operating income	189.6		122.5		429.2		336.3
Interest and debt expense, net	(23.8)		(4.1)		(80.7)		(11.9)
Non-service retirement benefit income	2.8		3.2		8.4		8.9
Other income (expense), net	(0.7)		(1.9)		4.4		(4.7)
Income before income taxes	167.9		119.7		361.3		328.6
Provision for income taxes	33.8		25.8		77.8		58.8



Net income	$	134.1	$	93.9	$	283.5	$	269.8















Basic earnings per common share	$	2.88	$	2.55	$	6.75	$	7.35
Weighted average common shares outstanding	46.6		36.8		42.0		36.7





Diluted earnings per common share	$	2.81	$	2.48	$	6.58	$	7.14
Weighted average diluted common shares outstanding	47.7		37.8		43.1		37.8

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

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020

(Unaudited - Amounts in millions)


	Third Quarter				Nine Months
	2021		2020		2021		2020
Net income	$	134.1	$	93.9	$	283.5	$	269.8
Other comprehensive income (loss):
Foreign exchange translation adjustment	(44.0)		38.7		(39.8)		(21.2)
Hedge activity, net of tax	(4.5)		2.6		(4.1)		0.6
Pension and postretirement benefit adjustments, net of tax	4.4		2.9		13.2		9.6
Other comprehensive income (loss)	(44.1)		44.2		(30.7)		(11.0)




Comprehensive income	$	90.0	$	138.1	$	252.8	$	258.8

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - Amounts in millions, except share amounts)


	October 3, 2021		January 3, 2021
Assets
Current Assets
Cash and cash equivalents	$	551.8	$	673.1

Accounts receivable, net	759.6		402.0
Unbilled receivables, net	271.7		222.1
Inventories, net	833.2		347.3

Prepaid expenses and other current assets	118.6		78.1

Total current assets	2,534.9		1,722.6
Property, plant and equipment, net of accumulated depreciation and amortization of $749.0 at October 3, 2021 and $673.4 at January 3, 2021	858.1		489.3
Goodwill	7,899.5		2,150.0
Acquired intangibles, net	2,705.2		409.7
Prepaid pension assets	87.0		67.9
Operating lease right-of-use assets	137.7		123.4
Other assets, net	225.1		121.9
Total Assets	$	14,447.5	$	5,084.8
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	427.6	$	229.1
Accrued liabilities	994.2		434.2
Current portion of long-term debt and other debt	—		97.6

Total current liabilities	1,421.8		760.9
Long-term debt, net of current portion	4,441.7		680.9
Long-term operating lease liabilities	130.1		116.5
Long-term deferred tax liabilities	641.9		39.0
Other long-term liabilities	395.4		258.9
Total Liabilities	7,030.9		1,856.2
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value; outstanding shares - none	—		—
Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 47,194,766 at October 3, 2021 and 37,697,865 at January 3, 2021; outstanding shares: 46,653,888 at October 3, 2021 and 36,951,607 at January 3, 2021	0.5		0.4
Additional paid-in capital	4,307.5		389.9
Retained earnings	3,611.4		3,327.9
Treasury stock, 540,878 shares at October 3, 2021 and 746,258 shares at January 3, 2021	(42.0)		(59.5)
Accumulated other comprehensive loss	(460.8)		(430.1)


Total Stockholders’ Equity	7,416.6		3,228.6
Total Liabilities and Stockholders’ Equity	$	14,447.5	$	5,084.8

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED 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 3, 2021	$	0.4	$	389.9	$	(59.5)	$	3,327.9	$	(430.1)	$	3,228.6
Net income	—		—		—		84.7		—		84.7
Other comprehensive income, net of tax	—		—		—		—		5.2		5.2
Treasury stock issued	—		(9.3)		9.3		—		—		—
Stock-based compensation	—		7.0		—		—		—		7.0
Exercise of stock options	—		10.8		—		—		—		10.8
Balance, April 4, 2021	0.4		398.4		(50.2)		3,412.6		(424.9)		3,336.3
Net income	—		—		—		64.7		—		64.7
Other comprehensive income, net of tax	—		—		—		—		8.2		8.2
Common stock issued	0.1		3,889.6		—		—		—		3,889.7
Treasury stock issued	—		(4.1)		4.1		—		—		—
Stock-based compensation	—		8.4		—		—		—		8.4
Exercise of stock options	—		5.1		—		—		—		5.1
Balance, July 4, 2021	0.5		4,297.4		(46.1)		3,477.3		(416.7)		7,312.4
Net income	—		—		—		134.1		—		134.1
Other comprehensive loss, net of tax	—		—		—		—		(44.1)		(44.1)
Treasury stock issued	—		(4.1)		4.1		—		—		—
Stock-based compensation	—		8.7		—		—		—		8.7
Exercise of stock options	—		5.5		—		—		—		5.5
Balance, October 3, 2021	$	0.5	$	4,307.5	$	(42.0)	$	3,611.4	$	(460.8)	$	7,416.6


	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 29, 2019	$	0.4	$	360.5	$	(96.4)	$	2,926.0	$	(475.8)	$	2,714.7
Net income	—		—		—		82.2		—		82.2
Other comprehensive loss, net of tax	—		—		—		—		(63.7)		(63.7)
Treasury stock issued	—		(9.4)		9.4		—		—		—
Stock-based compensation	—		9.6		—		—		—		9.6
Exercise of stock options	—		10.2		—		—		—		10.2

Balance, March 29, 2020	0.4		370.9		(87.0)		3,008.2		(539.5)		2,753.0
Net income	—		—		—		93.7		—		93.7
Other comprehensive income, net of tax	—		—		—		—		8.5		8.5
Treasury stock issued	—		(19.4)		19.4		—		—		—
Stock based compensation	—		6.7		—		—		—		6.7
Exercise of stock options	—		18.0		—		—		—		18.0
Balance, June 28, 2020	0.4		376.2		(67.6)		3,101.9		(531.0)		2,879.9
Net income	—		—		—		93.9		—		93.9
Other comprehensive income, net of tax	—		—		—		—		44.2		44.2
Treasury stock issued	—		(1.3)		1.3		—		—		—
Stock-based compensation	—		6.7		—		—		—		6.7
Exercise of stock options	—		1.3		—		—		—		1.3

Balance, September 27, 2020	$	0.4	$	382.9	$	(66.3)	$	3,195.8	$	(486.8)	$	3,026.0

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020

(Unaudited - Amounts in millions)


	Nine Months
	2021		2020
Operating Activities
Net income	$	283.5	$	269.8


Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and inventory step-up expense	237.8		87.5

Stock-based compensation	25.0		23.0
Bridge financing and debt extinguishment expense	30.5		—

Changes in operating assets and liabilities excluding the effect of business acquired:
Accounts receivable and unbilled receivables	(103.0)		8.7
Inventories	3.7		27.1

Accounts payable	59.8		(52.2)

Deferred and income taxes receivable/payable, net	16.9		10.8
Prepaid expenses and other assets	19.9		(9.1)
Accrued expenses and other liabilities	(65.4)		11.1



Other operating, net	20.3		5.8


Net cash provided by operating activities	529.0		382.5
Investing Activities
Purchases of property, plant and equipment	(67.6)		(52.0)
Purchase of businesses, net of cash acquired	(3,723.3)		(29.0)
Other investing, net	0.5		0.1




Net cash used in investing activities	(3,790.4)		(80.9)
Financing Activities




Net payments on senior notes and other debt	(796.6)		(75.4)
Proceeds from other debt	3,975.8		—
Proceeds from exercise of stock options	21.4		29.5

Payments for bridge financing and debt extinguishment	(30.5)		—
Other financing, net	(22.8)		—
Net cash provided by (used in) financing activities	3,147.3		(45.9)
Effect of exchange rate changes on cash	(7.2)		(0.7)
Change in cash and cash equivalents	(121.3)		255.0
Cash and cash equivalents—beginning of period	673.1		199.5
Cash and cash equivalents—end of period	$	551.8	$	454.5

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

October 3, 2021

Note 1. General

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Teledyne Technologies Incorporated (“Teledyne” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in notes to consolidated financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with generally accepted accounting principles in the United States (“GAAP”) as they apply to interim reporting. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes in Teledyne’s Annual Report on Form 10-K for the fiscal year ended January 3, 2021 (“2020 Form 10-K”).

In the opinion of Teledyne’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, Teledyne’s consolidated financial position as of October 3, 2021 and the consolidated results of operations, consolidated comprehensive income for the third quarter and nine months ended October 3, 2021 and the consolidated cash flows for the nine months then ended. The results of operations and cash flows for the periods ended October 3, 2021 are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year. Certain prior year amounts have been reclassified to conform to the current period presentation. The Company now discloses acquired intangible asset amortization on a separate income statement line. Acquired intangible asset amortization was previously included in selling, general and administrative expenses. In addition, the Company now discloses the balance of long-term deferred tax liabilities on the face of the balance sheet. Long-term deferred tax liabilities was previously included in other long-term liabilities.

Acquisition of FLIR Systems, Inc.

On May 14, 2021, the Company completed the acquisition of FLIR Systems, Inc. (“FLIR”), and the financial results of FLIR have been included since the date of the acquisition. See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding the FLIR acquisition.

Cash Equivalents

Cash equivalents consist of highly liquid money-market mutual funds and bank deposits with maturities of three months or less when purchased. The Company has categorized its cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets. Cash equivalents totaled $38.1 million at October 3, 2021 and $471.0 million at January 3, 2021.

Note 2. Business Combinations, Goodwill and Acquired Intangible Assets

Acquisition of FLIR Systems, Inc.

On May 14, 2021, Teledyne acquired the outstanding stock of FLIR for approximately $8.1 billion, comprising of net cash payments of $3.7 billion, net Teledyne share issuances of $3.9 billion, and the assumption of FLIR debt of $0.5 billion. FLIR stockholders received $28.00 per share in cash and 0.0718 shares of Teledyne common stock for each FLIR share, and Teledyne issued approximately 9.5 million shares at $409.41 per share. See Note 10 to these Notes to Condensed Consolidated Financial Statements for information regarding financing activities undertaken in connection with the FLIR acquisition.

Founded in 1978, FLIR is an industrial technology company focused on intelligent sensing solutions for defense and industrial applications. FLIR offers a diversified portfolio that serves a number of applications in government and defense, industrial, and commercial markets. FLIR develops technologies that enhance perception and awareness. FLIR designs, develops, markets, and distributes solutions that detect people, objects and substances that may not be perceived by human senses and improve the way people interact with the world around them. FLIR technologies include thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and advanced threat-detection solutions. FLIR is part of the Digital Imaging segment.

The primary reasons for the FLIR acquisition were as follows:

the synergies in merging with a business that has the same core business model based on proprietary sensor technologies, but with different products and markets;
the opportunity to add new and complementary products with FLIR’s products based on different semiconductor technologies for imaging across different wavelengths than Teledyne products, and the opportunity to serve different customers and applications, with minimal overlapping technologies and markets;
the expectation of combining two businesses that both provide sensors, cameras and sensor systems to customers and both business portfolios being balanced among commercial and government markets and geographies, but with Teledyne primarily producing extremely high-performance infrared detectors used for astronomy and space-based imaging applications compared to FLIR’s products focused on helicopters to soldiers to firefighters throughout commercial tomography and automotive advanced driver systems;
the opportunity to add FLIR’s suite of imaging sensor products based on different semiconductor technologies for different wavelengths to Teledyne’s offerings;

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. Goodwill resulting from the FLIR acquisition will not be deductible for tax purposes.

The following table presents the preliminary purchase price allocation for FLIR. We are accounting for the FLIR acquisition under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree at the fair values on the closing date. The Company made an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. As of October 3, 2021, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the FLIR acquisition are subject to adjustment until the end of the respective measurement period. The Company is in the process of specifically identifying the amounts assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the FLIR acquisition. The Company is in the process of obtaining a third-party valuation of certain intangible assets and tangible assets of FLIR. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. The amounts recorded as of October 3, 2021 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.


Fair values allocated to the assets acquired and liabilities assumed - FLIR (in millions):
Cash and cash equivalents	$	287.7
Accounts receivables, net	240.2
Unbilled receivables, net	72.2
Inventories, net	556.4
Prepaid expenses and other current assets	106.1
Total current assets	1,262.6

Property, plant and equipment	391.7
Goodwill	5,795.0
Acquired intangible assets	2,400.0
Other long-term assets	131.4
Total assets acquired	$	9,980.7

Accounts payable	144.6
Accrued liabilities	601.5
Total current liabilities assumed	746.1

Long-term debt, net	496.8
Long-term deferred tax liabilities	647.5
Other long-term liabilities	181.7
Total liabilities assumed	2,072.1
Consideration transferred	$	7,908.6

Consideration transferred, net of cash acquired (a)	$	7,620.9

(a) The consideration transferred included approximately $3.9 billion of Teledyne shares issued to existing shareholders of the acquired company. This $3.9 billion of equity consideration is a non-cash transaction. An immaterial portion of the cash consideration for certain vested FLIR restricted stock awards was deferred at the election of the award holder and will be paid out in future periods.

During fiscal year 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of FLIR’s non-operating subsidiaries in Sweden. The total taxes, penalties and interest levied by the STA totals SEK 3.1 billion ($351.5 million USD). The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and the reassessment levied significant taxes and penalties. In March 2020, FLIR received an adverse judgment from the First Instance Court of Sweden regarding the STA’s reassessment. FLIR appealed the decision to the Administrative Court of Appeal in Stockholm, Sweden (the “ Appellate Court”). After completing an extensive analysis, including consultation with outside specialists, Teledyne recorded a liability for this uncertain tax position that reflects the most likely outcome for this tax matter under the acquisition method for business combinations in the third quarter of 2021, which is included within Accrued Liabilities on the Condensed Consolidated Balance Sheet. Subsequently, the Appellate Court hearing was held on September 15, 2021 and in the subsequent weeks ending on October 22, 2021, the STA and Teledyne submitted additional arguments in writing, including closing arguments. An adverse tax ruling by the Appellate Court related to a pre-acquisition assessment by the STA against a FLIR subsidiary would materially impact our cash flow.

The Company is in the process of reviewing and identifying acquisition accounting adjustments for a number of acquired tax positions of FLIR that may meet the definition of an acquired uncertain tax position. In addition to the STA matter described above, the Company has preliminarily recorded $51.2 million of provisional purchase accounting adjustments for the accrual of other uncertain tax positions of FLIR. These amounts are included within other Long-Term Liabilities on the Condensed Consolidated Balance Sheet. These preliminary estimates are subject to change as the Company obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period. The final acquisition accounting adjustments for these tax matter may be materially different, as Teledyne obtains additional information on this matter and as additional information is made known during the post-acquisition measurement period.

The following table is a summary at the acquisition date of the acquired intangible assets and weighted average useful life in years for the FLIR acquisition made in 2021 (dollars in millions):


Intangibles subject to amortization:(a)	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	1,412.0	10.0
Customer list/relationships	380.0		12.0
Backlog	8.0		0.8
Total intangibles subject to amortization	1,800.0		10.4
Intangibles not subject to amortization:(a)
Trademarks	600.0
Total acquired intangible assets	$	2,400.0

a) The amounts recorded as of October 3, 2021 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.

With significant operations in the United States, Europe and Canada, FLIR had sales of approximately $1,932.7 million for its fiscal year ended December 31, 2020. FLIR’s results have been included since the date of the acquisition and include $775.0 million in net sales and operating income of $56.6 million, which included $152.5 million in acquisition-related costs for the nine months ended October 3, 2021. The third quarter of 2021, includes $473.6 million in net sales and operating income of $35.2 million, which included $82.3 million in acquisition-related costs.

In connection with the FLIR acquisition, in the third quarter of 2021, Teledyne incurred pretax expenses of $82.6 million, consisting of $45.6 million in acquired intangible asset amortization expense, $35.2 million in acquired inventory step-up expense, recorded to cost of sales and $1.8 million of transaction and integration-related costs, recorded to selling, general and administrative expenses. Of these amounts, $82.3 million impacted Digital Imaging segment’s operating income. In the first nine months of 2021, Teledyne incurred pretax expenses of $259.8 million, consisting of $68.4 million in acquired intangible asset amortization expense, $58.9 million recorded to cost of sales, primarily in acquired inventory step-up expense, and $101.9 million of transaction and integration-related costs, recorded to selling, general and administrative expenses and $30.6 million was recorded to interest and debt expense. Of these amounts, $152.5 million impacted the Digital Imaging segment’s operating income and $76.7 million of transaction and integration-related costs impacted corporate expense.

The unaudited proforma information below, as required by GAAP, assumes that FLIR had been acquired at the beginning of the 2020 fiscal year and includes the effect of transaction accounting adjustments. These adjustments include the financing costs associated with debt to fund the acquisition, amortization of acquired intangible assets, depreciation of the fair value step-up of acquired property, plant and equipment, and amortization of inventory fair value step-up (assumed to be fully amortized in 2020) as well as the issuance of Teledyne common stock in connection with the acquisition. These costs are considered non-recurring costs that were necessary to complete the acquisition and are included in the unaudited pro forma condensed combined statement of operations.

This unaudited proforma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the 2020 fiscal year. In addition, the unaudited proforma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.

The following table presents proforma net sales, net income and earnings per share data assuming FLIR was acquired at the beginning of the 2020 fiscal year:


	Third Quarter (a)				Nine Months (a)
(unaudited - in millions, except per share amounts)	2021		2020		2021		2020
Net sales	$	1,311.9	$	1,215.5	$	3,859.9	$	3,676.3
Net income	$	164.3	$	99.7	$	356.8	$	218.4
Basic earnings per common share	$	3.53	$	2.15	$	8.50	$	4.73
Diluted earnings per common share	$	3.44	$	2.11	$	8.28	$	4.62
(a) The above unaudited proforma information is presented for the FLIR acquisition as it is considered a material acquisition.

Acquisition of the OakGate Technology, Inc.

On January 5, 2020, we acquired OakGate Technology, Inc. (“OakGate”) for $28.5 million in cash, net of cash acquired. Based in Loomis, California, OakGate provides software and hardware designed to test electronic data storage devices from development through manufacturing and end-use applications. OakGate is part of the Test and Measurement product line of the Instrumentation segment. Teledyne funded the acquisition with cash on hand. The results of the OakGate acquisition have been included in Teledyne’s results since the date of the acquisition. Goodwill resulting from the acquisition of OakGate is not deductible for tax purposes.

Goodwill and Acquired Intangible Assets

Teledyne’s goodwill was $7,899.5 million at October 3, 2021 and $2,150.0 million at January 3, 2021. The increase in the balance of goodwill in 2021 related primarily to goodwill recognized in the FLIR acquisition. Teledyne’s net acquired intangible assets were $2,705.2 million at October 3, 2021 and $409.7 million at January 3, 2021. The increase in the balance of net acquired intangible assets primarily reflected the acquired intangible assets acquired in the FLIR acquisition.

Acquired intangible assets are summarized as follows:


	October 3, 2021						January 3, 2021
Acquired intangible assets (in millions):	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Proprietary technology	$	1,826.6	$	315.5	$	1,511.1	$	420.3	$	242.7	$	177.6
Customer list/relationships	547.0		130.9		416.1		168.3		112.8		55.5
Patents	0.6		0.6		—		0.7		0.7		—
Non-compete agreements	0.9		0.9		—		0.9		0.9		—
Trademarks	4.5		3.8		0.7		4.5		3.6		0.9
Backlog	24.3		20.0		4.3		16.5		16.5		—
Total intangibles subject to amortization	2,403.9		471.7		1,932.2		611.2		377.2		234.0
Intangibles not subject to amortization:
Trademarks	773.0		—		773.0		175.7		—		175.7
Total acquired intangible assets	$	3,176.9	$	471.7	$	2,705.2	$	786.9	$	377.2	$	409.7

Note 3. Accumulated Other Comprehensive Loss

The changes in AOCI by component, net of tax, for the third quarter and nine months ended October 3, 2021 and September 27, 2020 are as follows (in millions):


	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of July 4, 2021	$	(80.4)	$	2.7	$	(339.0)	$	(416.7)
Other comprehensive income (loss) before reclassifications	(44.0)		2.0		—		(42.0)
Amounts reclassified from AOCI	—		(6.5)		4.4		(2.1)
Net other comprehensive income (loss)	(44.0)		(4.5)		4.4		(44.1)

Balance as of October 3, 2021	$	(124.4)	$	(1.8)	$	(334.6)	$	(460.8)

	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of June 28, 2020	$	(210.3)	$	(4.3)	$	(316.4)	$	(531.0)
Other comprehensive income (loss) before reclassifications	38.7		(5.4)		—		33.3
Amounts reclassified from AOCI	—		8.0		2.9		10.9
Net other comprehensive income	38.7		2.6		2.9		44.2

Balance as of September 27, 2020	$	(171.6)	$	(1.7)	$	(313.5)	$	(486.8)


	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of January 3, 2021	$	(84.6)	$	2.3	$	(347.8)	$	(430.1)
Other comprehensive income (loss) before reclassifications	(39.8)		13.7		—		(26.1)
Amounts reclassified from AOCI	—		(17.8)		13.2		(4.6)
Net other comprehensive income (loss)	(39.8)		(4.1)		13.2		(30.7)
Balance as of October 3, 2021	$	(124.4)	$	(1.8)	$	(334.6)	$	(460.8)

	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of December 29, 2019	$	(150.4)	$	(2.3)	$	(323.1)	$	(475.8)
Other comprehensive loss before reclassifications	(21.2)		(9.2)		—		(30.4)
Amounts reclassified from AOCI	—		9.8		9.6		19.4
Net other comprehensive income (loss)	(21.2)		0.6		9.6		(11.0)
Balance as of September 27, 2020	$	(171.6)	$	(1.7)	$	(313.5)	$	(486.8)

The reclassifications out of AOCI to net income for the third quarter and nine months ended October 3, 2021 and September 27, 2020 are as follows (in millions):


	Amount Reclassified from AOCI for the Three Months Ended		Amount Reclassified from AOCI for the Three Months Ended		Statement of Income
	October 3, 2021		September 27, 2020		Presentation
(Gain) loss on cash flow hedges:
Gain recognized in income on derivatives	$	(8.7)	$	10.8	See Note 4
Income tax impact	2.2		(2.8)		Provision for income taxes
Total	$	(6.5)	$	8.0

Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost	$	(0.9)	$	(1.5)	Costs and expenses
Amortization of net actuarial loss	6.7		5.4		Costs and expenses
Total before tax	5.8		3.9
Income tax impact	(1.4)		(1.0)		Provision for income taxes
Total	$	4.4	$	2.9


	Amount Reclassified from AOCI for the Nine Months Ended		Amount Reclassified from AOCI for the Nine Months Ended		Statement of Income
	October 3, 2021		September 27, 2020		Presentation
(Gain) loss on cash flow hedges:
(Gain) loss recognized in income on derivatives	$	(23.8)	$	13.2	See Note 4
Income tax impact	6.0		(3.4)		Provision for income taxes
Total	$	(17.8)	$	9.8

Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost	(2.7)		(4.5)		Costs and expenses
Amortization of net actuarial loss	20.1		17.1		Costs and expenses
Total before tax	17.4		12.6
Income tax impact	(4.2)		(3.0)		Provision for income taxes
	$	13.2	$	9.6

Note 4. Derivative Instruments

Teledyne transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company’s primary foreign currency risk management 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 revenues and expenses denominated in Canadian dollars for our Canadian companies, and in British pounds for our UK companies. These contracts are designated and qualify as cash flow hedges. The Company has also converted U.S. dollar denominated, variable rate and fixed rate obligations into euro fixed rate obligations using a receive float, pay fixed cross currency swap, and a receive fixed, 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 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 hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash flow hedge forward 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 condensed consolidated statements of income, at which time the effective amount in AOCI is reclassified to revenue in our condensed consolidated statements of income. Net deferred gains recorded in AOCI,

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net of tax, for the forward contracts that will mature in the next twelve months total $0.7 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 interest rate swap expected to be reclassified from AOCI into income in the next twelve months total $1.4 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 or expense. During the current reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other income and expense.

As of October 3, 2021, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars totaling $115.9 million. These foreign currency forward contracts have maturities ranging from December 2021 to February 2023. Teledyne had foreign currency forward contracts designated as cash flow hedges to buy British pounds and to sell U.S. dollars totaling $19.2 million. These foreign currency forward contracts have maturities ranging from December 2021 to November 2022. 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 and matures in March 2023.

In addition, Teledyne manages the risk of changes in the fair value of certain monetary liabilities attributable to changes in exchange rates. Teledyne manages these risks by using currency forward contracts formally designated and effective as fair value hedges. Hedge effectiveness is generally determined by evaluating the alignment of the hedging instrument's critical terms with the critical terms of the hedged item. The forward points attributable to the hedging instruments are excluded from the assessment of effectiveness and amortized to other income or expense, net using a systematic and rational methodology. Differences between the change in the fair value of the excluded component and amounts recognized under the systematic and rational method are recognized in other comprehensive income (loss). The change in fair value of the hedging instruments attributable to the hedged risk is reported in the other income or expense, net. The change in fair value of the hedged item attributable to the hedged risk is reported as an adjustment to its carrying value and also in other income or expense, net. At October 3, 2021 Teledyne had no forward contracts designated as fair value hedges.

The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the third quarter and nine months ended October 3, 2021 and September 27, 2020 was as follows (in millions):


	Third Quarter				Nine Months
	2021		2020		2021		2020
Net gain (loss) recognized in AOCI - Foreign Exchange Contracts (a)	$	(5.6)	$	(7.2)	$	18.3	$	(7.6)
Net gain (loss) reclassified from AOCI into revenue - Foreign Exchange Contracts (a)	$	1.8	$	(0.2)	$	7.8	$	(1.9)
Net loss recognized in AOCI - Interest Rate Contracts	$	(0.1)	$	(0.1)	(0.1)		$	(4.7)
Net gain (loss) reclassified from AOCI into other income and expense, net - Foreign Exchange Contracts (b)	$	6.4	$	(11.2)	$	14.7	$	(14.2)
Net gain reclassified from AOCI into interest expense - Foreign Exchange Contracts	$	0.9	$	0.9	$	2.6	$	3.4
Net loss reclassified from AOCI into interest expense - Interest Rate Contracts	$	(0.4)	$	(0.3)	$	(1.2)	$	(0.5)

(a) Effective portion, pre-tax

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

The effect of derivative instruments designated as fair value hedges in the condensed financial statements for the third quarter and nine months ended October 3, 2021 and September 27, 2020 was as follows (in millions):


	Third Quarter				Nine Months
	2021		2020		2021		2020
Net gain recognized in earnings for effective portion - other income and expense, net - Foreign Exchange Contracts	$	—	$	—	$	7.9	$	—
Net gain recognized in earnings for amounts excluded from effectiveness testing - other income and expense, net - Foreign Exchange Contracts	$	0.1	$	—	$	0.2	$	—

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Non-Designated Hedging Activities

In addition, the Company utilizes foreign currency forward contracts to mitigate foreign exchange rate risk associated with foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. As of October 3, 2021, Teledyne had non-designated foreign currency contracts of this type, primarily in the following pairs (in millions):


Contracts to Buy			Contracts to Sell
Currency	Amount			Currency	Amount
Canadian Dollars	$	171.1		U.S. Dollars	US$	135.9
Canadian Dollars	$	16.7		Euros	€	11.2


Great Britain Pounds	£	67.1		U.S. Dollars	US$	93.2


Euros	€	154.8		U.S. Dollars	US$	183.9


Danish Krone	DKR	337.6		U.S. Dollars	US$	54.0
Swedish Krona	SEK	850.4		Euros	€	83.7
U.S. Dollars	US$	27.1		Swedish Krona	SEK	232.7
Norwegian Krone	kr	226.4		Swedish Krona	SEK	224.5

The preceding 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. Teledyne does not use foreign currency forward contracts for speculative or trading purposes.

The effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for the third quarter and nine months ended October 3, 2021 was expense of $11.7 million and expense of $16.5 million, respectively. The effect of derivative instruments not designated as cash flow hedges in other income and expense for the third quarter and nine months ended September 27, 2020 was income of $3.0 million and expense of $5.5 million, respectively. The income or expense was largely offset by losses or gains in the value of the underlying hedged item excluding the impact of forward points.

Fair Value of Derivative Financial Instruments

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	October 3, 2021		January 3, 2021
Derivatives designated as hedging instruments:
Cash flow forward contracts	Other current assets	$	1.7	$	7.3




Cash flow cross currency swap	Other current assets	3.4		3.4
Cash flow forward contracts	Accrued liabilities	(0.8)		—
Cash flow cross currency swap	Other long-term liabilities	(14.0)		(29.2)




Interest rate contracts	Other long-term liabilities	(0.6)		(1.8)
Interest rate contracts	Accrued liabilities	(1.6)		(1.5)


Total derivatives designated as hedging instruments		(11.9)		(21.8)
Derivatives not designated as hedging instruments:
Non-designated forward contracts	Other current assets	3.6		6.7
Non-designated forward contracts	Accrued liabilities	(12.2)		(1.2)
Total derivatives not designated as hedging instruments		(8.6)		5.5
Total derivatives, net		$	(20.5)	$	(16.3)

Note 5. Earnings Per Share

For the third quarter and first nine months of 2021, no stock options were excluded in the computation of diluted earnings per share because their inclusion would have been anti-dilutive. For the third quarter and first nine months of 2020, 239,422 and 242,602 stock options, respectively, were excluded in the computation of earnings per share because they had exercise prices that were greater than the weighted average market price of the Company’s common stock price during the respective period. As part of the consideration transferred for the acquisition of FLIR, the Company issued approximately 9.5 million shares of common stock on May 14, 2021 which increased the weighted average number of shares during the period. The weighted average number of common shares used in the calculation of basic and diluted earnings per share consisted of the following (in millions):


	Third Quarter		Nine Months
	2021	2020	2021	2020

Weighted average basic common shares outstanding	46.6	36.8	42.0	36.7
Effect of dilutive securities (primarily stock options)	1.1	1.0	1.1	1.1
Weighted average diluted common shares outstanding	47.7	37.8	43.1	37.8

Note 6. Stock-Based Compensation Plans

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

Stock Incentive Plan

Stock option compensation expense was $5.8 million for the third quarter of 2021 and was $5.7 million for the third quarter of 2020. Stock option compensation expense was $13.6 million for the first nine months of 2021 and was $18.8 million for the first nine months of 2020. Employee stock option grants are charged to expense evenly over the three year vesting period except for stock options granted after 2018 to Teledyne’s current Chairman, President and Chief Executive Officer and Teledyne’s former President and Chief Executive Officer, which are expensed immediately. For 2021, the Company currently expects approximately $20.5 million in stock option compensation. This amount can be impacted by employee retirements and terminations or stock options granted during the remainder of the year. The Company issues shares of common stock upon the exercise of stock options.

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The following assumptions were used in the valuation of the stock options granted in 2021:


	2021
Expected volatility	27.8	%
Risk-free interest rate range	0.09% to 1.58%
Expected life in years	5.2
Expected dividend yield	—

Based on the assumptions used in the valuation of stock options, the weighted average grant date fair value of stock options granted in the first nine months of 2021 was $135.59 per share.

Stock option transactions for the third quarter and first nine months of 2021 are summarized as follows:


	2021
	Third Quarter			Nine Months
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Beginning balance	1,677,689	$	172.69	1,819,147	$	170.10
Granted	198,491	$	441.51	200,199	$	441.02
Exercised	(47,000)	$	117.42	(175,295)	$	121.47
Canceled	(4,348)	$	333.54	(19,219)	$	314.34
Ending balance	1,824,832	$	202.97	1,824,832	$	202.97
Exercisable at end of period	1,366,280	$	116.55	1,366,280	$	116.55

Performance Share Plan

In the first quarter of 2018, the performance cycle for the three-year period ending December 31, 2020, was set. Under the plan and based on actual performance, Teledyne issued 9,588 shares of its common stock in the first quarter 2021. A total of 35,033 shares remain to be issued in two equal installments in 2022 and 2023.

Restricted Stock Award Program

The following table shows the restricted stock activity for the first nine months of 2021:


	Shares	Weighted average fair value per share
Balance, January 3, 2021	43,405	$	228.80
Granted (includes restricted stock units converted in connection with the FLIR acquisition)	73,201	$	399.00
Vested	(23,499)	$	256.64
Forfeited/Canceled	(3,727)	$	384.80
Balance, October 3, 2021	89,380	$	354.37

As part of the acquisition of FLIR, the Company assumed certain unvested restricted stock units that were issued by FLIR in March 2021. The unvested restricted stock units were converted to 62,974 Teledyne restricted stock units. The post-acquisition expense for these restricted stock units was $1.8 million and $6.3 million in the third quarter and first nine months of 2021, respectively, and is expected to be $7.9 million for fiscal year 2021. The expense related to these assumed restricted stock units is included in the Digital Imaging segment results. This amount can be impacted by employee retirements and terminations or other awards granted during the remainder of the year.

Note 7. Inventories

Inventories are stated at current cost, net of reserves for excess, slow moving and obsolete inventory. Inventories are valued under the FIFO method, LIFO method or average cost method. Inventories at cost determined on the average cost or the FIFO methods were $804.8 million at October 3, 2021 and $324.8 million at January 3, 2021. The increase in the inventory balance in 2021 reflects the inventory acquired in connection with the FLIR acquisition. The remainder of the inventories using the LIFO method is $34.7 million at October 3, 2021 and $29.2 million at January 3, 2021. Interim LIFO calculations are based on the Company’s estimates of expected year-end inventory levels and costs since an actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Because these estimates are subject to many factors beyond the Company’s control, interim results are subject to the final year-end LIFO inventory

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valuation.


	Balance at
Inventories (in millions):	October 3, 2021		January 3, 2021
Raw materials and supplies	$	487.7	$	231.0
Work in process	140.2		60.5
Finished goods	211.6		62.5
	839.5		354.0

Reduction to LIFO cost basis	(6.3)		(6.7)
Total inventories, net	$	833.2	$	347.3

Note 8. Customer Contracts

Estimate at Completion Process

For over time contracts using the cost-to-cost method, 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 and cost, and making assumptions for schedule and technical issues. Since certain contracts extend over multiple reporting periods, 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 reviewed and reassessed quarterly. The majority of revenue recognized over time uses an EAC process. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first nine months of 2021 was approximately $16.9 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging segment. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first nine months of 2020 was approximately $16.6 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging operating segment. None of the effects of changes in estimates on any individual contract were material to the condensed consolidated statements of income for any period presented.

Contract Liabilities

We recognize a liability for 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 condensed consolidated balance sheet, which represented $184.8 million and $25.4 million as of October 3, 2021, and $160.1 million and $14.0 million as of January 3, 2021, respectively. The increase in contract liabilities from the beginning of the year primarily related to contract liabilities acquired as part of the acquisition of FLIR.

The Company recognized revenue of $98.8 million during the nine months ended October 3, 2021 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.

Remaining Performance Obligations

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 October 3, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,105.4 million. The Company expects approximately 80% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 20% recognized thereafter.

Product Warranty Costs

Some of the Company’s products are subject to specified warranties, and the Company provides for the estimated cost of product warranties. The adequacy of the warranty reserve 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. The warranty reserve is included in current and long-term accrued liabilities on the Condensed

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Consolidated Balance Sheet.


	Nine Months
Warranty Reserve (in millions):	2021		2020
Balance at beginning of year	$	22.4	$	24.8
Accruals for product warranties charged to expense and other	9.1		3.1
Cost of product warranty claims	(6.8)		(7.7)
Acquisition	23.2		2.5
Balance at end of period	$	47.9	$	22.7

Accounts Receivable, net

Accounts receivable is presented net of an allowance for doubtful accounts of $14.4 million at October 3, 2021 and $12.3 million at January 3, 2021.

Note 9. Income Taxes

The income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which the Company operates. However, losses in certain jurisdictions and discrete items, such as the resolution of uncertain tax positions, are treated separately.

The Company’s effective income tax rate for the third quarter and first nine months of 2021 was 20.1% and 21.5%, respectively. The Company’s effective income tax rate for the third quarter and first nine months of 2020 was 21.5% and 17.9%, respectively. The third quarter of 2021 includes net discrete income tax benefits of $6.3 million and the first nine months of 2021 includes net discrete income tax benefit of $8.5 million. The third quarter and nine months of 2021 net discrete income tax amounts include $3.0 million and $9.9 million, respectively, related to share-based accounting. The third quarter and nine months of 2021 net discrete income tax amounts also include income tax benefits of $4.9 million primarily related to research and development and foreign tax credits. The first nine months of 2021 include a $11.5 million expense related to foreign tax rate changes and a $5.3 million income tax benefit related to the release of a valuation allowance. The foreign tax rate changes are a result of the United Kingdom Parliament enacting legislation to increase the corporate tax rate to 25% effective April 2023. The third quarter and first nine months of 2020 includes net discrete income tax benefits of $1.2 million and $15.8 million, respectively. The third quarter and nine months of 2020 net discrete tax benefits include $0.7 million and $15.2 million, respectively, related to share-based accounting. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.9% for both the third quarter and first nine months of 2021. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 22.5% for the third quarter of 2020 and 22.7% for the first nine months of 2020.

See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding FLIR historical tax matters that existed at the date of the acquisition, including the STA’s reassessment of tax for the year ending December 31, 2012 related to one of FLIR’s non-operating subsidiaries in Sweden.

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Note 10. Long-Term Debt and Letters of Credit


	Balance at
Long-Term Debt (in millions):	October 3, 2021		January 3, 2021
$1.15 billion credit facility due March 2026, weighted average variable rate of 1.18% at October 3, 2021 and 1.05% at January 3, 2021	$	125.0	$	125.0


Term loan due October 2024, variable rate of 1.16% at October 3, 2021 and 1.15% at January 3, 2021, swapped to a Euro fixed rate of 0.6120%	150.0		150.0
0.65% Fixed Rate Senior Notes due April 2023	300.0		—
0.95% Fixed Rate Senior Notes due April 2024	450.0		—
1.60% Fixed Rate Senior Notes due April 2026	450.0		—
2.25% Fixed Rate Senior Notes due April 2028	700.0		—
2.50% Fixed Rate Senior Notes due August 2030	500.0		—
2.75% Fixed Rate Senior Notes due April 2031	1,100.0		—
Term loan due May 2026, variable rate of 1.33% at October 3, 2021	700.0		—

3.09% Fixed Rate Senior Notes repaid March 2021	—		95.0
3.28% Fixed Rate Senior Notes repaid March 2021	—		100.0
0.70% €50 Million Fixed Rate Senior Notes repaid March 2021	—		61.1
0.92% €100 Million Fixed Rate Senior Notes repaid March 2021	—		122.1
1.09% €100 Million Fixed Rate Senior Notes repaid March 2021	—		122.1





Other debt	0.8		4.0
Debt discount and debt issuance costs	(34.1)		(0.8)
Total debt, net	4,441.7		778.5
Less: current portion of long-term debt and other debt	—		(97.6)
Total long-term debt, net of current portion	$	4,441.7	$	680.9

In the first quarter of 2021, Teledyne completed various financing activities related to the acquisition of FLIR and incurred related interest and debt expense totaling $33.1 million. These activities included entering into a $4.5 billion short term stand-by bridge facility on January 4, 2021, as required by the definitive agreement, resulting in debt expense of $17.2 million. In addition, on March 17, 2021 Teledyne called $493.3 million of existing fixed rate senior notes and incurred debt extinguishment expenses of $13.4 million, which is included in interest and debt expense, net. On March 22, 2021, Teledyne completed all permanent financing for the acquisition of FLIR. The permanent financing consists of $3.0 billion investment-grade bonds (the “Notes”), including $300.0 million aggregate principal amount of 0.65% Notes due 2023, $450.0 million aggregate principal amount of 0.95% Notes due 2024, $450.0 million aggregate principal amount of 1.60% Notes due 2026, $700.0 million aggregate principal amount of 2.25% Notes due 2028 and $1.1 billion aggregate principal amount of 2.75% Notes due 2031. We may redeem the $450.0 million of 0.95% Notes due 2024 at any time or from time to time, in whole or in part, at the Company’s option, from and after April 1, 2022, at a redemption price equal to 100% of the principal amount of the Notes redeemed. In addition, we guaranteed FLIR’s $500.0 million, 2.50% Fixed Rate Senior Notes due August 2030. Previously on March 4, 2021, Teledyne entered into a $1.0 billion Term Loan Credit Agreement (maturing May 2026) and an Amended and Restated Credit Agreement (maturing March 2026) with capacity of $1.15 billion. The terms of the $1.0 billion Term Loan Credit Agreement allow for prepayments, at the Company’s option, at any time or from time to time, in whole or in part without premium or penalty. As a result of the completion of the permanent debt financing, on March 22, 2021 Teledyne terminated the $4.5 billion stand-by bridge facility. Teledyne used the proceeds from the Notes together with the proceeds from the $1.0 billion Term Loan Credit Agreement and cash on hand to pay the cash portion of the consideration for the FLIR acquisition and refinance certain existing debt. In the third quarter of 2021, Teledyne repaid $300.0 million against the Term Loan Credit Agreement due May 2026. In October 2021, Teledyne amended its Amended and Restated Credit Agreement and its 2019 Term Loan due October 2024 to adopt LIBOR replacement language and to refine pricing terms under the 2019 Term Loan.

At October 3, 2021, $751.1 million was available under the $1.15 billion credit facility, after reductions of $125.0 million in borrowings and $273.9 million in outstanding letters of credit. The outstanding letters of credit include a $253.6 million letter of credit to the STA, related to a disputed 2018 tax reassessment issued to a FLIR subsidiary in Sweden.

Teledyne estimates the fair value of its long-term debt based on debt of similar type, rating and maturity and at comparable interest rates. The Company’s long-term debt is considered a level 2 fair value hierarchy and is valued based on observable market data. The estimated fair value of Teledyne’s long-term debt at October 3, 2021 and January 3, 2021, approximated the carrying value.

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Note 11. Lease Commitments

At October 3, 2021, Teledyne has right-of-use assets of $137.7 million and a total lease liability for operating leases of $159.3 million of which $130.1 million is included in long-term lease liabilities and $29.2 million is included in current accrued liabilities. Operating lease expense was $10.0 million and $24.3 million for the third quarter and first nine months of 2021, respectively. Operating lease expense was $6.7 million and $18.8 million for the third quarter and first nine months of 2020, respectively.

Note 12. Lawsuits, Claims, Commitments, Contingencies and Related Matters

For a further description of the Company’s commitments and contingencies, reference is made to Note 14 of the Company’s financial statements as of and for the fiscal year ended January 3, 2021, included in the 2020 Form 10-K.

At October 3, 2021, the Company’s reserves for environmental remediation obligations totaled $6.5 million, of which $1.8 million is included in current accrued liabilities. At January 3, 2021, the Company’s reserves for environmental remediation obligations totaled $6.5 million. The Company 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 30 years.

On April 24, 2018, FLIR entered into a Consent Agreement with the United States Department of State’s Directorate of Defense Trade Controls (“DDTC”) to resolve allegations regarding the unauthorized export of technical data and defense services to dual and third country nationals in certain of FLIR’s facilities, the failure to properly use and manage export licenses and export authorizations, and failures to report certain payments under 22 CFR Part 130 in potential violation of ITAR. The Consent Agreement has a four-year term and provides for: (i) a civil penalty of $30.0 million with $15.0 million of this amount suspended on the condition that the funds have or will be used for Department-approved Consent Agreement remedial compliance measures, (ii) the appointment of an external Special Compliance Official to oversee compliance with the Consent Agreement and the ITAR; (iii) two external audits of our ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training. While FLIR has enhanced its trade compliance program more broadly, implemented and continues to implement remedial measures and has undergone its first external audit and just concluded its second external audit of FLIR’s ITAR compliance program, adverse disclosures and findings could materially cause incurrence of additional expenses in connection with implementation of remedial measures and result in a substantial adjustment to our revenue and net income. As of October 3, 2021, FLIR has $3.5 million remaining to be paid under the Consent Agreement. FLIR’s investments to date in remedial compliance measures have been more than sufficient to cover the $15.0 million suspension amount.

In June 2017, the Bureau of Industry and Security (“BIS”) of the United States Department of Commerce informed FLIR of additional export licensing requirements that restricted the FLIR’s ability to sell certain thermal products without a license to customers in China not identified on a list maintained by the United States Department of Commerce. This action was precipitated by concerns of sale without a license or potential diversion of some of FLIR’s products to prohibited end users and to countries subject to economic and other sanctions implemented by the United States. BIS subsequently favorably modified these restrictions to reduce the applicability of the restrictions to sales of FLIR's Tau camera cores (as opposed to finished products containing Tau camera cores) to customers in China not identified on a list maintained by the United States Department of Commerce and persons in a country other than those in the Export Administration Regulations (“EAR”) Country Group A:5 (Supplement No. 1 to Part 740 of the EAR). FLIR has identified certain shipments that potentially violate these license requirements and voluntary disclosed this matter to BIS.

In April 2021, FLIR resolved allegations of misrepresentations made to BIS, between November 2012 and December 2013, in a commodity jurisdiction request relating to newly developed Lepton uncooled focal plane arrays by an administrative settlement and fine of $0.3 million and agreeing to perform two internal audits of its EAR export compliance programs. The first internal audit has been completed and another voluntary disclosure has been filed to report potential violations.

FLIR has made other voluntary disclosures to the U.S. Department of State and U.S. Department of Commerce, including to BIS with respect to the shipments of products from non-U.S. jurisdictions which were not licensed due to incorrect de minimis calculation methodology. If FLIR is found to have violated applicable rules and regulations with respect to customers and limitations on the export and end use of its products, FLIR could be subject to substantial fines and penalties, suspension of existing licenses or other authorizations and/or loss or suspension of export privileges.

At this time, based on available information, we are unable to reasonably estimate the time it may take to resolve these matters or the amount or range of potential loss, penalty or other government action, if any, that may be incurred in connection with these matters. However, an unfavorable outcome could result in substantial fines and penalties or loss or suspension of export privileges or of particular authorizations that could be material to the Company’s financial position, results of operations or cash flows in and following the period in which such an outcome becomes estimable or known.

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No adjustments have been made for the FLIR historical export compliance matters in Teledyne’s current preliminary estimates of its purchase price allocation. The final acquisition accounting adjustments for these matters may be materially different, as Teledyne obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period.

See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding FLIR historical tax matters that existed at the date of the acquisition, including the Swedish Tax Authority's reassessment of tax for the year ending December 31, 2012 related to one of FLIR’s non-operating subsidiaries in Sweden.

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, contracts, environmental, employment and employee benefits matters. 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 statements.

Note 13. Pension Plans and Postretirement Benefits

For the domestic qualified pension plans, the weighted-average discount rate decreased to 2.64% in 2021, compared with 3.41% for 2020. Teledyne has not made any cash pension contributions to its domestic qualified pension plans since 2013 and no cash pension contributions are planned for 2021.


	Third Quarter				Nine Months
	2021		2020		2021		2020
Service cost — benefits earned during the period (in millions)	$	2.6	$	2.6	$	8.0	$	7.8

Pension non-service income (in millions):
Interest cost on benefit obligation	$	5.5	$	6.9	$	16.7	$	20.6
Expected return on plan assets	(14.2)		(14.3)		(42.7)		(42.9)
Amortization of prior service cost	(0.8)		(1.5)		(2.5)		(4.5)
Amortization of net actuarial loss	6.7		5.7		20.0		17.2
Curtailment/settlements	—		—		—		0.7
Pension non-service income	$	(2.8)	$	(3.2)	$	(8.5)	$	(8.9)

As part of the acquisition of FLIR, Teledyne acquired certain immaterial pension plans. Teledyne also sponsors several postretirement defined benefit plans that provide health care and life insurance benefits for certain eligible retirees. Postretirement benefits non-service expense is not material.

Note 14. Segment Information

Teledyne is a leading provider of sophisticated digital imaging products and software, instrumentation, aerospace and defense electronics, and engineered systems. Our customers include government agencies, aerospace prime contractors, energy exploration and production companies, major industrial companies and airlines. The Company has four reportable segments: Digital Imaging; Instrumentation; Aerospace and Defense Electronics; and Engineered Systems.

Segment results includes net sales and operating income by segment but excludes non-service retirement benefit income, 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 non-operating expenses, including certain acquisition-related transaction costs, not allocated to our segments.

On May 14, 2021, the Company completed the acquisition of FLIR. The financial results of FLIR have been included since the date of the acquisition and are part of the Digital Imaging segment. See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding the FLIR acquisition.

As part of a continuing effort to reduce costs and improve operating performance, as well as to respond to the impact of COVID, beginning in 2020, the Company took actions to reduce headcount across various businesses, reducing our exposure to weak end markets, such as commercial aerospace. Teledyne incurred $1.3 million and $26.4 million in expense related to these actions, including facility consolidation expense, for the third quarter and first nine months of 2021 respectively, compared with $3.3 million and $15.1 million for the third quarter and first nine months of 2020, respectively. The third quarter and first nine months of 2021 includes $0.5 million and $23.7 million, respectively, related to FLIR. At October 3, 2021, Teledyne had a liability of less than $1.0 million included in other current liabilities related to these actions.

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The following table presents Teledyne’s segment disclosures (dollars in millions):


	Third Quarter				%		Nine Months				%
	2021		2020		Change		2021		2020		Change
Net sales(a):
Digital Imaging (b)	$	760.6	$	239.7	217.3	%	$	1,603.4	$	724.0	121.5	%
Instrumentation	287.1		263.5		9.0	%	864.7		811.7		6.5	%

Aerospace and Defense Electronics	161.8		144.8		11.7	%	465.4		444.2		4.8	%
Engineered Systems	102.4		101.0		1.4	%	305.1		297.0		2.7	%
Total net sales	$	1,311.9	$	749.0	75.2	%	$	3,238.6	$	2,276.9	42.2	%
Operating income:
Digital Imaging (b)	$	94.9	$	45.5	108.6	%	$	231.5	$	136.1	70.1	%
Instrumentation	63.0		50.7		24.3	%	187.0		150.0		24.7	%

Aerospace and Defense Electronics	35.9		26.7		34.5	%	92.6		57.6		60.8	%
Engineered Systems	11.5		12.5		(8.0)	%	37.4		34.7		7.8	%
Corporate expense (c)	(15.7)		(12.9)		21.7	%	(119.3)		(42.1)		183.4	%
Operating income	$	189.6	$	122.5	54.8	%	$	429.2	$	336.3	27.6	%
(a) Net sales excludes inter-segment sales of $5.4 million and $14.7 million for the third quarter and first nine months of 2021, respectively, and $5.6 million and $18.0 million for the third quarter and first nine months of 2020, respectively.
(b) On May 14, 2021, the Company completed the acquisition of FLIR, and the 2021 financial results of FLIR have been included since the date of the acquisition. The third quarter and first nine months of 2021 include $473.6 million and $775.0 million, respectively in incremental net sales from FLIR. The third quarter and first nine months of 2021 includes $82.3 million and $152.5 million, respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.
(c) Corporate expense for the third quarter and first nine months of 2021 includes $0.3 million and $76.7 million, respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

Identifiable assets are those assets used in the operations of the segments. Corporate assets primarily consist of cash and cash equivalents, deferred taxes, net pension assets/liabilities and other assets (in millions):


Identifiable assets:	October 3, 2021		January 3, 2021
Digital Imaging (a)	$	11,882.2	$	2,000.8
Instrumentation	1,645.8		1,676.2

Aerospace and Defense Electronics	535.9		567.6
Engineered Systems	165.1		175.1
Corporate	218.5		665.1
Total identifiable assets	$	14,447.5	$	5,084.8

(a) The increase from January 3, 2021 was primarily due to assets acquired, including goodwill and acquired intangible assets, acquired in connection with the May 2021 FLIR acquisition which is part of the Digital Imaging segment.

Product Lines

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

The following table provides a summary of the net sales by product line for the Instrumentation segment (in millions):


	Third Quarter				Nine Months
Instrumentation	2021		2020		2021		2020
Marine Instrumentation	$	104.7	$	101.5	$	311.6	$	320.7
Environmental Instrumentation	108.0		100.4		335.6		304.0
Test and Measurement Instrumentation	74.4		61.6		217.5		187.0
Total	$	287.1	$	263.5	$	864.7	$	811.7

We also disaggregate our revenue from contracts with customers by customer 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. With the exception of the Engineered Systems segment, net sales in our segments is primarily derived from fixed price contracts. Net sales in the Engineered Systems segment is typically between 45% and 55% fixed price contracts in a given reporting period, with the balance of net sales derived from cost type contracts. For the nine months ended October 3, 2021, approximately 47% of net sales in the Engineered Systems segment was derived from fixed price contracts.

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	Third Quarter Ended October 3, 2021						Nine Months Ended October 3, 2021
	Customer Type						Customer Type
(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total
Net Sales:
Digital Imaging	$	182.3	$	578.3	$	760.6	$	327.2	$	1,276.2	$	1,603.4
Instrumentation	22.8		264.3		287.1		66.2		798.5		864.7

Aerospace and Defense Electronics	60.4		101.4		161.8		169.0		296.4		465.4
Engineered Systems	92.1		10.3		102.4		279.7		25.4		305.1
	$	357.6	$	954.3	$	1,311.9	$	842.1	$	2,396.5	$	3,238.6
(a) Includes sales as a prime contractor or subcontractor.


	Third Quarter Ended October 3, 2021								Nine Months Ended October 3, 2021
	Geographic Region (a)								Geographic Region (a)
(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total
Net sales:
Digital Imaging	$	383.0	$	198.4	$	179.2	$	760.6	$	729.0	$	433.7	$	440.7	$	1,603.4
Instrumentation	213.5		58.1		15.5		287.1		645.3		177.2		42.2		864.7

Aerospace and Defense Electronics	134.7		27.1		—		161.8		387.1		78.3		—		465.4
Engineered Systems	102.4		—		—		102.4		305.1		—		—		305.1
	$	833.6	$	283.6	$	194.7	$	1,311.9	$	2,066.5	$	689.2	$	482.9	$	3,238.6
(a) Net sales by geographic region of origin.


	Third Quarter Ended September 27, 2020						Nine Months Ended September 27, 2020
	Customer Type						Customer Type
(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total
Net Sales:
Digital Imaging	$	32.0	$	207.7	$	239.7	$	91.4	$	632.6	$	724.0
Instrumentation	24.1		239.4		263.5		59.6		752.1		811.7

Aerospace and Defense Electronics	58.9		85.9		144.8		170.5		273.7		444.2
Engineered Systems	89.7		11.3		101.0		274.5		22.5		297.0
	$	204.7	$	544.3	$	749.0	$	596.0	$	1,680.9	$	2,276.9
(a) Includes sales as a prime contractor or subcontractor.


	Third Quarter Ended September 27, 2020								Nine Months Ended September 27, 2020
	Geographic Region (a)								Geographic Region (a)
(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total
Net sales:
Digital Imaging	$	75.4	$	64.4	$	99.9	$	239.7	$	231.0	$	195.0	$	298.0	$	724.0
Instrumentation	208.1		44.8		10.6		263.5		637.2		142.8		31.7		811.7

Aerospace and Defense Electronics	127.3		17.4		0.1		144.8		384.3		59.4		0.5		444.2
Engineered Systems	101.0		—		—		101.0		297.0		—		—		297.0
	$	511.8	$	126.6	$	110.6	$	749.0	$	1,549.5	$	397.2	$	330.2	$	2,276.9
(a) Net sales by geographic region of origin.

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