UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 29, ~~2019~~2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-15295

TELEDYNE TECHNOLOGIES INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

25-1843385

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

1049 Camino Dos Rios

Thousand Oaks

California

91360-2362

(Address of principal executive offices)

(Zip Code)

805 373-4545

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	TDY	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐

No ☒

There were ~~36,470,156~~36,663,611 shares of common stock, $.01 par value per share, outstanding as of ~~October 23, 2019.~~April 20, 2020.

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

TABLE OF CONTENTS

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE ~~THIRD~~FIRST QUARTER ENDED MARCH 29, 2020 AND ~~NINE MONTHS ENDED SEPTEMBER 29,~~MARCH 31, 2019 ~~AND SEPTEMBER 30, 2018~~

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


		Third Quarter						Nine Months							First Quarter
		2019		2018		2019		2018			2020		2019
Net sales	Net sales	$	802.2	$	725.3	$	2,329.4	$	2,153.4	Net sales	$	784.6	$	745.2
Costs and expenses	Costs and expenses									Costs and expenses
Cost of sales	Cost of sales	487.7		446.2		1,415.2		1,331.4		Cost of sales	492.6		463.9
Selling, general and administrative expenses	Selling, general and administrative expenses	185.8		173.6		556.3		516.6		Selling, general and administrative expenses	188.0		184.0
Total costs and expenses	Total costs and expenses	673.5		619.8		1,971.5		1,848.0		Total costs and expenses	680.6		647.9
Operating income	Operating income	128.7		105.5		357.9		305.4		Operating income	104.0		97.3
Interest and debt expense, net	Interest and debt expense, net	(5.5)		(6.0)		(16.3)		(19.8)		Interest and debt expense, net	(4.1)		(5.4)
Non-service retirement benefit income	Non-service retirement benefit income	1.9		3.4		6.1		10.1		Non-service retirement benefit income	2.5		2.2
Other expense, net	Other expense, net	(1.7)		(2.7)		(3.5)		(8.9)		Other expense, net	(1.4)		(1.2)
Income before income taxes	Income before income taxes	123.4		100.2		344.2		286.8		Income before income taxes	101.0		92.9
Provision for income taxes	Provision for income taxes	16.7		9.9		57.6		44.1		Provision for income taxes	18.8		17.6

Net income	Net income	$	106.7	$	90.3	$	286.6	$	242.7	Net income	$	82.2	$	75.3

Basic earnings per common share	Basic earnings per common share	$	2.93	$	2.52	$	7.92	$	6.80	Basic earnings per common share	$	2.25	$	2.09
Weighted average common shares outstanding	Weighted average common shares outstanding	36.4		35.9		36.2		35.7		Weighted average common shares outstanding	36.6		36.1

Diluted earnings per common share	Diluted earnings per common share	$	2.84	$	2.43	$	7.66	$	6.56	Diluted earnings per common share	$	2.17	$	2.02
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	37.6		37.2		37.4		37.0		Weighted average diluted common shares outstanding	37.8		37.2

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~~FIRST QUARTER ENDED MARCH 29, 2020 AND ~~NINE MONTHS ENDED SEPTEMBER 29,~~MARCH 31, 2019 ~~AND SEPTEMBER 30, 2018~~

(Unaudited - Amounts in millions)


		Third Quarter						Nine Months							First Quarter
		2019		2018		2019		2018			2020		2019
Net income	Net income	$	106.7	$	90.3	$	286.6	$	242.7	Net income	$	82.2	$	75.3
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign exchange translation adjustment	Foreign exchange translation adjustment	(27.4)		(0.8)		(15.0)		(42.9)		Foreign exchange translation adjustment	(61.3)		17.0
Hedge activity, net of tax	Hedge activity, net of tax	(1.1)		2.5		2.0		(2.0)		Hedge activity, net of tax	(5.9)		1.8
Pension and postretirement benefit adjustments, net of tax	Pension and postretirement benefit adjustments, net of tax	4.9		4.8		14.4		14.2		Pension and postretirement benefit adjustments, net of tax	3.5		4.6
Other comprehensive income (loss)	Other comprehensive income (loss)	(23.6)		6.5		1.4		(30.7)		Other comprehensive income (loss)	(63.7)		23.4

Comprehensive income	Comprehensive income	$	83.1	$	96.8	$	288.0	$	212.0	Comprehensive income	$	18.5	$	98.7

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)


		September 29, 2019		December 30, 2018			March 29, 2020		December 29, 2019
Assets	Assets					Assets
Current Assets	Current Assets					Current Assets
Cash		$	128.5	$	142.5
Cash and cash equivalents						Cash and cash equivalents	$	231.4	$	199.5

Accounts receivable, net	Accounts receivable, net	448.4		416.5		Accounts receivable, net	450.2		460.4
Unbilled receivables, net	Unbilled receivables, net	195.3		145.3		Unbilled receivables, net	217.9		200.5
Inventories, net	Inventories, net	404.4		364.3		Inventories, net	401.1		393.4

Prepaid expenses and other current assets	Prepaid expenses and other current assets	61.5		45.8		Prepaid expenses and other current assets	63.2		59.9

Total current assets	Total current assets	1,238.1		1,114.4		Total current assets	1,363.8		1,313.7
Property, plant and equipment, net of accumulated depreciation and amortization of $608.9 at September 29, 2019 and $566.0 at December 30, 2018		468.2		442.6
Property, plant and equipment, net of accumulated depreciation and amortization of $634.0 at March 29, 2020 and $623.9 at December 29, 2019						Property, plant and equipment, net of accumulated depreciation and amortization of $634.0 at March 29, 2020 and $623.9 at December 29, 2019	475.5		487.9
Goodwill	Goodwill	2,007.8		1,735.2		Goodwill	2,053.7		2,050.5
Acquired intangibles, net	Acquired intangibles, net	439.9		344.3		Acquired intangibles, net	411.8		430.8
Prepaid pension assets	Prepaid pension assets	108.0		88.2		Prepaid pension assets	77.4		71.8
Operating lease right-of-use assets	Operating lease right-of-use assets	130.2		—		Operating lease right-of-use assets	123.2		127.1
Other assets, net	Other assets, net	87.4		84.6		Other assets, net	79.6		98.0
Total Assets	Total Assets	$	4,479.6	$	3,809.3	Total Assets	$	4,585.0	$	4,579.8
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	244.9	$	227.8	Accounts payable	$	263.4	$	271.1
Accrued liabilities	Accrued liabilities	384.5		355.6		Accrued liabilities	395.6		391.5
Current portion of long-term debt and other debt	Current portion of long-term debt and other debt	206.1		137.4		Current portion of long-term debt and other debt	100.6		100.6

Total current liabilities	Total current liabilities	835.5		720.8		Total current liabilities	759.6		763.2
Long-term debt	Long-term debt	719.3		610.1		Long-term debt	749.1		750.0
Long-term operating lease liabilities	Long-term operating lease liabilities	122.6		—		Long-term operating lease liabilities	115.2		119.3

Other long-term liabilities	Other long-term liabilities	231.2		248.7		Other long-term liabilities	208.1		232.6
Total Liabilities	Total Liabilities	1,908.6		1,579.6		Total Liabilities	1,832.0		1,865.1
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Preferred stock, $0.01 par value; outstanding shares - NaN	Preferred stock, $0.01 par value; outstanding shares - NaN	—		—		Preferred stock, $0.01 par value; outstanding shares - NaN	—		—
Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 37,697,865 at September 29, 2019 and December 30, 2018; outstanding shares: 36,468,438 at September 29, 2019 and 36,087,297 at December 30, 2018		0.4		0.4
Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 37,697,865 at March 29, 2020 and December 29, 2019; outstanding shares: 36,657,467 at March 29, 2020 and 36,547,966 at December 29, 2019						Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 37,697,865 at March 29, 2020 and December 29, 2019; outstanding shares: 36,657,467 at March 29, 2020 and 36,547,966 at December 29, 2019	0.4		0.4
Additional paid-in capital	Additional paid-in capital	356.7		343.7		Additional paid-in capital	370.9		360.5
Retained earnings	Retained earnings	2,810.3		2,523.7		Retained earnings	3,008.2		2,926.0
Treasury stock, 1,229,427 shares at September 29, 2019 and 1,610,568 shares at December 30, 2018		(104.6)		(144.9)
Treasury stock, 1,040,398 shares at March 29, 2020 and 1,149,899 shares at December 29, 2019						Treasury stock, 1,040,398 shares at March 29, 2020 and 1,149,899 shares at December 29, 2019	(87.0)		(96.4)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(491.8)		(493.2)		Accumulated other comprehensive loss	(539.5)		(475.8)

Total Stockholders’ Equity	Total Stockholders’ Equity	2,571.0		2,229.7		Total Stockholders’ Equity	2,753.0		2,714.7
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	4,479.6	$	3,809.3	Total Liabilities and Stockholders’ Equity	$	4,585.0	$	4,579.8

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			Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 30, 2018		$	0.4	$	343.7	$	(144.9)	$	2,523.7	$	(493.2)	$	2,229.7
Balance, December 29, 2019														Balance, December 29, 2019	$	0.4	$	360.5	$	(96.4)	$	2,926.0	$	(475.8)	$	2,714.7
Net income	Net income	—		—		—		75.3		—		75.3		Net income	—		—		—		82.2		—		82.2
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		23.4		23.4		Other comprehensive income, net of tax	—		—		—		—		(63.7)		(63.7)
Treasury stock issued	Treasury stock issued	—		(15.0)		15.0		—		—		—		Treasury stock issued	—		(9.4)		9.4		—		—		—
Stock-based compensation	Stock-based compensation	—		10.9		—		—		—		10.9		Stock-based compensation	—		9.6		—		—		—		9.6
Exercise of stock options and other	Exercise of stock options and other	—		10.2		—		—		—		10.2		Exercise of stock options and other	—		10.2		—		—		—		10.2
Balance, March 31, 2019		0.4		349.8		(129.9)		2,599.0		(469.8)		2,349.5
Net income		—		—		—		104.6		—		104.6
Other comprehensive income, net of tax		—		—		—		—		1.6		1.6
Treasury stock issued		—		(14.7)		14.7		—		—		—
Stock-based compensation		—		6.8		—		—		—		6.8
Exercise of stock options and other		—		10.5		—		—		—		10.5
Balance, June 30, 2019		0.4		352.4		(115.2)		2,703.6		(468.2)		2,473.0
Net income		—		—		—		106.7		—		106.7
Other comprehensive income, net of tax		—		—		—		—		(23.6)		(23.6)
Treasury stock issued		—		(10.6)		10.6		—		—		—
Stock-based compensation		—		6.4		—		—		—		6.4
Exercise of stock options and other		—		8.5		—		—		—		8.5
Balance, September 29, 2019		$	0.4	$	356.7	$	(104.6)	$	2,810.3	$	(491.8)	$	2,571.0
Balance, March 29, 2020														Balance, March 29, 2020	$	0.4	$	370.9	$	(87.0)	$	3,008.2	$	(539.5)	$	2,753.0


		Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total			Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 31, 2017		$	0.4	$	337.3	$	(200.7)	$	2,139.6	$	(329.3)	$	1,947.3
Balance, December 30, 2018														Balance, December 30, 2018	$	0.4	$	343.7	$	(144.9)	$	2,523.7	$	(493.2)	$	2,229.7
Net income	Net income	—		—		—		66.5		—		66.5		Net income	—		—		—		75.3		—		75.3
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—		—		—		—		19.9		19.9		Other comprehensive income, net of tax	—		—		—		—		23.4		23.4
Treasury stock issued	Treasury stock issued	—		(20.4)		20.4		—		—		—		Treasury stock issued	—		(15.0)		15.0		—		—		—
Stock-based compensation	Stock-based compensation	—		6.6		—		—		—		6.6		Stock-based compensation	—		10.9		—		—		—		10.9
Exercise of stock options and other	Exercise of stock options and other	—		12.3		—		—		—		12.3		Exercise of stock options and other	—		10.2		—		—		—		10.2
Cumulative effect of new accounting standards		—		—		—		50.9		(47.6)		3.3
Balance, April 1, 2018		0.4		335.8		(180.3)		2,257.0		(357.0)		2,055.9
Net income		—		—		—		85.9		—		85.9
Other comprehensive loss, net of tax		—		—		—		—		(57.1)		(57.1)
Treasury stock issued		—		(17.2)		17.2		—		—		—
Stock-based compensation		—		6.5		—		—		—		6.5
Exercise of stock options and other		—		11.6		—		—		—		11.6
Balance, July 1, 2018		0.4		336.7		(163.1)		2,342.9		(414.1)		2,102.8
Net income		—		—		—		90.3		—		90.3
Other comprehensive loss, net of tax		—		—		—		—		6.5		6.5
Treasury stock issued		—		(16.7)		16.7		—		—		—
Stock-based compensation		—		5.6		—		—		—		5.6
Exercise of stock options and other		—		12.3		—		—		—		12.3
Cumulative effect of new accounting standards		—		—		—		(0.7)		—		(0.7)
Balance, September 30, 2018		$	0.4	$	337.9	$	(146.4)	$	2,432.5	$	(407.6)	$	2,216.8

Balance, March 31, 2019														Balance, March 31, 2019	$	0.4	$	349.8	$	(129.9)	$	2,599.0	$	(469.8)	$	2,349.5

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~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 29, ~~2019~~2020 AND ~~SEPTEMBER 30, 2018~~MARCH 31, 2019

(Unaudited - Amounts in millions)


		Nine Months							Three Months
		2019		2018			2020		2019
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	286.6	$	242.7	Net income	$	82.2	$	75.3

Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	82.6		83.7		Depreciation and amortization	29.3		27.6

Stock-based compensation	Stock-based compensation	24.1		18.8		Stock-based compensation	9.6		10.8

Changes in operating assets and liabilities excluding the effect of business acquired:	Changes in operating assets and liabilities excluding the effect of business acquired:					Changes in operating assets and liabilities excluding the effect of business acquired:
Accounts receivable	Accounts receivable	(49.1)		(52.4)		Accounts receivable	(14.6)		6.7
Inventories	Inventories	(2.7)		(10.1)		Inventories	(16.4)		(12.4)
Prepaid expenses and other assets	Prepaid expenses and other assets	(6.8)		3.7		Prepaid expenses and other assets	(1.9)		(10.0)
Accounts payable	Accounts payable	7.3		18.3		Accounts payable	(1.0)		(1.1)
Accrued liabilities	Accrued liabilities	(0.8)		26.1		Accrued liabilities	(12.9)		(15.1)
Deferred and income taxes receivable/payable, net	Deferred and income taxes receivable/payable, net	(18.7)		(6.1)		Deferred and income taxes receivable/payable, net	9.1		(2.8)
Long-term assets	Long-term assets	(11.2)		(0.4)		Long-term assets	11.9		(13.4)
Other long-term liabilities	Other long-term liabilities	8.8		2.6		Other long-term liabilities	(21.7)		16.2

Other operating, net	Other operating, net	(5.9)		(5.5)		Other operating, net	2.8		(1.7)

Net cash provided by operating activities	Net cash provided by operating activities	314.2		321.4		Net cash provided by operating activities	76.4		80.1
Investing Activities	Investing Activities					Investing Activities
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(64.5)		(68.1)		Purchases of property, plant and equipment	(20.2)		(21.3)
Purchase of businesses, net of cash acquired	Purchase of businesses, net of cash acquired	(483.7)		—		Purchase of businesses, net of cash acquired	(28.9)		(222.5)
Other investing, net		0.4		1.2

Net cash used in investing activities	Net cash used in investing activities	(547.8)		(66.9)		Net cash used in investing activities	(49.1)		(243.8)
Financing Activities	Financing Activities					Financing Activities
Net proceeds from (payments on) credit facility		196.0		(165.0)
Net proceeds from credit facility						Net proceeds from credit facility	—		120.0

Net proceeds from (payments on) other debt		(7.1)		(59.6)
Net payments on other debt						Net payments on other debt	(0.3)		(5.9)

Proceeds from exercise of stock options	Proceeds from exercise of stock options	29.2		36.1		Proceeds from exercise of stock options	10.2		10.2

Other financing, net		(1.4)		(2.0)
Net cash provided by (used in) financing activities		216.7		(190.5)

Net cash provided by financing activities						Net cash provided by financing activities	9.9		124.3
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	2.9		(8.8)		Effect of exchange rate changes on cash	(5.3)		3.1
Change in cash		(14.0)		55.2
Cash—beginning of period		142.5		70.9
Cash—end of period		$	128.5	$	126.1
Change in cash and cash equivalents						Change in cash and cash equivalents	31.9		(36.3)
Cash and cash equivalents—beginning of period						Cash and cash equivalents—beginning of period	199.5		142.5
Cash and cash equivalents—end of period						Cash and cash equivalents—end of period	$	231.4	$	106.2

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)

~~September~~March 29, ~~2019~~2020

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 accounting principles generally accepted 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 December ~~30, 2018~~29, 2019 (“~~2018~~2019 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 ~~September~~March 29, ~~2019~~2020 and the consolidated results of operations, consolidated comprehensive income ~~for the three and nine months then ended~~ and consolidated cash flows for the ~~nine~~three months then ended. The results of operations and cash flows for the ~~periods~~period ended ~~September~~March 29, ~~2019~~2020 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.~~

Inpresentation related to the segment realignment in the third quarter of ~~2019, we realigned the segment reporting structure for certain business units, primarily related to certain refinements~~2019.

Cash Equivalents

Cash equivalents consist of ~~our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace~~highly liquid money-market mutual funds and ~~Defense Electronics segment to the Engineered Systems segment. The realignment had no impact on the Instrumentation Segment~~bank deposits with maturities of three months or the condensed consolidated statements of income, balance sheet or cash flows. See Note 13 to these condensed consolidated financial statements for additional information on the realignment. Previously reported segment data has been adjusted to reflect these changes.less when purchased.

Recent Accounting Pronouncements

In ~~February 2018,~~January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the Tax Act reduction of the U.S. federal corporate income tax rate. In the second quarter of 2018, we 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 our condensed 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 condensed 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 guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We ~~expect~~adopted the ~~adoption~~new guidance as of ~~this guidance will reduce~~December 30, 2019 which reduced the complexity surrounding the evaluation of goodwill for impairment. The ~~impact~~adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

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 ~~Company will depend~~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 adopted the new guidance as of December 30, 2019 using the modified retrospective approach related to our accounts receivables and contract assets, resulting in no cumulative adjustment to retained earnings. The adoption of this guidance did not have a material impact on ~~the outcomes of future goodwill impairment tests.~~our condensed consolidated financial statements.

Table of Contents

In February 2016, the FASB issued 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.

~~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 condensed consolidated balance sheets. Finance leases are included in property and equipment, current accrued liabilities, and other long-term liabilities in our condensed 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. 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 at the commencement date. We use the implicit rate when readily determinable. 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.

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 120 operating lease agreements, which are primarily for manufacturing facilities and office space. These agreements frequently include one or more renewal options and may require the Company to pay for utilities, taxes, insurance and maintenance expense. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements. At September 29, 2019, Teledyne has right-of-use assets of $130.2 million and a total lease liability for operating leases of $141.5 million of which $122.6 million is included in long-term lease liabilities and $18.9 million is included in current accrued liabilities.

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

Remainder of 2019 $ 6.4
2020 24.2
2021 22.1
2022 19.2
2023 17.5
Thereafter 84.7
Total minimum lease payments 174.1
Less:
Imputed interest (32.6)
Current portion (18.9)
Present value of minimum lease payments, net of current portion $ 122.6

The weighted average remaining lease term for operating leases is approximately 10 years and the weighted average discount rate is 4.07%. Operating lease expense was $6.0 million and $17.6 million for the third quarter and first nine months of 2019, respectively.

~~Table of Contents~~

As previously disclosed in Note 13 of the Notes to Consolidated Financial Statements included in our 2018 Form 10-K and under the previous lease accounting, future minimum lease payments for operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows (in millions):

As of December 30, 2018
2019 $ 23.2
2020 20.6
2021 18.4
2022 18.4
2023 11.8
Thereafter 48.2
Total minimum lease payments $ 140.6

~~Other~~

~~Our finance leases and subleases are not material.~~

Note 2. Accumulated Other Comprehensive Loss

The changes in AOCI by component, net of tax, for the ~~third~~first quarter ended March 29, 2020 and ~~nine months ended September 29,~~March 31, 2019 ~~and September 30, 2018~~ are as follows (in millions):

Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of June 30, 2019 $ (169.1) $ (1.8) $ (297.3) $ (468.2)
   Other comprehensive income/(loss) before reclassifications (27.4) 3.9 — (23.5)
   Amounts reclassified from AOCI — (5.0) 4.9 (0.1)
Net other comprehensive income/(loss) (27.4) (1.1) 4.9 (23.6)
Balance as of September 29, 2019 $ (196.5) $ (2.9) $ (292.4) $ (491.8)
Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of July 1, 2018 $ (144.1) $ (4.0) $ (266.0) $ (414.1)
   Other comprehensive income/(loss) before reclassifications (0.8) 2.5 — 1.7
   Amounts reclassified from AOCI — — 4.8 4.8
Net other comprehensive income/(loss) (0.8) 2.5 4.8 6.5
Reclassification of income tax effects for ASU 2018-02 — $ — — —
Balance as of September 30, 2018 $ (144.9) $ (1.5) $ (261.2) $ (407.6)


	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	(61.3)		(3.6)		—		(64.9)
Amounts reclassified from AOCI	—		(2.3)		3.5		1.2
Net other comprehensive income/(loss)	(61.3)		(5.9)		3.5		(63.7)

Balance as of March 29, 2020	$	(211.7)	$	(8.2)	$	(319.6)	$	(539.5)

	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of December 30, 2018	$	(181.5)	$	(4.9)	$	(306.8)	$	(493.2)
Other comprehensive income before reclassifications	17.0		3.3		—		20.3
Amounts reclassified from AOCI	—		(1.5)		4.6		3.1
Net other comprehensive income	17.0		1.8		4.6		23.4

Balance as of March 31, 2019	$	(164.5)	$	(3.1)	$	(302.2)	$	(469.8)

~~Table of Contents~~

Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of December 30, 2018 $ (181.5) $ (4.9) $ (306.8) $ (493.2)
   Other comprehensive income/(loss) before reclassifications (15.0) 7.7 — (7.3)
   Amounts reclassified from AOCI — (5.7) 14.4 8.7
Net other comprehensive income/(loss) (15.0) 2.0 14.4 1.4
Balance as of September 29, 2019 $ (196.5) $ (2.9) $ (292.4) $ (491.8)
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 (42.9) 2.4 — (40.5)
   Amounts reclassified from AOCI — (4.4) 14.2 9.8
Net other comprehensive income/(loss) (42.9) (2.0) 14.2 (30.7)
Reclassification of income tax effects for ASU 2018-02 — — (47.6) (47.6)
Balance as of September 30, 2018 (144.9) (1.5) (261.2) (407.6)

The reclassifications out of AOCI to net income for the ~~third~~first quarter ended March 29, 2020 and ~~nine months ended September 29,~~March 31, 2019 ~~and September 30, 2018~~ 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
September 29, 2019 September 30, 2018 Presentation
(Gain) loss on cash flow hedges:
(Gain) loss recognized in income on derivatives $ (6.8) $ — See Note 4
Income tax impact 1.8 — Provision for income taxes
Total $ (5.0) $ —
Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost $ (1.5) $ (1.5) Costs and expenses
Amortization of net actuarial loss 8.0 7.8 Costs and expenses
Total before tax 6.5 6.3
Income tax impact (1.6) (1.5) Provision for income taxes
Total $ 4.9 $ 4.8

~~Table of Contents~~


		Amount Reclassified from AOCI Nine Months Ended		Amount Reclassified from AOCI Nine Months Ended		Statement of Income		Amount Reclassified from AOCI for the Three Months Ended		Amount Reclassified from AOCI for the Three Months Ended		Statement of Income
		September 29, 2019		September 30, 2018		Presentation		March 29, 2020		March 31, 2019		Presentation
Gain on cash flow hedges:
Gain recognized in income on derivatives		$	(7.6)	$	(6.2)	See Note 4
(Gain) loss on cash flow hedges:							(Gain) loss on cash flow hedges:
(Gain) loss recognized in income on derivatives							(Gain) loss recognized in income on derivatives	$	(3.1)	$	(2.0)	See Note 4
Income tax impact	Income tax impact	1.9		1.8		Provision for income taxes	Income tax impact	0.8		0.5		Provision for income taxes
Total	Total	$	(5.7)	$	(4.4)		Total	$	(2.3)	$	(1.5)

Amortization of defined benefit pension and postretirement plan items:	Amortization of defined benefit pension and postretirement plan items:						Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost	Amortization of prior service cost	(4.5)		(4.5)		Costs and expenses	Amortization of prior service cost	$	(1.5)	$	(1.5)	Costs and expenses
Amortization of net actuarial loss	Amortization of net actuarial loss	23.3		23.2		Costs and expenses	Amortization of net actuarial loss	6.0		7.6		Costs and expenses
Total before tax	Total before tax	18.8		18.7			Total before tax	4.5		6.1
Income tax impact	Income tax impact	$	(4.4)	$	(4.5)	Provision for income taxes	Income tax impact	(1.0)		(1.5)		Provision for income taxes
Total	Total	$	14.4	$	14.2		Total	$	3.5	$	4.6

Note 3. Business Combinations, Goodwill and Acquired Intangible Assets

Acquisition of the OakGate Technology, Inc.

On January 5, 2020, we acquired OakGate Technology, Inc. (“OakGate”) for $28.4 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. The acquired business is part of the Test and Measurement product line of the Instrumentation segment.

Acquisition of the scientific imaging businesses of Roper Technologies, Inc.

On February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for ~~$225.0~~$224.8 million in ~~cash.~~cash, net of cash acquired and including a purchase price adjustment. Principally located in the United States and Canada, the acquired businesses are part of the Digital Imaging segment. 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 OEM 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.

Acquisition of the gas and flame detection business of 3M Company

On August 1, 2019, we acquired the gas and flame detection business of 3M Company for ~~$230.0~~$233.5 million in ~~cash.~~cash, net of cash acquired. The gas and flame detection business includes Oldham, Simtronics, Gas Measurement Instruments, ~~(GMI),~~ Detcon and select Scott Safety products. The gas and flame detection business 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 business is part of the Environmental Instrumentation product line of the Instrumentation segment.

Acquisition of Micralyne

On August 30, 2019, we acquired Micralyne Inc. for ~~$25.0~~$26.2 million in ~~cash.~~cash, net of cash acquired and including a $0.5 million purchase price adjustment paid in January 2020. Based in Edmonton, Alberta, Canada, Micralyne is a privately-owned foundry providing Micro Electro Mechanical Systems or 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. The acquired business is part of the Digital Imaging segment.

Goodwill and Acquired Intangible Assets

Teledyne’s goodwill was ~~$2,007.8~~$2,053.7 million at ~~September~~March 29, ~~2019~~2020 and ~~$1,735.2~~$2,050.5 million at December ~~30, 2018.~~29, 2019. The increase in the balance of goodwill in ~~2019~~2020 resulted from ~~$292.6 million in~~ goodwill from recent ~~acquisitions. The majority of the goodwill resulting from the acquisition of the scientific imaging businesses of Roper Technologies, Inc. will be deductible for tax purposes.~~acquisitions, mostly offset by exchange rate changes. Goodwill resulting from the acquisition of ~~the gas and flame detection business of 3M Company and Micralyne~~OakGate will not be deductible for tax purposes. Teledyne’s net acquired intangible assets were ~~$439.9~~$411.8 million at ~~September~~March 29, ~~2019~~2020 and ~~$344.3~~$430.8 million at December ~~30, 2018.~~29, 2019. The ~~increase~~decrease in the balance of net acquired intangible assets resulted from ~~$129.2 million in acquired intangible assets from recent acquisitions, partially offset by~~ amortization of acquired intangible ~~assets.~~assets and exchange rate changes. The Company completed the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the scientific imaging businesses acquisition. The Company is in the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the ~~3 2019~~OakGate acquisition and the gas and flame detection business and the Micralyne acquisitions since there was insufficient time between the acquisition dates and the end of the period to finalize the analysis.

Teledyne funded the acquisitions with borrowings under its credit facility and cash on hand. The results of each acquisition have been included in Teledyne’s results since the date of each respective acquisition.

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. 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. 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, ~~including Teledyne DALSA~~ and in British pounds for our UK ~~companies, including Teledyne e2v.~~companies. These contracts are designated and qualify as cash flow hedges. The Company has also converted a U.S. dollar denominated, variable rate ~~and fixed rate debt obligations of a European subsidiary,~~obligation into an euro fixed rate ~~obligations~~obligation using a receive float, ~~pay fixed cross currency swap, and a received fixed~~ pay fixed cross currency swap. These cross currency swaps are designated as a 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.

~~Cash Flow Hedging Activities~~

The effectiveness of the ~~forward contract cash flow hedges, the cross currency swap cash flow hedges, and the interest rate swap~~ cash flow hedge forward contracts, is assessed prospectively and retrospectively ~~on a monthly basis~~ using ~~quantitative and qualitative~~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 consolidated statements of income, at which time the effective amount in AOCI is reclassified to revenue in our consolidated statements of income. For the cross currency swap and interest rate cash flow hedges, effective amounts are recorded in AOCI, and reclassified into interest expense in the consolidated statements of income. In addition, for the cross currency swap an amount is reclassified from AOCI to other income and expense each reporting period, to offset the earnings impact of the remeasurement of the hedged liabilities. Net deferred losses recorded in AOCI, net of tax, for the

Table of Contents

forward contracts that will mature in the next twelve months total ~~$0.7~~$4.1 million. These losses are expected to be offset by anticipated gains 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 ~~$3.2~~$2.6 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.

As of ~~September~~March 29, ~~2019,~~2020, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars totaling ~~$79.7~~$126.3 million. These foreign currency forward contracts have maturities ranging from ~~December 2019~~June 2020 to ~~November 2020.~~May 2021. Teledyne had foreign currency forward contracts designated as cash flow hedges to buy British pounds and to sell U.S. dollars totaling ~~$20.0~~$11.7 million. These foreign currency forward contracts have maturities ranging from ~~December 2019~~June 2020 to February 2021. The cross currency swap have notional amounts of ~~€93.0~~€113.0 million and ~~€113.0 million equivalent to $100.0~~$125 million, and ~~$125.0~~€135.0 million and $150.0 million, and mature in ~~October 2019 and~~ March 2023 and October 2024, respectively. The interest rate swap has a notional amount of $125.0 million and matures in March 2023.

~~Table of Contents~~

The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the ~~third~~first quarter and ~~nine~~three months ended ~~September~~March 29, ~~2019~~2020 and ~~September 30, 2018~~March 31, 2019 was as follows (in millions):

Third Quarter Nine Months
2019 2018 2019 2018
Net gain (loss) recognized in AOCI (a) $ 5.2 $ 3.2 $ 10.2 $ 3.1
Net gain (loss) reclassified from AOCI into revenue (a) $ (0.3) $ — $ (1.5) $ 2.0
Net gain reclassified from AOCI into interest expense (a) $ 1.1 $ 0.6 $ 2.6 $ 1.7
Net gain (loss) reclassified from AOCI into other income and expense, net (b) $ 6.0 $ (0.6) $ 6.5 $ 2.4
Net foreign exchange gain (loss) recognized in other income, net (c) $ (0.1) $ (0.2) $ (0.5) $ (0.4)


	First Quarter
	2020		2019
Net gain (loss) recognized in AOCI (a)	$	(0.6)	$	4.3
Net gain (loss) reclassified from AOCI into COS - Foreign Exchange Contracts (a)	$	(0.1)	$	(0.6)
Net gain (loss) reclassified from AOCI Interest Rate Contracts	$	(4.0)	$	—
Net gain (loss) reclassified from AOCI into other income and expense, net - Foreign Exchange Contracts (b)	$	1.7	$	1.8
Net gain (loss) reclassified from AOCI into interest expense - Foreign Exchange Contracts	$	1.5	$	—
Net gain (loss) reclassified from AOCI into interest expense - Interest Rate Contracts	$	0.1	$	0.8
Net foreign exchange gain (loss) recognized in other income, net (c)	$	—	$	(0.2)

a) Effective portion, pre-tax

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

c) Amount excluded from effectiveness testing

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 ~~September~~March 29, ~~2019,~~2020, Teledyne had non-designated foreign currency contracts, (in excess of approximately ~~$5.0~~$367.0 million) of this type in the following pairs (in millions):


Contracts to Buy	Contracts to Buy				Contracts to Sell					Contracts to Buy				Contracts to Sell
Currency	Currency	Amount		Currency		Amount		Currency	Amount		Currency	Amount
Canadian Dollars	Canadian Dollars	$	7.9	U.S. Dollars		US$	6.2	Canadian Dollars	$	44.7	U.S. Dollars	US$	33.7
Canadian Dollars	Canadian Dollars	$	11.9	Euros		€	8.2	Canadian Dollars	$	14.3	Euros	€	9.5

Great Britain Pounds	Great Britain Pounds	£	44.9	U.S. Dollars		US$	55.5	Great Britain Pounds	£	59.4	U.S. Dollars	US$	72.8

Euros	Euros	€	35.8	U.S. Dollars		US$	39.2	Euros	€	29.4	U.S. Dollars	US$	32.5

Danish Krone	Danish Krone	DKR	66.2	U.S. Dollars		US$	9.7	Danish Krone	DKR	142.1	U.S. Dollars	US$	21.0
Great Britain Pounds	Great Britain Pounds	£	9.1	Euros		€	10.3	Great Britain Pounds	£	6.8	Euros	€	7.5

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. 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~~first quarter ~~and nine months~~ ended ~~September~~March 29, ~~2019~~2020 was expense of ~~$0.7 million and income $0.2 million, respectively.~~$10.4 million. The effect of derivative instruments not designated as cash flow hedges in other income and expense for the ~~third~~first quarter ~~and nine months~~ ended ~~September 30, 2018~~March 31, 2019 was income of ~~$3.1 million and expense of $14.7 million, respectively.~~$1.6 million. The income/expense was largely offset by losses/gains in the value of the underlying hedged item excluding the impact of forward points.

Table of Contents

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.

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):

~~Table of Contents~~


Asset/(Liability) Derivatives	Asset/(Liability) Derivatives	Balance sheet location	September 29, 2019		December 30, 2018		Asset/(Liability) Derivatives	Balance sheet location	March 29, 2020		December 29, 2019
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:						Derivatives designated as hedging instruments:
Cash flow forward contracts	Cash flow forward contracts	Other assets	$	0.3	$	—	Cash flow forward contracts	Other assets	$	—	$	1.3

Cash flow forward contracts							Cash flow forward contracts	Accrued liabilities	(5.5)		(0.1)
Cash flow forward contracts							Cash flow forward contracts	Other long-term liabilities	(2.8)		—
Cash flow cross currency swap							Cash flow cross currency swap	Other current assets	1.2		5.4
Cash flow cross currency swap							Cash flow cross currency swap	Accrued liabilities	—		0.3
Cash flow cross currency swap							Cash flow cross currency swap	Other non-current liabilities	—		(7.8)
Cross currency swap	Cross currency swap	Other current assets	0.1		—		Cross currency swap	Other current assets	2.7		—
Cross currency swap	Cross currency swap	Other assets	2.7		—		Cross currency swap	Other assets	1.3		—
Interest rate contracts	Interest rate contracts	Other current assets	0.3		—		Interest rate contracts	Other current assets	—		0.2
Cash flow cross currency swap		Accrued liabilities	(1.7)		(6.3)
Cash flow forward contracts		Accrued liabilities	(1.4)		(4.2)
Cross currency swap		Other current liabilities	(1.1)		—
Interest rate contracts							Interest rate contracts	Other non-current assets	—		0.3
Interest rate contracts							Interest rate contracts	Other current liabilities	(1.2)		—
Interest rate contracts	Interest rate contracts	Other non-current liabilities	(0.2)		—		Interest rate contracts	Other non-current liabilities	(2.3)		—

Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments		(1.0)		(10.5)		Total derivatives designated as hedging instruments		(6.6)		(0.4)
Derivatives not designated as hedging instruments:	Derivatives not designated as hedging instruments:						Derivatives not designated as hedging instruments:
Non-designated forward contracts	Non-designated forward contracts	Other current assets	0.1		—		Non-designated forward contracts	Other current assets	1.5		0.1
Non-designated forward contracts	Non-designated forward contracts	Accrued liabilities	(0.5)		(0.6)		Non-designated forward contracts	Accrued liabilities	(3.9)		(0.4)
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments		(0.4)		(0.6)		Total derivatives not designated as hedging instruments		(2.4)		(0.3)
Total liability derivatives, net	Total liability derivatives, net		$	(1.4)	$	(11.1)	Total liability derivatives, net		$	(9.0)	$	(0.7)

Note 5. Earnings Per Share

For the ~~third~~first quarter of ~~2019, 0~~2020, 246,453 stock options were excluded in the computation of ~~earnings per share. For the first nine months of 2019, 2,160 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 period. For the ~~third~~first quarter of ~~2018, 0 stock options were excluded in the computation of earnings per share. For the first nine months of 2018, 2,580~~2019, 6,480 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 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				First Quarter
		2019	2018	2019	2018		2020	2019

Weighted average basic common shares outstanding	Weighted average basic common shares outstanding	36.4	35.9	36.2	35.7	Weighted average basic common shares outstanding	36.6	36.1
Effect of dilutive securities (primarily stock options)	Effect of dilutive securities (primarily stock options)	1.2	1.3	1.2	1.3	Effect of dilutive securities (primarily stock options)	1.2	1.1
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	37.6	37.2	37.4	37.0	Weighted average diluted common shares outstanding	37.8	37.2

Table of Contents

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 ~~$5.7 million for the third quarter of 2019 and was $4.6 million for the third quarter of 2018. Stock option compensation expense was $20.4~~$7.4 million for the first ~~nine months~~quarter of ~~2019~~2020 and was ~~$14.9~~$8.9 million for the first ~~nine months~~quarter of ~~2018.~~2019. Employee stock option grants are charged to expense evenly over the three year vesting period except for stock options that were granted ~~in January 2019~~after 2018 to Teledyne’s Executive Chairman and Teledyne’s President and Chief Executive Officer which were expensed immediately. For ~~2019,~~2020, the Company currently expects approximately ~~$26.2~~$25.6 million in stock option compensation expense based on stock options currently outstanding. 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.

~~Table of Contents~~

The following assumptions were used in the valuation of stock options granted in ~~2019:~~2020:

Based on the assumptions used in the valuation of stock options, the grant date weighted average fair value of stock options granted in ~~2019~~2020 was ~~$72.00~~$106.26 per share.

Stock option transactions for the ~~third~~first quarter ~~and first nine months~~ of ~~2019~~2020 are summarized as follows:


		2019											2020
		Third Quarter				Nine Months						First Quarter
		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price			Shares	Weighted Average Exercise Price
Beginning balance	Beginning balance	2,170,843	$	127.09	2,064,740	$	104.66	Beginning balance	1,988,576	$	130.66
Granted	Granted	—	$	—	390,789	$	217.58	Granted	246,453	$	383.18
Exercised	Exercised	(92,062)	$	88.26	(352,823)	$	82.61	Exercised	(91,407)	$	111.94
Canceled	Canceled	(10,946)	$	197.19	(34,871)	$	182.62	Canceled	(8,526)	$	203.69
Ending balance	Ending balance	2,067,835	$	128.45	2,067,835	$	128.45	Ending balance	2,135,096	$	160.32
Options exercisable at end of period	Options exercisable at end of period	1,319,171	$	92.57	1,319,171	$	92.57	Options exercisable at end of period	1,532,304	$	112.96

Performance Share Plan and Restricted Stock Award Program

Under the 2015 to 2017 Performance Share Plan, the Company issued 7,673 shares of Teledyne common stock in the first quarter of 2020, 8,586 shares in the first quarter of 2019 ~~the Company issued 8,586~~and 6,481 shares ~~of Teledyne common stock and~~ in the first quarter of ~~2018, the Company issued 6,481 shares of Teledyne common stock. A total of 15,578 shares remain to be issued in 2020, subject to the terms of the plan.~~2018.

In the first quarter of 2018, the performance cycle for the three-year period ending December 31, 2020, was set. ~~Under~~Subject to the terms of the plan, the maximum number of shares that could be issued in three equal installments in 2021, 2022 and 2023 is 59,278.

The following table shows the restricted stock activity for the first ~~nine~~three months of ~~2019:~~2020:


		Shares	Weighted average fair value per share			Shares	Weighted average fair value per share
Balance, December 30, 2018		74,220	$	108.05
Balance, December 29, 2019					Balance, December 29, 2019	56,412	$	158.62
Granted	Granted	17,522	$	200.00	Granted	10,080	$	360.33
Vested	Vested	(35,330)	$	72.91	Vested	(23,087)	$	114.74

Balance, September 29, 2019		56,412	$	158.62
Balance, March 29, 2020					Balance, March 29, 2020	43,405	$	228.80

Table of Contents

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 ~~$373.6~~$365.9 million at ~~September~~March 29, ~~2019~~2020 and ~~$331.3~~$361.2 million at December ~~30, 2018.~~29, 2019. The remainder of the inventories using the LIFO method is ~~$39.1~~$42.7 million at ~~September~~March 29, ~~2019~~2020 and ~~$42.3~~$40.0 million at December ~~30, 2018.~~29, 2019. 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 valuation.

~~Table of Contents~~


		Balance at							Balance at
Inventories (in millions):	Inventories (in millions):	September 29, 2019		December 30, 2018		Inventories (in millions):	March 29, 2020		December 29, 2019
Raw materials and supplies	Raw materials and supplies	$	235.1	$	205.6	Raw materials and supplies	$	252.5	$	231.2
Work in process	Work in process	120.9		117.5		Work in process	88.8		108.3
Finished goods	Finished goods	56.7		50.5		Finished goods	67.3		61.7
		412.7		373.6			408.6		401.2

Reduction to LIFO cost basis	Reduction to LIFO cost basis	(8.3)		(9.3)		Reduction to LIFO cost basis	(7.5)		(7.8)
Total inventories, net	Total inventories, net	$	404.4	$	364.3	Total inventories, net	$	401.1	$	393.4

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 month~~three months of ~~2019~~2020 was approximately ~~$17.0~~$4.4 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.~~sales. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first ~~nine~~three months of ~~2018~~2019 was approximately ~~$2.0~~$2.8 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue. 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 ~~$110.6~~$128.5 million and ~~$17.4~~$16.1 million as of ~~September~~March 29, ~~2019,~~2020, and ~~$111.5~~$126.8 million and ~~$15.3~~$17.9 million as of December ~~30, 2018,~~29, 2019, respectively.

The Company recognized revenue of ~~$78.2~~$32.7 million during the ~~nine~~three months ended ~~September~~March 29, ~~2019~~2020 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 ~~September~~March 29, ~~2019,~~2020, the aggregate amount of the transaction price allocated to remaining performance obligations was ~~$1,755.1~~$1,909.5 million. The Company expects approximately ~~74%~~75% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining ~~26%~~25% recognized thereafter.

Table of Contents

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 Consolidated Balance Sheet.


		Nine Months							Three Months
Warranty Reserve (in millions):	Warranty Reserve (in millions):	2019		2018		Warranty Reserve (in millions):	2020		2019
Balance at beginning of year	Balance at beginning of year	$	21.0	$	21.1	Balance at beginning of year	$	24.8	$	21.0
Accruals for product warranties charged to expense		7.2		7.6
Accruals for product warranties charged to expense and other						Accruals for product warranties charged to expense and other	(0.1)		2.2
Cost of product warranty claims	Cost of product warranty claims	(7.6)		(6.8)		Cost of product warranty claims	(3.6)		(2.9)
Acquisition	Acquisition	3.0		—		Acquisition	0.1		0.3
Balance at end of period	Balance at end of period	$	23.6	$	21.9	Balance at end of period	$	21.2	$	20.6

Accounts Receivable, Net

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 Condensed 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 Condensed Consolidated Balance Sheet. Accounts receivable is presented net of an allowance for doubtful accounts of $10.5 million at March 29, 2020, and $10.2 million at December 29, 2019.

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 we evaluate the collectability of our accounts receivable and contract assets based on a combination of factors. If we become aware of a customer’s inability to meet its financial obligations, a specific allowance is recorded to reduce the net receivable to the amount reasonably believed to be collectible from the customer. For all other customers, we use an aging schedule and recognize allowances for doubtful accounts based on the creditworthiness of the debtor, the age and status of outstanding receivables, the current business environment and our historical collection experience adjusted for current expectations for the customers or industry. Accounts receivable are written off against the allowance for uncollectible accounts when we determine amounts are no longer collectible.


	Three Months
Allowance for doubtful accounts (in millions):	2020
Balance at beginning of year	$	10.2
Accruals for credit loss charged to expense	0.3


Balance at end of period	$	10.5

~~Table of Contents~~

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~~first quarter ~~and first nine months~~ of ~~2019~~2020 was ~~13.5% and 16.7%, respectively. The Company’s effective income tax rate~~18.6% compared with 18.9% for the ~~third~~first quarter ~~and~~of 2019. The first ~~nine months~~quarter of ~~2018 was 9.9% and 15.4%, respectively. The third quarter and first nine months of 2019~~2020 include net discrete income tax benefits of ~~$10.4~~$4.2 million, ~~and $17.8 million, respectively. The 2019 third quarter and first nine months of~~which included net discrete tax benefits includes ~~$3.5~~$4.7 million, ~~and $11.2 million, respectively,~~ related to share-based accounting. The first ~~nine months~~quarter of 2019 also included $8.1 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to the expiration of statute of limitations and a favorable tax settlement, of which $7.8 million was recorded in the third quarter of 2019. The third quarter and first nine months of 2018 includes net discrete income tax benefits of ~~$11.4~~$3.1 million, ~~and $16.9~~which included $2.9 million ~~respectively. The 2018 third quarter and first nine months net discrete tax benefits includes $5.0 million and $12.7 million, respectively,~~ related to share-based accounting. The third quarter and first nine months of 2018 also included $4.4 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to the expiration of statute of limitations. Excluding the net discrete income tax benefits in both periods, the effective tax ~~rate~~rates would have been ~~21.9%~~22.8% for the ~~both the third~~first quarter of 2020 and 22.3% for the first ~~nine months~~quarter of 2019. ~~Excluding the net discrete income tax benefits in both periods, the effective tax rate would have been 21.3% for both the third quarter and the first nine months~~

Table of ~~2018.~~Contents

Note 10. Long-Term Debt and Letters of Credit

Balance at
Long-Term Debt (in millions): September 29, 2019 December 30, 2018
$750 million credit facility due March 2024, weighted average rate of 3.0% at September 29, 2019 and 5.50% at December 30, 2018 $ 225.0 $ 29.0
Term loan due October 2019, variable rate of 3.18% at September 29, 2019 and 3.63% at December 30, 2018, swapped to a Euro fixed rate of 0.7055% 100.0 100.0
2.61% Fixed Rate Senior Notes due December 2019 30.0 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 54.9 57.2
0.92% €100 Million Fixed Rate Senior Notes due April 2023 109.7 114.4
1.09% €100 Million Fixed Rate Senior Notes due April 2024 109.7 114.4
Other debt 2.0 8.8
Total debt 926.3 748.8
Less: current portion of long-term debt and debt issuance costs (207.0) (138.7)
Total long-term debt $ 719.3 $ 610.1

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.


	Balance at
Long-Term Debt (in millions):	March 29, 2020		December 29, 2019
$750 million credit facility due March 2024, weighted average rate of 1.83% at March 29, 2020 and 2.80% at December 29, 2019	$	125.0	$	125.0


Term loan due October 2024, variable rate of 2.60% at March 29, 2020 and 2.702% at December 29, 2019, swapped to a Euro fixed rate of 0.6120%	150.0		150.0

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	55.8		56.0
0.92% €100 Million Fixed Rate Senior Notes due April 2023	111.6		111.9
1.09% €100 Million Fixed Rate Senior Notes due April 2024	111.6		111.9
Other debt	1.8		2.0
Debt issuance costs	(1.1)		(1.2)
Total debt	849.7		850.6
Less: current portion of long-term debt and debt issuance costs	(100.6)		(100.6)
Total long-term debt	$	749.1	$	750.0

Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and certain outstanding letters of credit, was ~~$494.7~~$611.0 million at ~~September~~March 29, ~~2019.~~2020. The credit agreements require the Company to comply with various financial and operating covenants and at ~~September~~March 29, ~~2019,~~2020, the Company was in compliance with these covenants. At ~~September~~March 29, ~~2019,~~2020, Teledyne had ~~$30.3~~$28.6 million in outstanding letters of credit.

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 ~~September~~March 29, ~~2019~~2020 and December ~~30, 2018,~~29, 2019, approximated the carrying value.

Note 11. Lease Commitments

Operating Leases

Teledyne has approximately 125 long-term operating lease agreements, which are primarily for manufacturing facilities and office space. These agreements frequently include one or more renewal options and may require the Company to pay for utilities, taxes, insurance and maintenance expense. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements. At March 29, 2020, Teledyne has right-of-use assets of $123.2 million and a total lease liability for operating leases of $134.5 million of which $115.2 million is included in long-term lease liabilities and $19.3 million is included in current accrued liabilities.

At March 29, 2020, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows (in millions):



Remainder of 2020	$	18.6
2021	23.2
2022	20.6
2023	17.7
2024	15.8
Thereafter	74.4
Total minimum lease payments	170.3
Less:
Imputed interest	(35.8)
Current portion	(19.3)
Present value of minimum lease payments, net of current portion	$	115.2

The weighted average remaining lease term for operating leases is approximately 9 years and the weighted average discount rate is 4.04%. Operating lease expense was $6.1 million and $5.8 million for the first three months of 2020 and the first three months of 2019, respectively.

1614

Table of Contents

Finance Leases and Subleases

Our finance leases and subleases are not material.

Note ~~11.~~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 December ~~30, 2018,~~29, 2019, included in the ~~2018~~2019 Form 10-K.

At ~~September~~March 29, ~~2019,~~2020, the Company’s reserves for environmental remediation obligations totaled ~~$6.0~~$6.7 million, of which $1.5 million is included in current accrued liabilities. At December ~~30, 2018,~~29, 2019, the Company’s reserves for environmental remediation obligations totaled $6.0 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.

We are currently assessing an exposure of approximately $40.0 million related to certain accounts receivable, unbilled receivables and inventories, as well as other additional AOS-related expenses as a result of the March 27, 2020 bankruptcy of OneWeb Global Limited and its subsidiaries (“OneWeb”). Teledyne’s customer, Airbus OneWeb Satellites, LLC (“AOS”), a joint venture of OneWeb and Airbus Defense and Space, has not declared bankruptcy. Although it is reasonably possible that we may recognize a loss, given the uncertainty of the situation at this time, a loss, if any, will depend on the outcome of future events that could impact AOS.

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 ~~12.~~13. Pension Plans and Postretirement Benefits

Effective January 1, 2020, Teledyne restructured its domestic qualified defined benefit pension plan. The restructuring involved dividing our domestic qualified defined pension plan into 2 separate plans, 1 comprised primarily of inactive participants (the “inactive plan”) and the other comprised primarily of active participants (the “active plan”). The reorganization was made to efficiently facilitate a targeted investment strategy 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 2 plans, 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.

For the domestic qualified pension plans, the weighted-average discount rate ~~increased~~decreased to ~~4.59%~~3.41% in ~~2019~~2020 compared with a ~~4.02%~~4.59% discount rate used in ~~2018.~~2019. Teledyne has not made any cash pension contributions to its domestic qualified pension plan since 2013. NaN cash pension contributions are planned for ~~2019~~2020 for the domestic qualified pension ~~plan.~~plans.


		Third Quarter						Nine Months							First Quarter
		2019		2018		2019		2018			2020		2019
Service cost — benefits earned during the period (in millions)	Service cost — benefits earned during the period (in millions)	$	2.4	$	2.7	$	7.1	$	8.1	Service cost — benefits earned during the period (in millions)	$	2.6	$	2.4

Pension non-service income (in millions):	Pension non-service income (in millions):									Pension non-service income (in millions):
Interest cost on benefit obligation	Interest cost on benefit obligation	$	8.4	$	8.2	$	25.2	$	24.5	Interest cost on benefit obligation	$	6.9	$	8.4
Expected return on plan assets	Expected return on plan assets	(16.6)		(17.9)		(49.7)		(53.7)		Expected return on plan assets	(14.3)		(16.5)
Amortization of prior service cost	Amortization of prior service cost	(1.4)		(1.5)		(4.4)		(4.5)		Amortization of prior service cost	(1.5)		(1.5)
Amortization of net actuarial loss	Amortization of net actuarial loss	7.7		7.8		23.2		23.6		Amortization of net actuarial loss	5.7		7.7
Curtailment/settlements	Curtailment/settlements	—		—		(0.4)		—		Curtailment/settlements	0.7		(0.3)
Pension non-service income	Pension non-service income	$	(1.9)	$	(3.4)	$	(6.1)	$	(10.1)	Pension non-service income	$	(2.5)	$	(2.2)

Teledyne sponsors several postretirement defined benefit plans that provide health care and life insurance benefits for certain eligible retirees.

Third Quarter Nine Months
Postretirement benefits non-service (income)/expense (in millions): 2019 2018 2019 2018
Interest cost on benefit obligation $ 0.1 $ 0.1 $ 0.3 $ 0.3
Amortization of net actuarial gain — (0.1) (0.1) (0.3)
Postretirement benefits non-service (income)/expense $ 0.1 $ — $ 0.2 $ —

Postretirement benefits non-service expense is not material.

1715

Table of Contents

Note ~~13.~~14. Segment Information

Teledyne is a leading provider of sophisticated instrumentation, digital imaging products and software, 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 4 reportable segments: Instrumentation; Digital Imaging; 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.

In the third quarter of 2019, we realigned 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. 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. Previously reported segment data has been adjusted to reflect these changes.

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


		Third Quarter						%		Nine Months								%	First Quarter		%
		2019		2018		Change		2019		2018		Change			2020		2019		Change
Net sales(a):	Net sales(a):													Net sales(a):
Instrumentation	Instrumentation	$	282.9	$	256.2	10.4	%	$	803.5	$	757.8	6.0	%	Instrumentation	$	285.1	$	256.5	11.2	%
Digital Imaging (b)		244.0		220.7		10.6	%	724.8		652.0		11.2	%
Aerospace and Defense Electronics (b)		177.1		160.3		10.5	%	519.7		474.2		9.6	%
Engineered Systems (b)		98.2		88.1		11.5	%	281.4		269.4		4.5	%
Digital Imaging														Digital Imaging	246.7		232.4		6.2	%
Aerospace and Defense Electronics														Aerospace and Defense Electronics	156.3		166.6		(6.2)	%
Engineered Systems														Engineered Systems	96.5		89.7		7.6	%
Total net sales	Total net sales	$	802.2	$	725.3	10.6	%	$	2,329.4	$	2,153.4	8.2	%	Total net sales	$	784.6	$	745.2	5.3	%
Operating income:	Operating income:													Operating income:
Instrumentation	Instrumentation	$	52.0	$	35.7	45.7	%	$	140.9	$	104.4	35.0	%	Instrumentation	$	50.8	$	39.9	27.3	%
Digital Imaging (b)		41.2		42.3		(2.6)	%	129.4		119.2		8.6	%
Aerospace and Defense Electronics (b)		39.5		33.0		19.7	%	110.6		96.4		14.7	%
Engineered Systems (b)		10.6		9.6		10.4	%	26.0		27.2		(4.4)	%
Digital Imaging														Digital Imaging	43.8		36.6		19.7	%
Aerospace and Defense Electronics														Aerospace and Defense Electronics	13.4		32.5		(58.8)	%
Engineered Systems														Engineered Systems	11.4		6.4		78.1	%
Corporate expense	Corporate expense	(14.6)		(15.1)		(3.3)	%	(49.0)		(41.8)		17.2	%	Corporate expense	(15.4)		(18.1)		(14.9)	%
Operating income	Operating income	$	128.7	$	105.5	22.0	%	$	357.9	$	305.4	17.2	%	Operating income	$	104.0	$	97.3	6.9	%


(a)			Net sales excludes inter-segment sales of ~~$8.2~~$6.9 million and ~~$22.2~~$6.4 million for the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019, ~~respectively, and $8.2 million and $18.8 million for the third quarter and first nine months of 2018.~~
~~(b)~~			The 2018 periods have been adjusted to reflect the realignment 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.respectively.

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

Identifiable assets: September 29, 2019 December 30, 2018
Instrumentation $ 1,668.0 $ 1,392.7
Digital Imaging 1,815.6 1,577.5
Aerospace and Defense Electronics 618.0 509.9
Engineered Systems 159.4 151.5
Corporate 218.6 177.7
Total identifiable assets $ 4,479.6 $ 3,809.3

~~Table of Contents~~


Identifiable assets:	March 29, 2020		December 29, 2019
Instrumentation	$	1,703.3	$	1,680.2
Digital Imaging	1,837.5		1,874.6
Aerospace and Defense Electronics	604.2		618.3
Engineered Systems	157.6		143.4
Corporate	282.4		263.3
Total identifiable assets	$	4,585.0	$	4,579.8

Product Lines

The Instrumentation segment includes 3 product lines: Environmental Instrumentation, Marine Instrumentation and Test and Measurement Instrumentation. Teledyne’s other three segments each contain 1 product line.

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


		Third Quarter						Nine Months							First Quarter
Instrumentation	Instrumentation	2019		2018		2019		2018		Instrumentation	2020		2019
Marine Instrumentation	Marine Instrumentation	$	114.4	$	106.2	$	331.0	$	329.1	Marine Instrumentation	109.3		$	105.2
Environmental Instrumentation	Environmental Instrumentation	102.6		85.5		276.4		252.4		Environmental Instrumentation	109.3		86.4
Test and Measurement Instrumentation	Test and Measurement Instrumentation	65.9		64.5		196.1		176.3		Test and Measurement Instrumentation	66.5		64.9
Total	Total	$	282.9	$	256.2	$	803.5	$	757.8	Total	$	285.1	$	256.5

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.

Third Quarter Ended
September 29, 2019 Nine Months Ended
September 29, 2019
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 $ 20.1 $ 262.8 $ 282.9 $ 52.9 $ 750.6 $ 803.5
Digital Imaging 29.1 214.9 244.0 81.5 643.3 724.8
Aerospace and Defense Electronics 58.6 118.5 177.1 166.6 353.1 519.7
Engineered Systems 90.5 7.7 98.2 254.3 27.1 281.4
$ 198.3 $ 603.9 $ 802.2 $ 555.3 $ 1,774.1 $ 2,329.4

Table of Contents


	First Quarter Ended March 29, 2020										First Quarter Ended March 31, 2019
	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	$	41.5	$	243.6	$	285.1	$	14.2	$	242.3	$	256.5
Digital Imaging	29.3		217.4		246.7		26.2		206.2		232.4
Aerospace and Defense Electronics	53.8		102.5		156.3		49.5		117.1		166.6
Engineered Systems	88.3		8.2		96.5		80.0		9.7		89.7
	$	212.9	$	571.7	$	784.6	$	169.9	$	575.3	$	745.2

a) Includes sales as a prime contractor or subcontractor.


		Third Quarter Ended September 29, 2019										Nine Months Ended September 29, 2019											First Quarter Ended March 29, 2020					First Quarter Ended March 31, 2019
		Contract Type								Contract Type									Contract Type								Contract Type
(in millions)	(in millions)	Fixed Price		Cost Type		Total		Fixed Price		Cost Type		Total		(in millions)	Fixed Price		Cost Type		Total		Fixed Price		Cost Type		Total
Net Sales:	Net Sales:													Net Sales:
Instrumentation	Instrumentation	$	280.8	$	2.1	$	282.9	$	797.5	$	6.0	$	803.5	Instrumentation	$	281.5	$	3.6	$	285.1	$	251.0	$	5.5	$	256.5
Digital Imaging	Digital Imaging	220.4		23.6		244.0		657.7		67.1		724.8		Digital Imaging	213.4		33.3		246.7		199.2		33.2		232.4
Aerospace and Defense Electronics	Aerospace and Defense Electronics	175.9		1.2		177.1		517.8		1.9		519.7		Aerospace and Defense Electronics	156.1		0.2		156.3		163.4		3.2		166.6
Engineered Systems	Engineered Systems	46.0		52.2		98.2		120.6		160.8		281.4		Engineered Systems	50.3		46.2		96.5		34.9		54.8		89.7
		$	723.1	$	79.1	$	802.2	$	2,093.6	$	235.8	$	2,329.4		$	701.3	$	83.3	$	784.6	$	648.5	$	96.7	$	745.2


		Third Quarter Ended September 29, 2019												Nine Months Ended September 29, 2019													First Quarter Ended March 29, 2020								First Quarter Ended March 31, 2019
		Geographic Region (a)												Geographic Region (a)													Geographic Region (a)								Geographic Region (a)
(in millions)	(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total		(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total
Net sales:	Net sales:																	Net sales:
Instrumentation	Instrumentation	$	229.9	$	42.7	$	10.3	$	282.9	$	666.1	$	107.1	$	30.3	$	803.5	Instrumentation	$	217.8	$	54.9	$	12.4	$	285.1	$	211.1	$	33.6	$	11.8	$	256.5
Digital Imaging	Digital Imaging	83.4		71.2		89.4		244.0		236.1		213.0		275.7		724.8		Digital Imaging	77.6		68.8		100.3		246.7		72.4		67.4		92.6		232.4
Aerospace and Defense Electronics	Aerospace and Defense Electronics	149.2		27.7		0.2		177.1		447.4		71.5		0.8		519.7		Aerospace and Defense Electronics	131.9		24.2		0.2		156.3		146.6		19.8		0.2		166.6
Engineered Systems	Engineered Systems	98.2		—		—		98.2		281.4		—		—		281.4		Engineered Systems	96.5		—		—		96.5		89.7		—		—		89.7
		$	560.7	$	141.6	$	99.9	$	802.2	$	1,631.0	$	391.6	$	306.8	$	2,329.4		$	523.8	$	147.9	$	112.9	$	784.6	$	519.8	$	120.8	$	104.6	$	745.2

a) Net sales by geographic region of origin.

Table of Contents

Third Quarter Ended
September 30, 2018 Nine Months Ended
September 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 $ 15.4 $ 240.8 $ 256.2 $ 44.0 $ 713.8 $ 757.8
Digital Imaging 23.9 196.8 220.7 68.9 583.1 652.0
Aerospace and Defense Electronics 41.8 118.5 160.3 131.6 342.6 474.2
Engineered Systems 78.0 10.1 88.1 236.1 33.3 269.4
$ 159.1 $ 566.2 $ 725.3 $ 480.6 $ 1,672.8 $ 2,153.4

~~a) Includes sales as a prime contractor or subcontractor.~~

Third Quarter Ended
September 30, 2018 Nine Months Ended
September 30, 2018
Contract Type Contract Type
(in millions) Fixed Price Cost Type Total Fixed Price Cost Type Total
Net Sales:
Instrumentation $ 252.6 $ 3.6 $ 256.2 $ 745.2 $ 12.6 $ 757.8
Digital Imaging 203.7 17.0 220.7 593.3 58.7 652.0
Aerospace and Defense Electronics 159.3 1.0 160.3 472.5 1.7 474.2
Engineered Systems 37.3 50.8 88.1 122.2 147.2 269.4
$ 652.9 $ 72.4 $ 725.3 $ 1,933.2 $ 220.2 $ 2,153.4

Third Quarter Ended
September 30, 2018 Nine Months Ended
September 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 $ 215.4 $ 31.3 $ 9.5 $ 256.2 $ 612.9 $ 116.1 $ 28.8 $ 757.8
Digital Imaging 62.6 75.8 82.3 220.7 178.8 213.8 259.4 652.0
Aerospace and Defense Electronics 138.3 20.9 1.1 160.3 407.3 64.5 2.4 474.2
Engineered Systems 88.1 — — 88.1 269.3 0.1 — 269.4
$ 504.4 $ 128.0 $ 92.9 $ 725.3 $ 1,468.3 $ 394.5 $ 290.6 $ 2,153.4

~~a) Net sales by geographic region of origin.~~

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Teledyne Technologies Incorporated 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. Our 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. We also supply engineered systems for defense, space, environmental and energy applications. We differentiate ourselves from many of our direct competitors by having a customer and company-sponsored applied research center that augments our product development expertise.

Effective in 2018, Teledyne early adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” See Note 1 to these condensed consolidated financial statements for additional information.

Effective December 31, 2018, Teledyne adopted FASB ASU No. 2016-02, Leases (Topic 842) using the modified retrospective transition option of applying the guidance at the adoption date. Prior period comparative information was not adjusted. See Note 1 to these condensed consolidated financial statements for additional information.

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. The realignment had no impact on the Instrumentation Segment or the condensed consolidated statements of income, balance sheet or cash flows. See Note 13 to these condensed consolidated financial statements for additional information on the realignment. Previously reported segment data has been adjusted to reflect these changes.

Strategy/Overview

Our strategy continues to emphasize growth in our core markets of instrumentation, digital imaging, aerospace and defense electronics and engineered systems. Our core markets are characterized by high barriers to entry and include specialized products and services not likely to be commoditized. We intend to strengthen and expand our core businesses with targeted acquisitions and through product development. We continue to focus on balanced and disciplined capital deployment among capital expenditures, product development, acquisitions and share repurchases. We aggressively pursue operational excellence to continually improve our margins and earnings by emphasizing cost containment and cost reductions in all aspects of our business. At Teledyne, operational excellence includes the rapid integration of the businesses we acquire. Using complementary technology across our businesses and internal research and development, we seek to create new products to grow our company and expand our addressable markets. We continue to evaluate our businesses to ensure that they are aligned with our strategy.

COVID-19 and other matters

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 virus. The COVID-19 virus may have an impact on our operations, supply chains and distribution systems and increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

Our first priority remains the health and safety of our employees and their families. Employees whose tasks can be done offsite have been instructed to work from home. Up to 40% of our total personnel continue to work from home. Our manufacturing sites remain operational, and we are maintaining social distancing and enhanced cleaning protocols and usage of personal protective equipment, where appropriate.

While no company is immune to global economic challenges, Teledyne's business portfolio is well-balanced across end markets and geographies, and includes a high degree of businesses serving critical infrastructure sectors such as the defense industrial base, water and wastewater, and healthcare and public health. Teledyne’s balance sheet is strong, with over $230 million of cash and cash equivalents and more than $600 million available under our credit facility maturing in 2024. However, given the dynamic nature of this situation, the Company cannot accurately estimate the impacts of COVID-19 on its financial condition, results of operations or cash flows.

Recent Acquisitions

Acquisition of the OakGate Technology, Inc.

Acquisition of the scientific imaging businesses of Roper Technologies

Table of Contents

customized OEM 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.

Acquisition of the gas and flame detection business of 3M Company

~~Table of Contents~~

Acquisition of Micralyne

Results of Operations


		Third Quarter						Nine Months							First Quarter
(in millions)	(in millions)	2019		2018		2019		2018		(in millions)	2020		2019
Net sales	Net sales	$	802.2	$	725.3	$	2,329.4	$	2,153.4	Net sales	$	784.6	$	745.2
Costs and expenses	Costs and expenses									Costs and expenses
Cost of sales	Cost of sales	487.7		446.2		1,415.2		1,331.4		Cost of sales	492.6		463.9
Selling, general and administrative expenses	Selling, general and administrative expenses	185.8		173.6		556.3		516.6		Selling, general and administrative expenses	188.0		184.0
Total costs and expenses	Total costs and expenses	673.5		619.8		1,971.5		1,848.0		Total costs and expenses	680.6		647.9
Operating income	Operating income	128.7		105.5		357.9		305.4		Operating income	104.0		97.3
Interest expense, net	Interest expense, net	(5.5)		(6.0)		(16.3)		(19.8)		Interest expense, net	(4.1)		(5.4)
Non-service retirement benefit income	Non-service retirement benefit income	1.9		3.4		6.1		10.1		Non-service retirement benefit income	2.5		2.2
Other expense, net	Other expense, net	(1.7)		(2.7)		(3.5)		(8.9)		Other expense, net	(1.4)		(1.2)
Income before income taxes	Income before income taxes	123.4		100.2		344.2		286.8		Income before income taxes	101.0		92.9
Provision for income taxes	Provision for income taxes	16.7		9.9		57.6		44.1		Provision for income taxes	18.8		17.6

Net income	Net income	$	106.7	$	90.3	$	286.6	$	242.7	Net income	$	82.2	$	75.3

Third Quarter % Nine Months %
(dollars in millions) 2019 2018 Change 2019 2018 Change
Net sales(a):
Instrumentation $ 282.9 $ 256.2 10.4 % $ 803.5 $ 757.8 6.0 %
Digital Imaging (b) 244.0 220.7 10.6 % 724.8 652.0 11.2 %
Aerospace and Defense Electronics (b) 177.1 160.3 10.5 % 519.7 474.2 9.6 %
Engineered Systems (b) 98.2 88.1 11.5 % 281.4 269.4 4.5 %
Total net sales $ 802.2 $ 725.3 10.6 % $ 2,329.4 $ 2,153.4 8.2 %
Operating income:
Instrumentation $ 52.0 $ 35.7 45.7 % $ 140.9 $ 104.4 35.0 %
Digital Imaging (b) 41.2 42.3 (2.6) % 129.4 119.2 8.6 %
Aerospace and Defense Electronics (b) 39.5 33.0 19.7 % 110.6 96.4 14.7 %
Engineered Systems (b) 10.6 9.6 10.4 % 26.0 27.2 (4.4) %
Corporate expense (14.6) (15.1) (3.3) % (49.0) (41.8) 17.2 %
Total operating income $ 128.7 $ 105.5 22.0 % $ 357.9 $ 305.4 17.2 %

Table of Contents


	First Quarter						%
(dollars in millions)	2020		2019		Change
Net sales(a):
Instrumentation	$	285.1	$	256.5	11.2	%
Digital Imaging	246.7		232.4		6.2	%
Aerospace and Defense Electronics	156.3		166.6		(6.2)	%
Engineered Systems	96.5		89.7		7.6	%
Total net sales	$	784.6	$	745.2	5.3	%
Operating income:
Instrumentation	$	50.8	$	39.9	27.3	%
Digital Imaging	43.8		36.6		19.7	%
Aerospace and Defense Electronics	13.4		32.5		(58.8)	%
Engineered Systems	11.4		6.4		78.1	%
Corporate expense	(15.4)		(18.1)		(14.9)	%
Total operating income	$	104.0	$	97.3	6.9	%

(a) Net sales excludes inter-segment sales of ~~$8.2~~$6.9 million and ~~$22.2~~$6.4 million for the ~~third~~first quarter of 2020 and ~~first nine months of~~ 2019, ~~respectively, and $8.2 million and $18.8 million for the third quarter and first nine months of 2018.~~

(b) The 2018 periods have been adjusted to reflect the realignment 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.respectively.

~~Table of Contents~~

The table below presents net sales and cost of sales by segment and total company:


		Third Quarter									Nine Months										First Quarter
(dollars in millions)	(dollars in millions)	2019			2018			2019			2018			(dollars in millions)	2020			2019
Instrumentation	Instrumentation													Instrumentation
Net sales	Net sales	$	282.9		$	256.2		$	803.5		$	757.8		Net sales	$	285.1		$	256.5
Cost of sales	Cost of sales	$	156.6		$	146.0		$	450.2		$	430.7		Cost of sales	$	157.8		$	147.0
Cost of sales as a % of net sales	Cost of sales as a % of net sales	55.4		%	57.0		%	56.0		%	56.8		%	Cost of sales as a % of net sales	55.4		%	57.3		%
Digital Imaging	Digital Imaging													Digital Imaging
Net sales	Net sales	$	244.0		$	220.7		$	724.8		$	652.0		Net sales	$	246.7		$	232.4
Cost of sales	Cost of sales	$	144.7		$	132.2		$	421.3		$	390.8		Cost of sales	$	145.5		$	139.6
Cost of sales as a % of net sales	Cost of sales as a % of net sales	59.3		%	59.9		%	58.1		%	59.9		%	Cost of sales as a % of net sales	59.0		%	60.1		%
Aerospace and Defense Electronics	Aerospace and Defense Electronics													Aerospace and Defense Electronics
Net sales	Net sales	$	177.1		$	160.3		$	519.7		$	474.2		Net sales	$	156.3		$	166.6
Cost of sales	Cost of sales	$	105.2		$	96.0		$	308.6		$	287.8		Cost of sales	$	110.8		$	100.6
Cost of sales as a % of net sales	Cost of sales as a % of net sales	59.4		%	59.9		%	59.4		%	60.7		%	Cost of sales as a % of net sales	70.9		%	60.4		%
Engineered Systems	Engineered Systems													Engineered Systems
Net sales	Net sales	$	98.2		$	88.1		$	281.4		$	269.4		Net sales	$	96.5		$	89.7
Costs of sales	Costs of sales	$	81.2		$	72.0		$	235.1		$	222.1		Costs of sales	$	78.5		$	76.7
Cost of sales as a % of net sales	Cost of sales as a % of net sales	82.7		%	81.7		%	83.5		%	82.4		%	Cost of sales as a % of net sales	81.3		%	85.5		%
Total Company	Total Company													Total Company
Net sales	Net sales	$	802.2		$	725.3		$	2,329.4		$	2,153.4		Net sales	$	784.6		$	745.2
Costs of sales	Costs of sales	$	487.7		$	446.2		$	1,415.2		$	1,331.4		Costs of sales	$	492.6		$	463.9
Cost of sales as a % of net sales	Cost of sales as a % of net sales	60.8		%	61.5		%	60.8		%	61.8		%	Cost of sales as a % of net sales	62.8		%	62.3		%

~~Third~~First Quarter ~~and First Nine Months~~ Results

The following is a discussion of our ~~2019 third~~2020 first quarter ~~and first nine months~~ results compared with the ~~2018 third~~2019 first quarter ~~and first nine months~~ results. Comparisons are with the corresponding reporting period of ~~2018,~~2019, unless noted otherwise. In the ~~third~~first quarter of ~~2019,~~2020, we ~~realigned the reporting structure for certain business units, primarily related to certain refinements~~acquired OakGate Technology, Inc.

Table 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.Contents

~~Third~~First quarter of ~~2019~~2020 compared with the ~~third~~first quarter of ~~2018~~2019

Our ~~third~~first quarter of ~~2019~~2020 net sales increased ~~10.6%~~5.3%. Net income for the ~~third~~first quarter of ~~2019~~2020 increased ~~18.2%~~9.2%. Net income per diluted share was ~~$2.84~~$2.17 for the ~~third~~first quarter of ~~2019,~~2020, compared with net income per diluted share of ~~$2.43.~~$2.02. The ~~third~~first quarter of ~~2019~~2020 included net discrete income tax benefits of ~~$10.4~~$4.2 million compared with ~~$11.4~~$3.1 million. The ~~third~~first quarter of ~~2019~~2020 included ~~$0.3~~$10.4 million in severance, ~~and~~ facility consolidation, ~~costs~~acquisition and certain changes in contract cost estimates, compared with ~~$4.1~~$1.4 million in severance and facility consolidation costs for the ~~third~~first quarter of ~~2018.~~2019.

Net Sales

The ~~third~~first quarter of ~~2019~~2020 net sales, compared with the ~~third~~first quarter of ~~2018~~2019 net sales, reflected higher net sales in each segment except the Aerospace and Defense Electronics segment. The ~~third~~first quarter of ~~2019~~2020 sales ~~increased $76.9 million and~~increase included ~~organic growth of $36.1 million and $40.8~~$36.8 million in incremental net sales from recent acquisitions.

Cost of Sales

Cost of sales increased ~~$41.5~~$28.7 million in the ~~third~~first quarter of ~~2019~~2020 and reflected the impact of higher sales. Cost of sales as a percentage of net sales ~~decreased~~increased slightly for the ~~third~~first quarter of ~~2019~~2020 to ~~60.8%~~62.8%, from ~~61.5%~~62.3%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development ~~and bid and proposal~~ expense, increased ~~$12.2~~$4.0 million in the ~~third~~first quarter of ~~2019~~2020 and primarily reflected the impact of higher sales. Selling, general and administrative expenses for the ~~third~~first quarter of ~~2019,~~2020, as a percentage of net sales decreased slightly to ~~23.2%~~24.0% from ~~23.9%~~24.7%. Corporate expense, which is included in selling, general and administrative expenses, was ~~$14.6~~$15.4 million for the ~~third~~first quarter of ~~2019,~~2020, compared

~~Table~~ with $18.1 million and reflected lower compensation and stock option expense, partially offset by $1.1 million of ~~Contents~~

~~with $15.1 million.~~acquisition costs. In the ~~third~~first quarter of ~~2019~~2020 and ~~2018,~~2019, we recorded a total of ~~$5.7~~$7.4 million and ~~$4.6~~$8.9 million, respectively, in stock option compensation expense.

Pension Service Expense

Pension service expense is included in both cost of sales and selling general and administrative expense. For the ~~third~~first quarter of ~~2019~~2020 pension service expense was ~~$2.4~~$2.6 million compared with ~~$2.7~~$2.4 million. For ~~2019,~~2020, the weighted-average discount rate used to determine the benefit obligation for the domestic ~~plan~~qualified pension plans was ~~4.59%~~3.41% compared with ~~4.02%~~4.59% in ~~2018.~~2019.

Operating Income

Operating income for the ~~third~~first quarter of ~~2019~~2020 increased ~~22.0%~~6.9%. The ~~third~~first quarter of ~~2019,~~2020, compared with the ~~third~~first quarter of ~~2018,~~2019, reflected higher operating income in each segment except the ~~Digital Imaging~~Aerospace and Defense Electronics segment. The ~~third~~first quarter of ~~2019~~2020 included ~~$0.3~~$10.4 million in severance, ~~and~~ facility consolidation, ~~costs~~acquisition and certain changes in contract cost estimates, compared with ~~$4.1~~$1.4 million in severance and facility consolidation costs for the ~~third~~first quarter of ~~2018.~~2019. The incremental operating income included in the results for the ~~third~~first quarter of ~~2019~~2020 from recent acquisitions was ~~$5.5~~$4.7 million.

Interest Expense, Non-Service Retirement Benefit Income and Other Income/Expense

Interest expense, net of interest income, was ~~$5.5~~$4.1 million for the ~~third~~first quarter of ~~2019,~~2020, compared with ~~$6.0 million.~~$5.4 million and reflected the impact of lower average interest rates. Non-service retirement benefit income was ~~$1.9~~$2.5 million for the ~~third~~first quarter of ~~2019~~2020 compared with ~~$3.4~~$2.2 million. Other income and expense was expense of ~~$1.7~~$1.4 million for the ~~third~~first quarter of ~~2019,~~2020, compared with expense of ~~$2.7~~$1.2 million. ~~The higher amount in 2018 primarily reflected higher foreign currency expense.~~

Income Taxes

The income tax provision is calculated using an estimated annual effective tax rate, based upon estimates of annual income, permanent items, statutory tax rates and planned tax strategies in the various jurisdictions in which we operate except that certain loss jurisdictions and discrete items, such as the resolution of uncertain tax positions and share-based accounting income tax benefits, are treated separately.

The Company’s effective income tax rate for the ~~third~~first quarter of ~~2019~~2020 was ~~13.5%~~18.6%, compared with ~~9.9%~~18.9%. The ~~third~~first quarter of ~~2019~~2020 reflected net discrete income tax benefits of ~~$10.4~~$4.2 million. This amount ~~primarily~~ included ~~$7.8 million in income tax benefit as~~ a ~~result of the remeasurement of uncertain tax positions due to the expiration of statute of limitations and a favorable tax settlement, as well as, a $3.5~~$4.7 million income tax benefit related to share-based accounting. The ~~third~~first quarter of ~~2018~~2019 included net discrete tax benefits of ~~$11.4~~$3.1 million. This amount ~~primarily~~ included ~~$4.4 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to the expiration of statute of limitations and a $5.0~~a$2.9 million income tax benefit related to share-based accounting. Excluding the net discrete income tax benefits in both periods, the effective tax rates would have been ~~21.9%~~22.8% for the ~~third~~first quarter of ~~2019~~2020 and ~~21.3%~~22.3% for the ~~third~~first quarter of ~~2018.~~2019. The Company’s annual effective tax rate for fiscal year ~~2019~~2020 is expected to be ~~21.9%~~22.8%, ~~based on the projected mix of earnings~~ before discrete tax ~~by jurisdiction, excluding the impact of any matters that would be treated as discrete.~~

~~First nine months of 2019~~items. In addition, we currently expect significantly less discrete tax items in 2020 compared with ~~the first nine months of 2018~~2019.

Our first nine months of 2019 net sales increased 8.2%. Net income for the first nine months of 2019 increased 18.1%. Net income per diluted share was $7.66 for the first nine months of 2019, compared with net income per diluted share of $6.56. The first nine months of 2019 included net discrete income tax benefits of $17.8 million compared with $16.9 million. The first nine months of 2019 included $1.1 million in severance and facility consolidation costs compared with $5.3 million in severance and facility consolidation costs for the first nine months of 2018.

~~Net Sales~~

The first nine months of 2019 net sales, compared with the first nine months of 2018 net sales, reflected higher net sales in each segment. The first nine months of 2019 sales increased $176.0 million and included organic growth of $97.8 million and $78.2 million in incremental net sales from recent acquisitions.

~~Cost of Sales~~

Cost of sales increased $83.8 million in the first nine months of 2019 and primarily reflected the impact of higher sales. Cost of sales as a percentage of net sales for the nine months of 2019 decreased to 60.8%, compared with 61.8%.

~~Selling, General and Administrative Expenses~~

Selling, general and administrative expenses, including research and development and bid and proposal expense, increased by$39.7 million in the first nine months of 2019 and primarily reflected the impact of higher sales. The first nine months of 2019 reflected the impact of $2.3 million in acquisition transaction expense related to recent acquisitions. Selling, general and administrative expenses for the first nine months of 2019, as a percentage of net sales, decreased slightly to 23.9% compared with 24.0%. In the first nine months of 2019 and 2018, we recorded a total of $20.4 million and $14.9 million, respectively, in stock option compensation expense. The higher amount in 2019 reflect the expense related to certain stock options that were

2421

Table of Contents

~~granted in January 2019 to Teledyne’s Executive Chairman and Teledyne’s President and Chief Executive Officer which were required to be expensed immediately.~~

~~Pension Service Expense~~

~~Pension service expense for the first nine months of 2019 was $7.1 million compared with $8.1 million.~~

~~Operating Income~~

Operating income for the first nine months of 2019 increased 17.2%. The first nine months of 2019, compared with the first nine months of 2018, reflected higher operating income in each segment except the Engineered Systems segment. The first nine months of 2019 included $1.1 million in severance and facility consolidation costs compared with $5.3 million in severance and facility consolidation costs for the first nine months of 2018. Corporate expense of $49.0 million in the first nine months of 2019 compared with $41.8 million and reflected higher stock option expense. Operating income in the first nine months of 2019 included pretax acquisition costs of $2.3 million related to the recent acquisitions. The incremental operating income included in the results for the first nine months of 2019 from recent acquisitions was $10.5 million.

~~Interest Expense, Non-Service Retirement Benefit Income and Other Income/Expense~~

Interest expense, net of interest income, was $16.3 million for the first nine months of 2019, compared with $19.8 million and primarily reflected lower average debt levels in 2019. Other income and expense was expense of $3.5 million for the first nine months of 2019, compared with expense of $8.9 million. The higher amount in 2018 primarily reflected higher foreign currency expense.

~~Income Taxes~~

The Company’s effective income tax rate for the first nine months of 2019 was 16.7% compared with 15.4%. The first nine months of 2019 reflected $17.8 million in net discrete income tax benefits, which included a $11.2 million income tax benefit related to share-based accounting. The first nine months of 2019 also included $8.1 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitations and a result a favorable tax settlement. The first nine months of 2018 reflected $16.9 million in net discrete income tax benefits, which included a $12.7 million income tax benefit related to share-based accounting. The first nine months of 2018 also included $4.4 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitations. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 21.9% for the first nine months of 2019 and 21.3% for the first nine months of 2018.

Segment Results

Segment results includes net sales and operating income by segment but ~~exclude~~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 nonoperating expenses, including certain acquisition related transaction costs, not allocated to our segments. See Note 1314 to these condensed consolidated financial statements for additional segment information.

Instrumentation


		Third Quarter									Nine Months										First Quarter
(dollars in millions)	(dollars in millions)	2019			2018			2019			2018			(dollars in millions)	2020			2019
Net sales	Net sales	$	282.9		$	256.2		$	803.5		$	757.8		Net sales	$	285.1		$	256.5
Cost of sales	Cost of sales	$	156.6		$	146.0		$	450.2		$	430.7		Cost of sales	$	157.8		$	147.0
Selling, general and administrative expenses	Selling, general and administrative expenses	$	74.3		$	74.5		$	212.4		$	222.7		Selling, general and administrative expenses	$	76.5		$	69.6
Operating income	Operating income	$	52.0		$	35.7		$	140.9		$	104.4		Operating income	$	50.8		$	39.9
Cost of sales as a % of net sales	Cost of sales as a % of net sales	55.4		%	57.0		%	56.0		%	56.8		%	Cost of sales as a % of net sales	55.4		%	57.3		%
Selling, general and administrative expenses % of net sales	Selling, general and administrative expenses % of net sales	26.2		%	29.1		%	26.5		%	29.4		%	Selling, general and administrative expenses % of net sales	26.8		%	27.1		%
Operating income as a % of net sales	Operating income as a % of net sales	18.4		%	13.9		%	17.5		%	13.8		%	Operating income as a % of net sales	17.8		%	15.6		%

~~Third~~First quarter of ~~2019~~2020 compared with the ~~third~~first quarter of ~~2018~~2019

The Instrumentation segment’s ~~third~~first quarter of ~~2019~~2020 net sales increased ~~10.4%~~11.2%. Operating income for the ~~third~~first quarter of ~~2019~~2020 increased ~~45.7%~~27.3%.

The ~~third~~first quarter of ~~2019~~2020 net sales increase resulted from higher sales of environmental instrumentation, ~~and~~ marine instrumentation and test and measurement instrumentation. Sales of environmental instrumentation increased ~~$17.1~~$22.9 million and sales of marine instrumentation increased ~~$8.2 and~~$4.1 million, while sales of test and measurement instrumentation increased ~~$1.4 million. The~~

~~Table of Contents~~

~~increase in environmental instrumentation~~$1.6 million, which included ~~$17.3~~$2.1 million in sales from the acquisition of OakGate. The increase in sales in environmental instrumentation included $25.9 million in sales from the 2019 acquisition of the gas and flame detection ~~business of 3M.~~businesses. The increase in operating income for the ~~third~~first quarter of ~~2019~~2020 reflected the impact of higher sales and higher margins across most product ~~lines.~~lines, partially offset by $0.9 million in severance and acquisition costs. The operating ~~income~~profit included in the results for the ~~third~~first quarter of ~~2019~~2020 from ~~the gas and flame detection business of 3M~~recent acquisitions was ~~$2.1 million.~~ $2.4 million

The ~~third~~first quarter of ~~2019 included $0.1 million in severance and facility consolidation costs compared with $3.2 million in severance and facility consolidation costs for the third quarter of 2018.~~

~~The third quarter of 2019~~2020 cost of sales increased ~~$10.6~~$10.8 million and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the ~~third~~first quarter of ~~2019~~2020 decreased to 55.4% from ~~57.0%~~57.3%. ~~Third~~First quarter ~~2019~~2020 selling, general and administrative expenses, ~~decreased $0.2~~increased $6.9 million and reflected the impact of ~~cost control efforts as well as lower severance and facility consolidation costs.~~higher sales. The selling, general and administrative expense percentage decreased slightly to ~~26.2%~~26.8% in the ~~third~~first quarter of 2019 from ~~29.1% and reflected the impact~~27.1%.

Digital Imaging


	First Quarter
(dollars in millions)	2020			2019
Net sales	$	246.7		$	232.4
Cost of sales	$	145.5		$	139.6
Selling, general and administrative expenses	$	57.4		$	56.2
Operating income	$	43.8		$	36.6
Cost of sales as a % of net sales	59.0		%	60.1		%
Selling, general and administrative expenses % of net sales	23.2		%	24.2		%
Operating income as a % of net sales	17.8		%	15.7		%

First quarter of ~~cost control efforts as well as lower severance and facility consolidation costs.~~

~~First nine months of 2019~~2020 compared with the first ~~nine months of 2018~~

~~The Instrumentation segment’s first nine months 2019 net sales increased 6.0%. Operating income for the first nine months of 2019 increased 35.0%.~~

The first nine months of 2019 net sales increase resulted from higher sales of environmental instrumentation and test and measurement instrumentation and marine instrumentation. Sales of environmental instrumentation increased $24.0 million, sales of test and measurement instrumentation increased $19.8 million and sales of marine instrumentation increased $1.9 million. The increase in environmental instrumentation included $17.3 million in sales from the acquisition of the gas and flame detection business of 3M. The increase in operating income the first nine months of 2019 reflected the impact of higher sales and higher margins across most product lines. The operating income included in the results for the first nine months of 2019 from the gas and flame detection business of 3M was $2.1 million. The first nine months of 2019 included $0.2 million in severance and facility consolidation costs compared with $4.1 million in severance and facility consolidation costs for the first nine months of 2018.

The first nine months of 2019 cost of sales increased by $19.5 million and primarily reflected the impact of higher sales. The cost of sales percentage decreased to 56.0% from 56.8%. The first nine months of 2019 selling, general and administrative expenses, including research and development expense, decreased by $10.3 million and reflected the impact of cost control efforts as well as lower severance and facility consolidation costs.. The selling, general and administrative expense percentage decreased to 26.5% in the first nine months of 2019 from 29.4% and reflected the impact of cost control efforts as well as lower severance and facility consolidation costs..

~~Digital Imaging~~

Third Quarter Nine Months
(dollars in millions) 2019 2018 (a) 2019 2018 (a)
Net sales $ 244.0 $ 220.7 $ 724.8 $ 652.0
Cost of sales $ 144.7 $ 132.2 $ 421.3 $ 390.8
Selling, general and administrative expenses $ 58.1 $ 46.2 $ 174.1 $ 142.0
Operating income $ 41.2 $ 42.3 $ 129.4 $ 119.2
Cost of sales as a % of net sales 59.3 % 59.9 % 58.1 % 59.9 %
Selling, general and administrative expenses % of net sales 23.8 % 20.9 % 24.0 % 21.8 %
Operating income as a % of net sales 16.9 % 19.2 % 17.9 % 18.3 %

~~Third~~ quarter of 2019 ~~compared with the third quarter of 2018~~

The Digital Imaging segment’s ~~third~~first quarter of ~~2019~~2020 net sales increased ~~10.6%~~6.2%. Operating income for the ~~third~~first quarter of ~~2019 decreased 2.6%~~2020 increased 19.7%.

The ~~third~~first quarter of ~~2019~~2020 net sales primarily reflected higher sales of infrared detectors for defense applications, MEMS products and X-ray detectors for life sciences applications, ~~and aerospace, defense and MEMS products~~ as well as ~~$23.5~~$8.8 million in incremental sales from recent ~~acquisitions, primarily the scientific imaging businesses of Roper Technologies, Inc., partially offset by lower sales of industrial machine vision products.~~2019 acquisitions. The ~~decrease~~increase in operating income in the ~~third~~first quarter of ~~2019~~2020 primarily reflected the impact of higher sales product mix differences. The operating profit included in the results for the ~~third~~first quarter of ~~2019~~2020 from recent acquisitions was ~~$3.4~~$2.3 million.

Table of Contents

The ~~third~~first quarter of ~~2019~~2020 cost of sales increased ~~$12.5~~$5.9 million and primarily reflected the impact of higher sales. Cost of sales as a percentage of net sales for the ~~third~~first quarter of ~~2019~~2020 decreased ~~slightly~~ to ~~59.3%~~59.0% from ~~59.9%~~60.1%. ~~Third~~First quarter ~~2019~~2020 selling,

~~Table of Contents~~

general and administrative expenses, including research and development ~~and bid and proposal~~ expense increased ~~$11.9~~$1.2 million driven by the impact of higher net sales. The selling, general and administrative expense percentage increased to 23.8% in the third quarter of 2019 from 20.9% and reflected the impact of the acquisition of the scientific imaging businesses of Roper Technologies, Inc. which carries a higher selling, general and administrative expense percentage compared with the other digital imaging businesses.

~~First nine months of 2019 compared with the first nine months of 2018~~

~~The Digital Imaging segment’s first nine months of 2019 net sales increased 11.2%. Operating income for the first nine months of 2019 increased 8.6%.~~

The first nine months of 2019 net sales primarily reflected higher sales of X-ray detectors for life sciences applications and aerospace, defense and MEMS products, as well as $60.9 million in sales from recent acquisitions, partially offset by lower sales of industrial machine vision products. The increase in operating income in the first nine months of 2019 reflected the impact of higher sales and product mix, partially offset by higher research and development expense and acquisition-related costs. Operating income in the first nine months of 2019 included $0.9 million in acquisition-related costs related to recent acquisitions. The operating profit included in the results for the first nine months of 2019 from recent acquisitions was $8.4 million.

The first nine months of 2019 cost of sales increased $30.5 million and reflected the impact of higher sales. The cost of sales percentage in 2019 decreased to 58.1% compared with 59.9% primarily due to product mix. Selling, general and administrative expenses, including research and development and bid and proposal expense, increased to $174.1 million in the first nine months of 2019, from $142.0 million and reflected the impact of higher net sales. The selling, general and administrative expense percentage increased to 24.0% in the first nine months of 2019 from 21.8% and reflected higher research and development expense and acquisition-related costs and also reflected the impact of the acquisition of the scientific imaging businesses of Roper Technologies, Inc. which carries a higher selling, general and administrative expense percentage compared with the other digital imaging businesses.

~~Aerospace and Defense Electronics~~

Third Quarter Nine Months
(dollars in millions) 2019 2018 (a) 2019 2018 (a)
Net sales $ 177.1 $ 160.3 $ 519.7 $ 474.2
Cost of sales $ 105.2 $ 96.0 $ 308.6 $ 287.8
Selling, general and administrative expenses $ 32.4 $ 31.3 $ 100.5 $ 90.0
Operating income $ 39.5 $ 33.0 $ 110.6 $ 96.4
Cost of sales as a % of net sales 59.4 % 59.9 % 59.4 % 60.7 %
Selling, general and administrative expenses % of net sales 18.3 % 19.5 % 19.3 % 19.0 %
Operating income as a % of net sales 22.3 % 20.6 % 21.3 % 20.3 %

(a) The 2018 periods have been adjusted to reflect the realignment 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 changes included moving certain United Kingdom manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment.

~~Third quarter of 2019 compared with the third quarter of 2018~~

~~The Aerospace and Defense Electronics segment’s third quarter of 2019 net sales increased 10.5%. Operating income for the third quarter of 2019 increased 19.7%.~~

The third quarter of 2019 net sales reflected $20.8 million of higher sales of defense electronics, partially offset by lower sales of $4.0 million for aerospace electronics. The increase in operating income the third quarter of 2019 reflected the impact of higher sales and improved margins.

~~The third quarter of 2019 cost of sales increased $9.2 million and reflected~~ the impact of higher net sales partially offset by ~~product mix differences.~~lower research and development expense. The selling, general and administrative expense percentage decreased to 23.2% in the first quarter of 2020 from 24.2% and reflected the impact lower research and development expense.

Aerospace and Defense Electronics


	First Quarter
(dollars in millions)	2020			2019
Net sales	$	156.3		$	166.6
Cost of sales	$	110.8		$	100.6
Selling, general and administrative expenses	$	32.1		$	33.5
Operating income	$	13.4		$	32.5
Cost of sales as a % of net sales	70.9		%	60.4		%
Selling, general and administrative expenses % of net sales	20.5		%	20.1		%
Operating income as a % of net sales	8.6		%	19.5		%

First quarter of 2020 compared with the first quarter of 2019

The Aerospace and Defense Electronics segment’s first quarter of 2020 net sales decreased 6.2%. Operating income for the first quarter of 2020 decreased 58.8%.

The first quarter of 2020 net sales reflected $20.1 million of lower sales for aerospace electronics, partially offset by higher sales of $9.8 million for defense electronics. The weakness in the commercial aerospace industry has negatively affected sales of aerospace electronics. The decrease in operating income the first quarter of 2020 reflected impact of lower sales and $8.2 million of severance, facility consolidation and certain changes in contract cost estimates.

The first quarter of 2020 cost of sales increased $10.2 million and reflected the impact of severance and facility consolidation costs. Cost of sales as a percentage of net sales for the ~~third~~first quarter of ~~2019 decreased slightly~~2020 increased to ~~59.4%~~70.9% from ~~59.9%.~~60.4% and reflected impact of severance, facility consolidation and certain changes in contract cost estimates. Selling, general and administrative expenses, including research and development ~~and bid and proposal~~ expense ~~increased~~decreased to ~~$32.4~~$32.1 million in the ~~third~~first quarter of ~~2019~~2020 from ~~$31.3 million and reflected the impact of higher sales.~~$33.5 million. The selling, general and administrative expense percentage ~~decreased~~increased slightly to ~~18.3%~~20.5% in the ~~third~~first quarter of ~~2019~~2020 from ~~19.5%~~20.1%.

Engineered Systems


	First Quarter
(dollars in millions)	2020			2019
Net sales	$	96.5		$	89.7
Cost of sales	$	78.5		$	76.7
Selling, general and administrative expenses	$	6.6		$	6.6
Operating income	$	11.4		$	6.4
Cost of sales as a % of net sales	81.3		%	85.5		%
Selling, general and administrative expenses % of net sales	6.9		%	7.4		%
Operating income as a % of net sales	11.8		%	7.1		%

First ~~nine months~~quarter of ~~2019~~2020 compared with the first ~~nine months~~quarter of ~~2018~~2019

The ~~Aerospace and Defense Electronics~~Engineered Systems segment’s first ~~nine months~~quarter of ~~2019~~2020 net sales increased ~~9.6%~~7.6%. Operating income ~~for the first nine months of 2019~~ increased ~~14.7%~~78.1%.

~~Table of Contents~~

The first ~~nine months~~quarter of ~~2019~~2020 net sales reflected ~~$48.7 million of~~ higher sales of ~~defense electronics and $3.2~~$3.7 for turbine engines, $2.8 million of ~~lower sales~~engineered products and $0.3 million of ~~aerospace electronics.~~energy systems. The higher sales of turbine engines reflected increase sales for the Harpoon missile program. The higher sales of engineered products and services primarily reflected increased sales from marine, space and nuclear programs, as well as electronic manufacturing services products, partially offset by lower sales from missile defense ~~electronics reflected greater sales in most product categories. The increase in operating~~programs. Operating income in the first ~~nine months~~quarter of ~~2019 primarily~~2020 reflected ~~the impact of~~ higher sales and ~~improved margins.~~greater mix of manufacturing programs.

The first ~~nine months~~quarter of ~~2019~~2020 cost of sales increased ~~by $20.8~~$1.8 million and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the first ~~nine months~~quarter of ~~2019~~2020 decreased to ~~59.4%~~81.3% from 60.7% in the first nine months of 2018 due to product mix differences. Selling, general and administrative expenses, including research and development and bid and proposal expense, increased to $100.5 million in the first nine months of 2019, compared with $90.0 million for the first nine months of 2018 and reflected the impact of higher sales. The selling, general and administrative expense percentage increased slightly to 19.3% in the first nine months of 2019, compared with 19.0%.

~~Engineered Systems~~

Third Quarter Nine Months
(dollars in millions) 2019 2018 (a) 2019 2018 (a)
Net sales $ 98.2 $ 88.1 $ 281.4 $ 269.4
Cost of sales $ 81.2 $ 72.0 $ 235.1 $ 222.1
Selling, general and administrative expenses $ 6.4 $ 6.5 $ 20.3 $ 20.1
Operating income $ 10.6 $ 9.6 $ 26.0 $ 27.2
Cost of sales as a % of net sales 82.7 % 81.7 % 83.5 % 82.4 %
Selling, general and administrative expenses % of net sales 6.5 % 7.4 % 7.3 % 7.5 %
Operating income as a % of net sales 10.8 % 10.9 % 9.2 % 10.1 %

~~Third quarter of 2019 compared with the third quarter of 2018~~

~~The Engineered Systems segment’s third quarter of 2019 net sales increased 11.5%. Operating income increased 10.4%.~~

The third quarter of 2019 net sales reflected higher sales of $9.3 million of engineered products and services and higher sales of $1.6 million for turbine engines, partially offset by lower sales of $0.8 million of energy systems. The higher sales of engineered products and services, primarily reflected increased sales for marine manufacturing, missile defense and space programs, as well as electronic manufacturing services products. Operating income in the third quarter of 2019 increased primarily due to higher sales.

The third quarter of 2019 cost of sales increased $9.2 million and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the third quarter of 2019 increased to 82.7% from 81.7%85.5%. Selling, general and administrative expenses, including research and development ~~and bid and proposal~~ expense, was ~~$6.4~~$6.6 million for both the ~~third~~first quarter of ~~2019, compared with $6.5 million.~~2020 and 2019. The selling, general and administrative expense percentage was ~~6.5%~~6.9% for the ~~third~~first quarter of ~~2019,~~2020, compared with 7.4%.

~~First nine months of 2019 compared with the first nine months of 2018~~

~~The Engineered Systems segment’s first nine months of 2019 net sales increased 4.5%. Operating income for the first nine months of 2019 decreased 4.4%.~~

The first nine months of 2019 net sales reflected higher sales of $17.4 million of engineered products and services, partially offset by lower sales of $3.9 million of turbine engines, and lower sales of $1.5 million of energy systems products. The higher sales of engineered products and services, primarily reflected increased sales for nuclear manufacturing and space programs, as well as increased sales related to missile defense programs. Operating income in the first nine months of 2019 decreased primarily due to lower sales of turbine engines.

The first nine months of 2019 cost of sales increased by $13.0 million and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the first nine months of 2019 increased to 83.5% from 82.4%. Selling, general and administrative expenses, including research and development and bid and proposal expense, increased slightly to $20.3 million for the first nine months of 2019, compared with $20.1 million for the first nine months of 2018. The selling, general and administrative expense percentage decreased slightly to 7.3% for the first nine months of 2019 compared with 7.5%.

2823

Table of Contents

Financial Condition, Liquidity and Capital Resources

Our net cash provided by operating activities was ~~$314.2~~$76.4 million for the first ~~nine~~three months of ~~2019,~~2020, compared with net cash provided by operating activities of ~~$321.4~~$80.1 million. The lower cash provided by operating activities in the first ~~nine~~three months of ~~2019 reflected~~2020 was impacted by the ~~higher income tax payments~~timing of ~~$33.4 million,~~accounts receivable collections, partially offset by the impact of higher operating income, lower income tax payments and cash flow from recent acquisitions.

Our net cash used in investing activities was ~~$547.8~~$49.1 million for the first ~~nine~~three months of ~~2019,~~2020, compared with net cash used by investing activities of ~~$66.9~~$243.8 million. The 2020 and 2019 ~~amount~~first quarters included ~~$483.7~~$28.9 million and $222.5 million, respectively, for recent acquisitions. On January 5, 2020, we acquired OakGate for $28.4 million in cash. In February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for ~~$225.0~~$224.8 million in cash. ~~On August 1, 2019, we acquired the gas and flame detection business of 3M Company for $230.0 million in cash. On August 30, 2019, we acquired Micralyne Inc. for $25.0 million.~~ Capital expenditures for the first ~~nine~~three months of 2020 and 2019 ~~and 2018~~ were ~~$64.5~~$20.2 million and ~~$68.1~~$21.3 million, respectively. Our goodwill was ~~$2,007.8~~$2,053.7 million at ~~September~~March 29, ~~2019~~2020 and ~~$1,735.2~~$2,050.5 million at December 30, 2018. The increase in the balance of goodwill in 2019 resulted from $292.6 million in goodwill from recent acquisitions. The majority of the goodwill resulting from the acquisition of the scientific imaging businesses of Roper Technologies, Inc. will be deductible for tax purposes.29, 2019. Goodwill resulting from the acquisition of ~~the gas and flame detection business of 3M Company and Micralyne~~OakGate will not be deductible for tax purposes. Teledyne’s net acquired intangible assets were ~~$439.9~~$411.8 million at ~~September~~March 29, ~~2019~~2020 and ~~$344.3~~$430.8 million at December ~~30, 2018.~~29, 2019. The ~~increase~~decrease in the balance of net acquired intangible assets ~~resulted from $129.2 million in acquired intangible assets from recent acquisitions, partially offset by~~primarily reflected amortization of acquired intangible assets. The Company completed the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the scientific imaging businesses acquisition. The Company is in the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the ~~three 2019~~OakGate acquisition and the gas and flame detection business and the Micralyne acquisitions since there was insufficient time between the acquisition dates and the end of the period to finalize the analysis.

Financing activities provided cash of ~~$216.7~~$9.9 million for the first ~~nine~~three months of ~~2019,~~2020, compared with cash ~~used~~provided by financing activities of $190.5 million. Financing activities for the first nine months of 2019 reflected net proceeds from the $750.0 million credit facility of $196.0 million. Financing activities for the first nine months of 2018 reflected net payments against the $750.0 million credit facility of $165.0$124.3 million. Proceeds from the exercise of stock options were ~~$29.2 million and $36.1~~$10.2 million for both the first ~~nine~~three months of ~~2019~~2020 and ~~2018, respectively.~~2019.

Total debt at ~~September~~March 29, ~~2019~~2020 was ~~$925.4~~$849.7 million. At ~~September~~March 29, ~~2019, $225.0~~2020, $125.0 million was outstanding under the $750.0 million credit facility. At ~~September~~March 29, ~~2019,~~2020, Teledyne had ~~$30.3~~$28.6 million in outstanding letters of credit. Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and certain outstanding letters of credit, was ~~$494.7~~$611.0 million at ~~September~~March 29, ~~2019.~~2020. The credit agreements require the Company to comply with various financial and operating covenants and at ~~September~~March 29, ~~2019,~~2020, the Company was in compliance with these covenants.

Our principal cash and capital requirements are to fund working capital needs, capital expenditures, income tax payments, pension contributions, debt service requirements and the stock repurchase program, as well as acquisitions. It is anticipated that operating cash flow, together with available borrowings under the credit facility described below, will be sufficient to meet these requirements over the next twelve months. We may raise debt capital, depending on financial, market and economic conditions. We may need to raise additional capital to support acquisitions. We currently expect to spend approximately ~~$90.0~~$70.0 million for capital expenditures in ~~2019,~~2020, of which ~~$64.5~~$20.2 million has been spent in the first ~~nine~~three months of ~~2019.~~2020. No cash pension contributions have been made since 2013 or are planned for the remainder of ~~2019~~2020 for the domestic qualified pension plan.

~~Table of Contents~~

As of ~~September~~March 29, ~~2019,~~2020, the Company had an adequate amount of margin between required financial covenant ratios (as required by applicable credit agreements) and our actual ratios. At ~~September~~March 29, ~~2019,~~2020, the required financial ratios and the actual ratios were as follows:

$750.0 million Credit Facility expires March 2024 and ~~$100.0~~$150.0 million term loan due October ~~2019~~2024 (issued ~~March 2017)~~October 2019)

Financial Covenants

Requirement

Actual Measure

Consolidated Leverage Ratio (Net Debt/EBITDA) (a)

No more than 3.25 to 1

~~1.6~~1.4 to 1

Consolidated Interest Coverage Ratio (EBITDA/Interest) (b)

No less than 3.0 to 1

~~19.5~~29.2 to 1

$~~599.3~~574.0 million Private Placement Senior Notes due from ~~2019~~2020 to 2024

Financial Covenants

Requirement

Actual Measure

Consolidated Leverage Ratio (Net Debt/EBITDA) (a)

No more than 3.25 to 1

~~1.6~~1.4 to 1

Consolidated Interest Coverage Ratio (EBITDA/Interest) (b)

No less than 3.0 to 1

~~19.5~~29.2 to 1

a) The Consolidated Leverage Ratio is equal to Net Debt/EBITDA as defined in our private placement note purchase agreement and our $750.0 million credit agreement.

b) The Consolidated Interest Coverage Ratio is equal to EBITDA/Interest as defined in our private placement note purchase agreement and our $750.0 million credit agreement.

Our liquidity is not dependent upon the use of off-balance sheet financial arrangements. We have no off-balance sheet financing arrangements that incorporate the use of special purpose entities or unconsolidated entities.

Table of Contents

Critical Accounting Policies

Our critical accounting policies are those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are the following: revenue recognition; accounting for pension plans; accounting for business combinations, goodwill, acquired intangible assets and other long-lived assets; and accounting for income taxes.

For additional discussion of the application of the critical accounting policies and other accounting policies, see Note 1 to these condensed consolidated financial statements and also Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Note 2 of the Notes to Consolidated Financial Statements included in Teledyne’s ~~2018~~2019 Form 10-K.

Safe Harbor Cautionary Statement Regarding Forward-Looking Information

From time to time we make, and this report contains, forward looking statements, as defined in the Private Securities Litigation Reform Act of 1995, directly or indirectly relating to sales, earnings, operating margin, growth opportunities, acquisitions, product sales, capital expenditures, pension matters, stock option compensation expense, the credit facility, interest expense, severance, relocation and facility consolidation costs, environmental remediation costs, stock repurchases, taxes, exchange rate fluctuations and strategic plans. Forward-looking statements are generally accompanied by words such as “estimate”, “project”, “predict”, “believes” or “expect”, that convey the uncertainty of future events or outcomes. All statements made in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q that are not historical in nature should be considered forward-looking.

Actual results could differ materially from these forward-looking statements. Many factors could change the anticipated results, including: disruptions in the global economy; the spread of the COVID-19 virus resulting in production, supply, contractual and other disruptions, including facility closures and furloughs; customer and supplier bankruptcies; changes in demand for products sold to the defense electronics, instrumentation, digital imaging, energy exploration and production, commercial aviation, semiconductor and communications markets; funding, continuation and award of government programs; cuts to defense spending resulting from existing and future deficit reduction ~~measures;~~measures or changes to U.S. and foreign government spending and budget priorities triggered by the COVID-19 pandemic; impacts from the United Kingdom’s ~~pending~~ exit from the European Union; uncertainties related to the policies of the U.S. Presidential Administration; the imposition and expansion of, and responses to, trade sanctions and tariffs; and threats to the security of our confidential and proprietary information, including cyber security threats. Lower oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, and new regulations or restrictions relating to energy production, including with respect to hydraulic fracturing, could further negatively affect ~~the company’s~~our businesses that supply the oil and gas industry. ~~Increasing fuel costs and disruptions~~Disruptions from the ~~grounding~~production delay of ~~Boeing's~~Boeing’s 737 Max aircraft ~~could~~and continued weakness in the commercial aerospace industry will negatively affect ~~the markets of~~ our ~~commercial aviation~~aerospace electronics businesses. In addition, financial market fluctuations affect the value of the ~~company’s~~company's pension assets.

Changes in the policies of U.S. and foreign governments, including economic sanctions, could result, over time, in reductions ~~and~~or realignment in defense or other government spending and further changes in programs in which the company participates.

While the ~~Company’s~~company’s growth strategy includes possible acquisitions, we cannot provide any assurance as to when, if or on what terms any acquisitions will be made. Acquisitions involve various inherent risks, such as, among others, our ability to integrate

~~Table of Contents~~

acquired businesses, retain customers and achieve identified financial and operating synergies. There are additional risks associated with acquiring, owning and operating businesses ~~outside of the United States,~~internationally, including those arising from U.S. and foreign government policy changes or actions and exchange rate fluctuations.

While we believe our internal and disclosure control systems are effective, there are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.

Readers are urged to read our periodic reports filed with the Securities and Exchange Commission for a more complete description of our Company, its businesses, its strategies and the various risks that we face. Various risks are identified in Teledyne’s ~~2018~~2019 Form 10-K and subsequent Quarterly Reports on Form 10-Q.

We assume no duty to publicly update or revise any forward-looking statements, whether as a result of new information or otherwise.

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Except as set forth below, there were no material changes to the information provided under “Item 7A, Quantitative and Qualitative Disclosure About Market Risk” included in our ~~2018~~2019 Form 10-K.

Market Risk

~~We are exposed to~~Teledyne transacts business in various ~~market risks, including changes~~foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency ~~exchange rates~~risk. The Company’s primary objective is to protect the United States dollar value of future cash flows and ~~interest rates. Foreign~~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 ~~used primarily~~designated and qualify as cash flow hedges. The Company has converted U.S. dollar denominated, variable rate and fixed rate debt obligations of a European subsidiary, 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 ~~hedge anticipated exposures. We do not enter into derivatives or other financial instruments for trading or speculative purposes.~~fixed rate debt using a receive variable, pay fixed interest rate swap. The interest rate swap is also designated as a cash flow hedge.

Foreign Currency Exchange Rate Risk

Notwithstanding our efforts to mitigate portions of our foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. A hypothetical 10 percent price change in the U.S. dollar from its value at ~~September~~March 29, ~~2019~~2020 would result in a decrease or increase in the fair value of our foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars by approximately ~~$8.0~~$12.6 million. A hypothetical 10 percent price change in the U.S. dollar from its value at ~~September~~March 29, ~~2019~~2020 would result in a decrease or increase in the fair value of our foreign currency forward contracts designated as cash flow hedges to buy British Pounds and to sell U.S. dollars by approximately ~~$2.0~~$1.2 million. For additional information, ~~please~~ see Derivative Instruments discussed in Note 4 to these condensed consolidated financial statements.

~~Interest Rate Exposure~~Market Risk Disclosure

We are exposed to market risk through the interest rate on our borrowings under our $750.0 million credit facility and our ~~$100.0~~$150.0 million term loan. As of March 29, 2020, we had $125.0 million in ~~term loans. Borrowings~~outstanding under our credit facility and $150 million outstanding under our term ~~loans are at variable rates which are, at our option, tied to~~loan for 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 credit agreements. Eurocurrency or LIBOR based loans under the credit facility typically have terms of one, two, three or nine 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 agreements. As of September 29, 2019, we had $325.0 million in outstanding indebtedness under our credit facility and term loans.total $275.0 million. A 100 basis point increase in interest rates would result in an increase in annual interest expense of approximately ~~$3.3~~$2.75 million, assuming the ~~$325.0~~$275.0 million in debt was outstanding for the full year. A hypothetical 10 percent price change in the U.S. dollar from its value at ~~September~~March 29, ~~2019~~2020 would result in a decrease or increase in the fair value of our Euro/U.S. Dollar cross currency swap designated as a cash flow hedge by approximately ~~$22.9~~$28.6 million. A hypothetical 10 percent ~~price change~~increase in the U.S. interest ~~rate~~rates at ~~September~~March 29, ~~2019~~2020 would result in an increase ~~or decrease~~ in the fair value of our U.S. dollar interest rate swap designated as a cash flow hedge by approximately ~~$3.9~~$3.2 million.

~~Table of Contents~~


Item 4.			Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Senior Vice President and Chief Financial Officer, with the participation and assistance of other members of management, have reviewed the effectiveness of our disclosure controls and procedures and have concluded that the disclosure controls and procedures, as of ~~September~~March 29, ~~2019,~~2020, are effective at the reasonable assurance level.

In connection with our evaluation during the quarterly period ended ~~September~~March 29, ~~2019,~~2020, we have made no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

Table of Contents

PART II OTHER INFORMATION


Item 1.			Legal Proceedings

See Item 1 of Part 1, “Financial Statements -- Note 11 -- Lawsuits, Claims, Commitments, Contingencies and Related Matters.”


Item 1A.			Risk Factors

There are no material changes to the risk factors previously disclosed in our ~~2018~~2019 Form 10-K in response to Item 1A to Part 1 of Form 10-K. See also Part I Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding COVID-19 and Part I Item 3, Quantitative and Qualitative Disclosures About Market Risk, for updated disclosures about interest rate exposure and exchange rate risks.


Item 6.			Exhibits


(a)	Exhibits

















	Exhibit 31.1	302 Certification – Aldo Pichelli

	Exhibit 31.2	302 Certification – Susan L. Main

	Exhibit 32.1	906 Certification – Aldo Pichelli

	Exhibit 32.2	906 Certification – Susan L. Main

	Exhibit 101 (INS)	XBRL Instance Document

	Exhibit 101 (SCH)	XBRL Schema Document

	Exhibit 101 (CAL)	XBRL Calculation Linkbase Document

	Exhibit 101 (LAB)	XBRL Label Linkbase Document XBRL Schema Document

	Exhibit 101 (PRE)	XBRL Presentation Linkbase Document XBRL Schema Document

	Exhibit 101 (DEF)	XBRL Definition Linkbase Document XBRL Schema Document

	Exhibit 104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TELEDYNE TECHNOLOGIES INCORPORATED

DATE: ~~October 25, 2019~~April 22, 2020

By:

/s/ Susan L. Main

Susan L. Main, Senior Vice President and

Chief Financial Officer

(Principal Financial Officer and Authorized Officer)

3328

Table of Contents

Teledyne Technologies Incorporated

Index to Exhibits


Exhibit Number			Description















Exhibit 31.1			302 Certification – Aldo Pichelli

Exhibit 31.2			302 Certification – Susan L. Main

Exhibit 32.1			906 Certification – Aldo Pichelli

Exhibit 32.2			906 Certification – Susan L. Main

Exhibit 101 (INS)			XBRL Instance Document

Exhibit 101 (SCH)			XBRL Schema Document

Exhibit 101 (CAL)			XBRL Calculation Linkbase Document

Exhibit 101 (DEF)			XBRL Definition Linkbase Document XBRL Schema Document

Exhibit 101 (LAB)			XBRL Label Linkbase Document XBRL Schema Document

Exhibit 101 (PRE)			XBRL Presentation Linkbase Document XBRL Schema Document

Exhibit 104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

3429


		PAGE
Part I	Financial Information	2

	Item 1. Financial Statements	2

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statements of Comprehensive Income	2

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Stockholders' Equity	4

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	6

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2118

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	3126

	Item 4. Controls and Procedures	3226

Part II	Other Information	3227

	Item 1. Legal Proceedings	3227

	Item 1A. Risk Factors	3227





	Item 6. Exhibits	3227

Signatures		3328



Remainder of 2019	$	6.4
2020	24.2
2021	22.1
2022	19.2
2023	17.5
Thereafter	84.7
Total minimum lease payments	174.1
Less:
Imputed interest	(32.6)
Current portion	(18.9)
Present value of minimum lease payments, net of current portion	$	122.6


	As of December 30, 2018
2019	$	23.2
2020	20.6
2021	18.4
2022	18.4
2023	11.8
Thereafter	48.2
Total minimum lease payments	$	140.6


	Third Quarter						Nine Months
Postretirement benefits non-service (income)/expense (in millions):	2019		2018		2019		2018

Interest cost on benefit obligation	$	0.1	$	0.1	$	0.3	$	0.3

Amortization of net actuarial gain	—		(0.1)		(0.1)		(0.3)


Postretirement benefits non-service (income)/expense	$	0.1	$	—	$	0.2	$	—


	Third Quarter Ended September 30, 2018										Nine Months Ended September 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	$	15.4	$	240.8	$	256.2	$	44.0	$	713.8	$	757.8
Digital Imaging	23.9		196.8		220.7		68.9		583.1		652.0
Aerospace and Defense Electronics	41.8		118.5		160.3		131.6		342.6		474.2
Engineered Systems	78.0		10.1		88.1		236.1		33.3		269.4
	$	159.1	$	566.2	$	725.3	$	480.6	$	1,672.8	$	2,153.4

~~2019~~2020

Expected volatility

Risk-free interest rate range

~~2.47%~~1.50% to ~~2.70%~~

Expected life in years

Expected dividend yield