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Item 1. Financial Statements

2022-08-01 compared with 2022-05-03 · 413 added, 274 removed, 675 unchanged (50% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE FIRST QUARTER ENDED APRIL 3, 2022 AND APRIL 4, 2021

FOR THE SECOND QUARTER ENDED JULY 3, 2022 AND JULY 4, 2021

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

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

Net sales $ 1,355.8 $ 1,121.0 $ 2,676.8 $ 1,926.7

5 unchanged sentences

Operating income

229.5 104.4 453.0 239.6

Interest and debt expense, net ( 22.5 ) ( 21.2 ) ( 44.8 ) ( 43.5 )

Gain (loss) on debt extinguishment 10.6 — 10.6 ( 13.4 )

Non-service retirement benefit income 2.9 2.8 5.7 5.6

Other expense, net ( 1.0 ) ( 1.0 )

Other income, net 1.0 6.1 — 5.1

Income before income taxes

(Benefit) provision for income taxes ( 9.6 ) 16.6

221.5 92.1 424.5 193.4

Provision for income taxes 50.2 27.4 40.6 44.0

Net income $ 171.3 $ 64.7 $ 383.9 $ 149.4

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE FIRST QUARTER ENDED APRIL 3, 2022 AND APRIL 4, 2021

FOR THE SECOND QUARTER ENDED JULY 3, 2022 AND JULY 4, 2021

(Unaudited - Amounts in millions)

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

Net income $ 171.3 $ 64.7 $ 383.9 $ 149.4

9 unchanged sentences

(Unaudited - Amounts in millions, except share amounts)

April 3, 2022 January 2, 2022

July 3, 2022 January 2, 2022

Current Assets

5 unchanged sentences

Total current assets 2,337.4 2,429.4

Property, plant and equipment, net of accumulated depreciation and amortization of $ 803.4 at April 3, 2022 and $ 743.3

Property, plant and equipment, net of accumulated depreciation and amortization of $ 818.9 at July 3, 2022 and $ 743.3

at January 2, 2022

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issued shares:

47,194,766 at April 3, 2022 and 47,194,766 at January 2, 2022;

47,194,766 at July 3, 2022 and 47,194,766 at January 2, 2022;

outstanding shares:

46,827,834 at April 3, 2022 and 46,692,296 at January 2, 2022

46,862,209 at July 3, 2022 and 46,692,296 at January 2, 2022

Additional paid-in capital 4,333.6 4,317.1

Retained earnings 4,157.1 3,773.2

Treasury stock, 366,932 shares at April 3, 2022 and 502,470 shares at January 2, 2022

Treasury stock, 332,557 shares at July 3, 2022 and 502,470 shares at January 2, 2022

( 24.3 ) ( 38.8 )

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Balance, April 3, 2022 0.5 4,325.2 ( 27.2 ) 3,985.8 ( 451.9 ) 7,832.4

Net income — — — 171.3 — 171.3

Other comprehensive loss, net of tax — — — — ( 153.1 ) ( 153.1 )

Treasury stock issued — ( 2.9 ) 2.9 — — —

Stock-based compensation — 6.5 — — — 6.5

Exercise of stock options — 4.8 — — — 4.8

Balance, July 3, 2022 $ 0.5 $ 4,333.6 $ ( 24.3 ) $ 4,157.1 $ ( 605.0 ) $ 7,861.9

Common Stock Additional Paid-in Capital Treasury Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total

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Balance, April 4, 2021 0.4 398.4 ( 50.2 ) 3,412.6 ( 424.9 ) 3,336.3

Net income — — — 64.7 — 64.7

Other comprehensive income, net of tax — — — — 8.2 8.2

Common stock issued 0.1 3,889.6 — — — 3,889.7

Treasury stock issued — ( 4.1 ) 4.1 — — —

Stock based compensation — 8.4 — — — 8.4

Exercise of stock options — 5.1 — — — 5.1

Balance, July 4, 2021 $ 0.5 $ 4,297.4 $ ( 46.1 ) $ 3,477.3 $ ( 416.7 ) $ 7,312.4

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED APRIL 3, 2022 AND APRIL 4, 2021

FOR THE SIX MONTHS ENDED JULY 3, 2022 AND JULY 4, 2021

(Unaudited - Amounts in millions)

1 unchanged sentence

Net income $ 383.9 $ 149.4

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 169.6 112.4

Stock-based compensation 15.4 16.3

Bridge financing and debt extinguishment expense — 30.5

Bridge financing and debt extinguishment (income) expense ( 10.6 ) 30.5

Changes in operating assets and liabilities excluding the effect of business acquired:

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Purchases of property, plant and equipment ( 41.8 ) ( 38.4 )

Purchase of businesses, net of cash acquired — ( 3,723.4 )

Proceeds from disposal of fixed assets 5.1 —

Other investing, net 1.3 —

1 unchanged sentence

Financing Activities

Net proceeds from fixed rate notes — 2,975.8

Net proceeds from (payments on) credit facility 32.0 ( 496.5 )

Net payments on fixed rate notes — ( 496.5 )

Net proceeds from credit facility — 3,975.8

Payments on other debt ( 144.5 ) —

Proceeds from exercise of stock options 17.5 15.9

Liquidation of cross currency swap 18.3 —

Payments for bridge financing and debt extinguishment — ( 30.5 )

Other financing, net ( 1.9 ) ( 13.3 )

Net cash provided by financing activities 42.6 2,454.0

Net cash (used in) provided by financing activities ( 110.6 ) 3,451.4

Effect of exchange rate changes on cash ( 30.1 ) ( 3.8 )

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

April 3, 2022

Basis of Presentation

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The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes in Teledyne’s Annual Report on Form 10-K for the fiscal year ended January 2, 2022 (“2021 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 April 3, 2022 and the consolidated results of operations, consolidated comprehensive income and consolidated cash flows for the first quarter ended April 3, 2022.

The results of operations and cash flows for the period ended April 3, 2022 are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year.

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 July 3, 2022 and the consolidated results of operations, consolidated comprehensive income and consolidated cash flows for the second quarter and six months ended July 3, 2022.

The results of operations and cash flows for the periods ended July 3, 2022 and cash flows for the six months ended July 3, 2022 are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year.

Certain prior year amounts have been reclassified to conform to the current period presentation.

The Company now discloses acquired intangible asset amortization on a separate income statement line.

Acquired intangible asset amortization was previously included in selling, general and administrative expenses.

Teledyne had an immaterial amount of cash equivalents at April 3, 2022 and January 2, 2022.

In the current year, gain (loss) on debt extinguishment is presented as separate line item on the income statement.

Teledyne had an immaterial amount of cash equivalents at July 3, 2022 and January 2, 2022.

Business Combinations, Goodwill and Acquired Intangible Assets

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Founded in 1978, FLIR is an industrial technology company focused on intelligent sensing solutions for defense and industrial applications.

FLIR offers a diversified portfolio that serves a number of applications in government and defense, industrial, and commercial markets.

FLIR develops technologies that enhance perception and awareness.

FLIR designs, develops, markets, and distributes solutions that detect people, objects and substances that may not be perceived by human senses and improve the way people interact with the world around them.

FLIR technologies include thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and advanced threat-detection solutions.

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

The following table presents the preliminary purchase price allocation for FLIR.

The following table presents the final purchase price allocation for FLIR, as the measurement period closed in the second quarter of 2022.

We are accounting for the FLIR acquisition under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree at the fair values on the closing date.

The Company made an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities.

As of April 3, 2022, the measurement period (not to exceed one year) is open;

therefore, the assets acquired and liabilities assumed related to the FLIR acquisition are subject to adjustment until the end of the respective measurement period.

The Company is in the process of specifically identifying the amounts assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the FLIR acquisition.

The Company is in the process of reviewing a third-party valuation of certain intangible assets and tangible assets of FLIR.

The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company.

The amounts recorded as of April 3, 2022 are preliminary since there was insufficient time between the acquisition date and the end of the period to gather the remaining information to finalize the analysis.

The Company has completed the process of specifically identifying the amounts assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the FLIR acquisition.

The fair values of acquired intangibles were determined based on estimates and assumptions that are deemed reasonable by the Company.

Fair values allocated to the assets acquired and liabilities assumed - FLIR (in millions):

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We have not yet received a response to our request.

The Company is in the process of reviewing and identifying acquisition accounting adjustments for a number of acquired tax positions of FLIR that may meet the definition of an acquired uncertain tax position.

In addition to the STA matter described above, the Company has preliminarily recorded $ 201.8 million of provisional purchase accounting adjustments for the accrual of other uncertain tax positions of FLIR.

These amounts are primarily included within other long-term liabilities on the Condensed Consolidated Balance Sheet.

These preliminary estimates are subject to change as the Company obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period.

The final acquisition accounting adjustments for these tax matter may be materially different, as Teledyne obtains additional information on this matter and as additional information is made known during the post-acquisition measurement period.

During the second quarter of 2022, the Company finalized the measurement period including reviewing and identifying acquisition accounting adjustments for a number of acquired tax positions of FLIR that may meet the definition of an acquired uncertain tax position.

In addition to the STA matter described above, the Company recorded $ 187.6 million of purchase accounting adjustments for the accrual of other uncertain tax positions of FLIR.

These amounts are included within other long-term liabilities on the Condensed Consolidated Balance Sheet.

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

Intangibles subject to amortization:(a) Intangible Assets Weighted average useful life in years

Intangibles subject to amortization:

Intangible Assets Weighted average useful life in years

Proprietary technology $ 1,355.0 9.7

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Total intangibles subject to amortization 1,805.0 10.9

Intangibles not subject to amortization:(a)

Intangibles not subject to amortization:

Trademarks 685.0

Total acquired intangible assets $ 2,490.0

a) The amounts recorded as of April 3, 2022 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.

The unaudited proforma information below assumes that FLIR had been acquired at the beginning of the 2020 fiscal year and includes the effect of transaction accounting adjustments.

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

First Quarter (a)

Second Quarter (a) Six Months (a)

(unaudited - in millions, except per share amounts) 2021 2021

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Goodwill and Acquired Intangible Assets

Teledyne’s goodwill was $ 7,977.0 million at April 3, 2022 and $ 7,986.7 million at January 2, 2022.

Teledyne’s net acquired intangible assets were $ 2,682.8 million at April 3, 2022 and $ 2,741.6 million at January 2, 2022.

Teledyne’s goodwill was $ 7,894.6 million at July 3, 2022 and $ 7,986.7 million at January 2, 2022.

Teledyne’s net acquired intangible assets were $ 2,618.8 million at July 3, 2022 and $ 2,741.6 million at January 2, 2022.

The decrease in the balance of net acquired intangible assets primarily reflected amortization of acquired intangible assets.

Acquired intangible assets are summarized as follows:

April 3, 2022 January 2, 2022

July 3, 2022 January 2, 2022

Acquired intangible assets (in millions):

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Total acquired intangible assets $ 3,232.5 $ 613.7 $ 2,618.8 $ 3,263.3 $ 521.7 $ 2,741.6

Accumulated Other Comprehensive Loss

The changes in AOCI by component, net of tax, for the first quarter ended April 3, 2022 and April 4, 2021 are as follows (in millions):

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of tax, for the second quarter and six months ended July 3, 2022 and July 4, 2021 are as follows (in millions):

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

Balance as of January 2, 2022 $ ( 129.0 ) $ ( 3.4 ) $ ( 297.6 ) $ ( 430.0 )

Balance as of April 3, 2022 $ ( 161.6 ) $ 3.1 $ ( 293.4 ) $ ( 451.9 )

Other comprehensive income (loss) before reclassifications ( 154.8 ) 9.4 — ( 145.4 )

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Net other comprehensive income (loss) ( 154.8 ) ( 2.3 ) 4.0 ( 153.1 )

Balance as of July 3, 2022 $ ( 316.4 ) $ 0.8 $ ( 289.4 ) $ ( 605.0 )

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

Balance as of April 4, 2021 $ ( 83.6 ) $ 2.2 $ ( 343.5 ) $ ( 424.9 )

Other comprehensive income before reclassifications 3.2 2.2 — 5.4

Amounts reclassified from AOCI — ( 1.7 ) 4.5 2.8

Net other comprehensive income 3.2 0.5 4.5 8.2

Balance as of July 4, 2021 $ ( 80.4 ) $ 2.7 $ ( 339.0 ) $ ( 416.7 )

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

Balance as of January 2, 2022 $ ( 129.0 ) $ ( 3.4 ) $ ( 297.6 ) $ ( 430.0 )

Other comprehensive income before reclassifications 1.0 9.5 — 10.5

Other comprehensive income (loss) before reclassifications ( 187.4 ) 20.7 — ( 166.7 )

Amounts reclassified from AOCI — ( 16.5 ) 8.2 ( 8.3 )

Net other comprehensive income (loss) ( 187.4 ) 4.2 8.2 ( 175.0 )

Balance as of April 4, 2021 $ ( 83.6 ) $ 2.2 $ ( 343.5 ) $ ( 424.9 )

The reclassifications out of AOCI to net income for the first quarter ended April 3, 2022 and April 4, 2021 are as follows (in millions):

Balance as of July 3, 2022 $ ( 316.4 ) $ 0.8 $ ( 289.4 ) $ ( 605.0 )

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

Balance as of January 3, 2021 $ ( 84.6 ) $ 2.3 $ ( 347.8 ) $ ( 430.1 )

Other comprehensive income before reclassifications 4.2 11.7 — 15.9

Amounts reclassified from AOCI — ( 11.3 ) 8.8 ( 2.5 )

Net other comprehensive income 4.2 0.4 8.8 13.4

Balance as of July 4, 2021 $ ( 80.4 ) $ 2.7 $ ( 339.0 ) $ ( 416.7 )

The reclassifications out of AOCI to net income for the second quarter and six months ended July 3, 2022 and July 4, 2021 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

April 3, 2022 April 4, 2021 Presentation

July 3, 2022 July 4, 2021 Presentation

(Gain) loss on cash flow hedges:

Gain recognized in income on derivatives $ ( 15.6 ) $ ( 2.2 ) See Note 4

Income tax impact 1.7 3.3 (Benefit) provision for income taxes

Income tax impact 3.9 0.5 Provision for income taxes

Total $ ( 11.7 ) $ ( 1.7 )

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Total before tax 5.3 5.9

Income tax impact ( 1.3 ) ( 1.4 ) (Benefit) provision for income taxes

Income tax impact ( 1.3 ) ( 1.4 ) Provision for income taxes

Total $ 4.0 $ 4.5

Amount Reclassified from AOCI for the Six Months Ended Amount Reclassified from AOCI for the Six Ended Statement of Income

July 3, 2022 July 4, 2021 Presentation

(Gain) loss on cash flow hedges:

Gain recognized in income on derivatives $ ( 22.0 ) $ ( 15.1 ) See Note 4

Income tax impact 5.5 3.8 Provision for income taxes

Total $ ( 16.5 ) $ ( 11.3 )

Amortization of defined benefit pension and postretirement plan items:

Amortization of prior service cost ( 0.8 ) ( 1.8 ) Costs and expenses

Amortization of net actuarial loss 11.6 13.4 Costs and expenses

Total before tax 10.8 11.6

Income tax impact $ ( 2.6 ) $ ( 2.8 ) Provision for income taxes

Total $ 8.2 $ 8.8

Derivative Instruments

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The interest rate swap is also designated as a cash flow hedge.

During the second quarter ended July 3, 2022, the Company liquidated its cross currency swap positions and replaced them with cross currency swaps reflecting current market terms.

The liquidations resulted in a cash benefit of $ 18.3 million, which was recorded in cash flow from financing activities in the condensed consolidated statement of cash flows.

The effectiveness of the cash flow hedge forward contracts is assessed prospectively and retrospectively using regression analysis as well as using other timing and probability criteria.

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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 April 3, 2022, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S.

As of July 3, 2022, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S.

dollars totaling $ 182.8 million.

These foreign currency forward contracts have maturities ranging from June 2022 to February 2024.

These foreign currency forward contracts have maturities ranging from September 2022 to February 2024.

Teledyne had foreign currency forward contracts designated as cash flow hedges to buy British pounds and to sell U.S.

dollars totaling $ 18.1 million.

These foreign currency forward contracts have maturities ranging from June 2022 to May 2023.

These foreign currency forward contracts have maturities ranging from September 2022 to August 2023.

The cross currency swaps have notional amounts of € 118.9 million and $ 125.0 million, and € 142.6 million and $ 150.0 million, and mature in March 2023 and October 2024, respectively.

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Teledyne manages these risks by using currency forward contracts formally designated and effective as fair value hedges.

Hedge effectiveness is generally determined by evaluating the alignment of the hedging instrument's critical

terms with the critical terms of the hedged item.

Hedge effectiveness is generally determined by evaluating the alignment of the hedging instrument's critical terms with the critical terms of the hedged item.

The forward points attributable to the hedging instruments are excluded from the assessment of effectiveness and amortized to other income or expense, net using a systematic and rational methodology.

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The change in fair value of the hedged item attributable to the hedged risk is reported as an adjustment to its carrying value and also in other income or expense, net.

At April 3, 2022 Teledyne had no forward contracts designated as fair value hedges.

The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the first quarter ended April 3, 2022 and April 4, 2021 was as follows (in millions):

First Quarter

At July 3, 2022 Teledyne had no forward contracts designated as fair value hedges.

The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the second quarter and six months ended July 3, 2022 and July 4, 2021 was as follows (in millions):

Second Quarter Six Months

2022 2021 2022 2021

Net gain recognized in AOCI - Foreign Exchange Contracts (a) $ 12.2 $ 0.2 $ 25.9 $ 12.7

Net gain (loss) reclassified from AOCI into revenue - Foreign Exchange Contracts (a) $ ( 0.2 ) $ — $ ( 0.4 ) $ —

Net gain recognized in AOCI - Interest Rate Contracts $ 1.3 $ 0.1

Net gain (loss) reclassified from AOCI into COS - Foreign Exchange Contracts (a) $ — $ 3.6 $ — $ 6.0

Net gain (loss) recognized in AOCI - Interest Rate Contracts $ 0.6 $ ( 0.1 ) 2.0 $ —

Net gain (loss) reclassified from AOCI into other income and expense, net - Foreign Exchange Contracts (b) $ 14.9 $ ( 1.8 ) $ 21.1 $ 8.2

Net gain reclassified from AOCI into interest expense - Foreign Exchange Contracts $ 1.1 $ 0.9 $ 1.9 $ 1.7

Net gain (loss) loss reclassified from AOCI into interest expense - Interest Rate Contracts $ ( 0.4 ) $ ( 0.4 )

Net gain (loss) reclassified from AOCI into interest expense - Interest Rate Contracts $ ( 0.2 ) $ ( 0.4 ) $ ( 0.6 ) $ ( 0.8 )

(a) Effective portion, pre-tax

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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 April 3, 2022, Teledyne had non-designated foreign currency contracts of this type, primarily in the following pairs (in millions):

As of July 3, 2022, Teledyne had non-designated foreign currency contracts of this type, primarily in the following pairs (in millions):

Contracts to Buy Contracts to Sell

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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 first quarter ended April 3, 2022 was expense of $ 4.8 million.

The effect of derivative instruments not designated as cash flow hedges in other income and expense for the first quarter ended April 4, 2021 was expense of $ 0.2 million.

The effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for the second quarter and six months ended July 3, 2022 was expense of $ 25.6 million and $ 30.4 million, respectively.

The effect of derivative instruments not designated as cash flow hedges in other income and expense for the second quarter and six months ended July 4, 2021 was expense of $ 4.6 million and expense of $ 4.8 million, respectively.

The income or expense was largely offset by losses or gains in the value of the underlying hedged item excluding the impact of forward points.

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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).

Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability (specifically SOFR 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.

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All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy (in millions):

Asset/(Liability) Derivatives Balance sheet location April 3, 2022 January 2, 2022

Asset/(Liability) Derivatives Balance sheet location July 3, 2022 January 2, 2022

Derivatives designated as hedging instruments:

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Cash flow cross currency swap Other current assets 4.4 3.8

Cash flow cross currency swap Other non-current assets 0.2 —

Cash flow cross currency swap Other non-current liabilities — ( 9.4 )

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Earnings Per Share

For the first quarter of 2022, 192,569 stock options were excluded in the computation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive.

For the first quarter of 2021, no stock options were excluded in the computation of earnings per share.

For the second quarter and first six months of 2022, 198,260 and 195,415 stock options, respectively, were excluded in the computation of diluted earnings per share because the effect of their inclusion would have been anti-dilutive.

For the second quarter of and first six months of 2021, no stock options were excluded in the computation of earnings per share.

As part of the consideration transferred for the acquisition of FLIR, the Company issued approximately 9.5 million shares of common stock on May 14, 2021.

The weighted average number of common shares used in the calculation of basic and diluted earnings per share consisted of the following (in millions):

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

Weighted average basic common shares outstanding 46.8 42.5 46.8 39.7

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Stock Incentive Plan

Stock option compensation expense was $ 4.3 million for the first quarter of 2022 and was $ 4.2 million for the first quarter of 2021.

Stock option compensation expense was $ 3.6 million for both the second quarter of 2022 and the second quarter of 2021.

Stock option compensation expense was $ 7.9 million for first six months of 2022 and $ 7.8 million for the first six months of 2021.

The Company issues shares of common stock upon the exercise of stock options.

Stock option transactions for the first quarter of 2022 are summarized as follows:

First Quarter

Stock option transactions for the second quarter and first six months of 2022 are summarized as follows:

Second Quarter Six Months

Shares Weighted

Price Shares Weighted

Beginning balance 1,690,872 $ 209.55 1,793,857 $ 206.08

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Restricted Stock

The following table shows the restricted stock activity for the first three months of 2022:

The following table shows the restricted stock activity for the first six months of 2022:

Shares Weighted average fair value per share

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Forfeited/Canceled ( 2,897 ) $ 401.91

Balance, April 3, 2022 75,073 $ 386.31

Balance, July 3, 2022 70,036 $ 384.96

(a) includes restricted stock units issued on May 14, 2021 in connection with the FLIR acquisition.

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Inventories (in millions):

April 3, 2022 January 2, 2022

July 3, 2022 January 2, 2022

Raw materials and supplies $ 538.6 $ 479.8

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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 three months of 2022 was approximately $ 7.6 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging segment.

The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first three months of 2021 was approximately $ 7.7 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging operating segment.

The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first six months of 2022 was approximately $ 17.4 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging segment.

The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first six months of 2021 was approximately $ 11.4 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging operating segment.

None of the effects of changes in estimates on any individual contract were material to the condensed consolidated statements of income for any period presented.

Contract Liabilities

We recognize a liability for interim and advance payments in excess of revenue recognized and present it as a contract liability which is included within accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet, which represented $ 178.4 million and $ 24.5 million as of April 3, 2022, and $ 186.0 million and $ 25.3 million as of January 2, 2022, respectively.

The Company recognized revenue of $ 63.7 million during the three months ended April 3, 2022 from contract liabilities that existed at the beginning of year.

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 $ 171.3 million and $ 21.8 million as of July 3, 2022, and $ 186.0 million and $ 25.3 million as of January 2, 2022, respectively.

The Company recognized revenue of $ 91.8 million during the six months ended July 3, 2022 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.

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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 April 3, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 2,989.7 million.

As of July 3, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 3,075.7 million.

The Company expects approximately 74 % of remaining performance obligations to be recognized into revenue within the next twelve months , with the remaining 26 % recognized thereafter.

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Accounts Receivable, net

Accounts receivable is presented net of an allowance for doubtful accounts of $ 11.7 million at April 3, 2022 and $ 13.8 million at January 2, 2022.

Accounts receivable is presented net of an allowance for doubtful accounts of $ 9.8 million at July 3, 2022 and $ 13.8 million at January 2, 2022.

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 first quarter of 2022 was a negative 4.7 % compared with an effective income tax rate of 16.4 % for the first quarter of 2021.

The first quarter of 2022 includes net discrete income tax benefits of $ 56.5 million compared with net discrete income tax benefits of $ 6.3 million.

The first quarter of 2022 net discrete income tax amounts include a non-cash income tax benefit of $ 50.0 million primarily related to the resolution of certain FLIR tax reserves and $ 6.7 million related to share-based accounting.

The first quarter of 2021 net discrete tax benefits include $ 4.8 million related to share-based accounting.

Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.1 % for the first quarter of 2022 and 22.6 % for the first quarter of 2021.

The Company’s effective income tax rate for the second quarter and first six months of 2022 was 22.7 % and 9.6 %, respectively.

The Company's effective income tax rate for the second quarter and first six months of 2021 was 29.8 % and 22.8 %, respectively.

The second quarter of 2022 includes net discrete income tax benefits of $ 1.0 million compared with net discrete income tax expense of $ 4.1 million.

The first six months of 2022 includes net discrete income tax benefits of $ 57.5 million compared with net discrete income tax benefits of $ 2.2 million.

The second quarter and first six months of 2022 net discrete income tax amounts include $ 1.8 million and $ 8.5 million, respectively, related to share-based accounting.

The second quarter and first six months of 2022 also includes non-cash income tax expense of $ 0.6 million and non-cash income tax benefits of $ 49.4 million primarily related to the resolution of certain FLIR tax reserves.

The second quarter and first six months of 2021 net discrete income tax amounts include $ 2.1 million and $ 6.9 million, respectively, related to share-based accounting.

The second quarter and six months of 2021 net discrete income tax amounts also include $ 11.5 million expense related to foreign tax rate changes and a $ 5.3 million income tax benefit related to the release of a valuation allowance.

The foreign tax rate changes are a result of the United Kingdom Parliament enacting legislation to increase the corporate tax rate to 25% effective April 2023.

Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.1 % for the second quarter of 2022 and 25.3 % for the second quarter of 2021.

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

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Long-Term Debt (in millions):

April 3, 2022 January 2, 2022

$ 1.15 billion credit facility due March 2026, weighted average variable rate of 1.97 % at April 3, 2022 and 1.20 % at January 2, 2022

July 3, 2022 January 2, 2022

$ 1.15 billion credit facility due March 2026, weighted average variable rate of 2.71 % at July 3, 2022 and 1.20 % at January 2, 2022

$ 125.0 $ 125.0

Term loan due October 2024, variable rate of 1.69 % at April 3, 2022 and 1.35 % at January 2, 2022, swapped to a Euro fixed rate of 0.6120 %

Term loan due October 2024, variable rate of 2.92 % at July 3, 2022 and 1.35 % at January 2, 2022, swapped to a Euro fixed rate of 0.6120 %

0.65 % Fixed Rate Senior Notes due April 2023

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1,040.0 1,100.0

Term loan due May 2026, variable rate of 1.70 % at April 3, 2022 and 1.35 % at January 2, 2022

Term loan due May 2026, variable rate of 2.86 % at July 3, 2022 and 1.35 % at January 2, 2022

Other debt 0.7 0.7

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Total long-term debt, net of current portion $ 3,645.7 $ 4,099.4

At April 3, 2022, $ 969.9 million was available under the $ 1.15 billion credit facility, after reductions of $ 157.0 million in borrowings and $ 23.1 million in outstanding letters of credit.

Our credit agreements require Teledyne to comply with various financial and operating covenants and at April 3, 2022, the Company was in compliance with these covenants.

The Company repaid $ 187.0 million of debt during the second quarter of 2022, including making $ 112.0 million of floating rate debt payments which reduced its term loan due May 2026 by $ 80.0 million and reduced its outstanding credit facility balance by $ 32.0 million.

In addition, during the second quarter of 2022, Teledyne repurchased and retired $ 75.0 million of its Fixed Rate Senior Notes due August 2030 and April 2031, recording a $ 10.6 million non-cash gain on the extinguishment of this debt.

At July 3, 2022, $ 1,004.0 million was available under the $ 1.15 billion credit facility, after reductions of $ 125.0 million in borrowings and $ 21.0 million in outstanding letters of credit.

Our credit agreements require Teledyne to comply with various financial and operating covenants and at July 3, 2022, the Company was in compliance with these covenants.

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 April 3, 2022 and January 2, 2022, approximated the carrying value.

Operating lease expense was $ 9.6 million and $ 6.4 million for the first quarter of 2022 and 2021, respectively.

As of July 3, 2022 and January 2, 2022, the aggregate fair values of our borrowings were $ 3,577.0 million and $ 4,146.6 million, respectively, and the carrying values were $ 3,975.0 million and $ 4,130.0 million, respectively.

Operating lease expense was $ 9.4 million and $ 19.0 million for the second quarter and first six months of 2022.

Operating lease expense was $ 7.9 million and $ 14.3 million for the second quarter and first six months of 2021.

Lawsuits, Claims, Commitments, Contingencies and Related Matters

For a further description of the Company’s commitments and contingencies, reference is made to Note 14 of the Company’s financial statements as of and for the fiscal year ended January 2, 2022, included in the 2021 Form 10-K.

At April 3, 2022, the Company’s reserves for environmental remediation obligations totaled $ 6.3 million, of which $ 1.8 million is included in current accrued liabilities.

At July 3, 2022, the Company’s reserves for environmental remediation obligations totaled $ 6.1 million, of which $ 1.6 million is included in current accrued liabilities.

At January 2, 2022, the Company’s reserves for environmental remediation obligations totaled $ 6.3 million.

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Effective April 24, 2022, the United States Department of State’s Office of Defense Trade Controls Compliance (“DDTC”) closed the four-year Consent Agreement that had been entered into by FLIR Systems, Inc., on April 24, 2018, to resolve allegations regarding the unauthorized export of technical data and defense services to dual and third country nationals in certain of FLIR’s facilities, the failure to properly use and manage export licenses and export authorizations, and failures to report certain payments under 22 CFR Part 130 in potential violation of the International Traffic in Arms Regulations (“ITAR”).

On April 13, 2022, Teledyne paid $ 3.5 million as the final installment of the civil penalty under the Consent Agreement.

While FLIR and its successor by mergers, Teledyne FLIR, has enhanced the trade compliance program more broadly, implemented remedial measures and have undergone external audits of the ITAR compliance program, future adverse disclosures and findings could cause incurrence of additional expenses in connection with implementation of remedial measures.

On April 13, 2022, Teledyne paid $ 3.5 million as the final installment of the civil penalty under the Consent

While FLIR and its successor by mergers, Teledyne FLIR, have enhanced the trade compliance program more broadly, implemented remedial measures and have undergone external audits of the ITAR compliance program, future adverse disclosures and findings could cause incurrence of additional expenses in connection with implementation of remedial measures.

In June 2017, the Bureau of Industry and Security (“BIS”) of the United States Department of Commerce informed FLIR of additional export licensing requirements that restricted the FLIR’s ability to sell certain thermal products without a license to customers in China not identified on a list maintained by the United States Department of Commerce.

This action was

precipitated by concerns of sale without a license or potential diversion of some of FLIR’s products to prohibited end users and to countries subject to economic and other sanctions implemented by the United States.

This action was precipitated by concerns of sale without a license or potential diversion of some of FLIR’s products to prohibited end users and to countries subject to economic and other sanctions implemented by the United States.

BIS subsequently favorably modified these restrictions to reduce the applicability of the restrictions to sales of FLIR's Tau camera cores (as opposed to finished products containing Tau camera cores) to customers in China not identified on a list maintained by the United States Department of Commerce and persons in a country other than those in the Export Administration Regulations (“EAR”) Country Group A:5 (Supplement No.

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The second internal audit is to be completed by October 2022.

FLIR and its successor by mergers, Teledyne FLIR, has made other voluntary disclosures to the U.S.

FLIR and its successor by mergers, Teledyne FLIR, have made other voluntary disclosures to the U.S.

Department of State and the U.S.

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However, an unfavorable outcome could result in substantial fines and penalties or loss or suspension of export privileges or of particular authorizations.

Certain provisional adjustments have been made for the FLIR historical export compliance matters in Teledyne’s current preliminary estimates of its purchase price allocation.

The final acquisition accounting adjustment for these matters may be materially different, as Teledyne obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period.

Certain adjustments have been made for the FLIR historical export compliance matters in Teledyne’s final estimates of its purchase price allocation, based on the information that was made known during the post-acquisition measurement period.

A number of other lawsuits, claims and proceedings have been or may be asserted against the Company, including those pertaining to product liability, acquisitions, patent infringement, contracts, environmental, employment and employee benefits matters.

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Pension Plans

First Quarter

Second Quarter Six Months

2022 2021 2022 2021

Service cost — benefits earned during the period (in millions) $ 2.1 $ 2.7 $ 4.3 $ 5.4

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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.

Segment results include net sales and operating income by segment but exclude 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.

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

First Quarter %

2022 2021 Change

Second Quarter % Six Months %

2022 2021 Change 2022 2021 Change

Net sales(a):

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Operating income $ 229.5 $ 104.4 119.8 % $ 453.0 $ 239.6 89.1 %

(a) Net sales excludes inter-segment sales of $ 5.5 million and $ 4.2 million for the first quarter of 2022 and 2021, respectively.

(a) Net sales excludes inter-segment sales of $ 5.1 million and $ 10.6 million for the second quarter and first six months of 2022, respectively, and $ 5.1 million and $ 9.3 million for the second quarter and first six months of 2021, respectively.

(b) On May 14, 2021, the Company completed the acquisition of FLIR, and the financial results of FLIR have been included since the date of the acquisition.

The first quarter of 2022 includes $ 452.6 million in incremental net sales from FLIR.

(c) Corporate expense for the first quarter of 2021 includes $ 5.9 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

The second quarter and first six months of 2022 includes $ 167.6 million and $ 620.2 million in incremental net sales from FLIR, respectively.

(c) Corporate expense for the second quarter and first six months of 2021 includes $ 70.5 million and $ 76.4 million , respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

Identifiable assets are those assets used in the operations of the segments.

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Identifiable assets:

April 3, 2022 January 2, 2022

July 3, 2022 January 2, 2022

Digital Imaging $ 11,308.9 $ 11,756.8

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The Instrumentation segment includes three product lines:

Marine Instrumentation, Environmental Instrumentation and Test and Measurement Instrumentation.

Environmental Instrumentation, Marine Instrumentation and Test and Measurement Instrumentation.

Teledyne’s other three segments each contain one product line.

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

First Quarter

Second Quarter Six Months

Instrumentation 2022 2021 2022 2021

Marine Instrumentation $ 111.9 $ 102.0

Environmental Instrumentation $ 115.5 $ 112.8 $ 229.5 $ 227.6

Marine Instrumentation 115.3 104.9 227.2 206.9

Test and Measurement Instrumentation 81.7 73.4 164.7 143.1

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Net sales in the Engineered Systems segment is typically between 45 % and 55 % fixed price contracts in a given reporting period, with the balance of net sales derived from cost type contracts.

For the three months ended April 3, 2022, approximately 47 % of net sales in the Engineered Systems segment were derived from fixed price contracts.

First Quarter Ended April 3, 2022

First Quarter Ended April 4, 2021

For the six months ended July 3, 2022, approximately 45 % of net sales in the Engineered Systems segment were derived from fixed price contracts.

Second Quarter Ended July 3, 2022

Six Months Ended July 3, 2022

Customer Type Customer Type

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

First Quarter Ended April 3, 2022

First Quarter Ended April 4, 2021

Second Quarter Ended July 3, 2022

Six Months Ended July 3, 2022

Geographic Region (a) Geographic Region (a)

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(a) Net sales by geographic region of origin.

Second Quarter Ended July 4, 2021 Six Months Ended July 4, 2021

Customer Type Customer Type

(in millions) United States Government (a) Other, Primarily Commercial Total United States Government (a) Other, Primarily Commercial Total

Digital Imaging $ 112.8 $ 466.7 $ 579.5 $ 144.9 $ 697.9 842.8

Instrumentation 20.8 270.3 291.1 43.4 534.2 577.6

Aerospace and Defense Electronics 54.9 97.5 152.4 108.6 195.0 $ 303.6

Engineered Systems 88.4 9.6 98.0 187.6 15.1 202.7

$ 276.9 $ 844.1 $ 1,121.0 $ 484.5 $ 1,442.2 $ 1,926.7

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

Second Quarter Ended July 4, 2021 Six Months Ended July 4, 2021

Geographic Region (a) Geographic Region (a)

(in millions) United States Europe All other Total United States Europe All other Total

Digital Imaging $ 265.8 $ 163.1 $ 150.6 $ 579.5 $ 346.0 $ 235.3 $ 261.5 $ 842.8

Instrumentation 218.4 60.5 12.2 291.1 431.8 119.1 26.7 577.6

Aerospace and Defense Electronics 126.9 25.5 — 152.4 252.4 51.2 — 303.6

Engineered Systems 98.0 — — 98.0 202.7 — — 202.7

$ 709.1 $ 249.1 $ 162.8 $ 1,121.0 $ 1,232.9 $ 405.6 $ 288.2 $ 1,926.7

(a) Net sales by geographic region of origin.

Subsequent Events

In July 2022, the Company was notified by the Canadian Revenue Agency ("CRA") that the CRA intends to challenge certain tax positions for the 2013-2017 tax years.

The Company believes that the amount of the reassessment would be less than $ 20 million.

The Company intends to appeal any such reassessment as it believes its tax positions are more-likely-than-not to be sustained upon final adjudication of the dispute.

In July 2022, the Company acquired a majority interest in Noiseless Acoustics Oy ("NL Acoustics") for an immaterial amount.

NL Acoustics, located in Helsinki, Finland, designs and manufactures acoustics imaging instruments and predictive maintenance solutions.

NL Acoustics will be part of the Digital Imaging segment.

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

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We continue to evaluate our businesses to ensure that they are aligned with our strategy.

In connection with this strategy, on May 14, 2021, Teledyne completed the acquisition of FLIR, our largest acquisition to date, in a cash and stock transaction valued at approximately $8.1 billion, comprising of net cash payments of $3.7 billion, $3.9 billion of Teledyne shares issued to existing FLIR shareholders, and the assumption of FLIR debt of $0.5 billion.

In connection with this strategy, on May 14, 2021, Teledyne completed the acquisition of FLIR in a cash and stock transaction valued at approximately $8.1 billion.

As a combined company, we uniquely provide a full spectrum of imaging technologies and products spanning X-ray through infrared and from components to complete imaging systems.

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The results of the FLIR acquisition have been included in Teledyne’s results since the date of the acquisition.

At April 3, 2022, total debt was $4,131.8 million, compared with total debt of $4,099.4 million at January 2, 2022.

At April 3, 2022, $969.9 million was available under the $1.150 billion credit facility, after reductions of $157.0 million in borrowings and $23.1 million in outstanding letters of credit.

Consent Agreement

Effective April 24, 2022, Teledyne exited the four-year Consent Agreement with the United States Department of State’s Office of Defense Trade Controls Compliance (“DDTC”), which had been entered into by FLIR Systems, Inc.

On April 13, 2022, Teledyne paid $3.5 million as the final installment of the civil penalty under the Consent Agreement.

In order to strengthen its focus on trade compliance, FLIR and its successor by mergers, Teledyne FLIR, has enhanced the trade compliance program more broadly, implemented remedial measures and have undergone external audits of the International Traffic in Arms Regulations (“ITAR”) compliance program.

At July 3, 2022, total debt was $3,945.7 million, compared with total debt of $4,099.4 million at January 2, 2022.

During the first six months of 2022, we made $80.0 million of floating rate debt payments which reduced our term loan due May 2026.

In addition, during the first six months of 2022, we repurchased and retired $75.0 million of our Fixed Rate Senior Notes, recording a $10.6 million non-cash gain on the extinguishment of this debt.

At July 3, 2022, $1,004.0 million was available under the $1.150 billion credit facility, after reductions of $125.0 million in borrowings and $21.0 million in outstanding letters of credit.

During the first six months of 2022, we reduced our outstanding letters of credit, primarily due to the Swedish Tax Authority cancelling its standby letter of credit of $244.6 million.

Our Consolidated Leverage Ratio, as defined in our $1.150 billion credit facility, was 3.7x at the end of the second quarter of 2021, shortly after the acquisition of FLIR.

Our Consolidated Leverage Ratio has declined each quarter since the acquisition of FLIR and was 2.5x at the end of the second quarter of 2022.

COVID and Other Challenges

With regard to the COVID pandemic, our first priority remains the health and safety of our employees and their families.

Our manufacturing sites are deemed essential businesses and remain operational.

Since the beginning of the COVID pandemic, we have practiced social distancing, enhanced cleaning protocols, increased usage of personal protective equipment and other preventative measures.

Although the COVID pandemic continued to impact our business operations and practices, we experienced limited disruptions in the first quarter of 2022.

We expect to continue to take robust actions to help protect the health, safety and well-being of our employees, to support continued performance, to support our suppliers and partners and to continue to serve our customers.

Our goals have been, and continue to be, to lessen the potential adverse impacts, both health and economic, and to continue to position the company for long-term success.

Like the communities in which we operate, our actions have varied depending on the severity of the COVID pandemic and applicable government requirements, the needs of our employees, the needs of our customers and the needs of our business.

Contingency plans remain in place in the event of significant impacts from COVID infection resurgences, and we may take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.

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.

Although the COVID pandemic continued to impact our business operations and practices, we experienced limited disruptions in the first six months of 2022, mostly as a result of COVID-related lockdowns in China and localized and temporary labor shortages due to virus exposure.

However, given the continuing dynamic nature of this situation, we may not fully estimate the impacts of COVID on our financial condition, results of operations or cash flows.

We have experienced supply chain challenges, including increased lead times, as well as cost inflation for parts and components, logistics and labor due to availability constraints and high demand.

We expect inflationary and supply chain constraint trends to continue in 2022.

This has delayed our ability to convert backlog to revenue and negatively impacted our profit margins.

We expect inflationary and supply chain constraint trends to continue in the second half of 2022.

The strengthening of the U.S.

dollar relative to other currencies adversely impacted our sales in the second quarter and year-to-date periods, and may continue to do so in future periods.

It may also increase the price and reduce the competitiveness of some of our products sold in markets outside the United States.

We do not have any material business, operations or assets in Russia, Belarus or Ukraine, and to date we have not been materially impacted by the actions of the Russian government.

Our total net sales from these three countries in 2021 constituted less than 1.0% of total net sales.

Our total net sales from these three countries in 2021and the

first six months of 2022 constituted less than 1.0% of total net sales, respectively.

However, the conflict between Russia and Ukraine has increased the disruption, instability and volatility in global markets and industries and could negatively impact our operations.

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Results of Operations

First Quarter

Second Quarter Six Months

(in millions) 2022 2021 2022 2021

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Interest and debt expense, net (22.5) (21.2) (44.8) (43.5)

Gain (loss) on debt extinguishment 10.6 — 10.6 (13.4)

Non-service retirement benefit income 2.9 2.8 5.7 5.6

Other expense, net (1.0) (1.0)

Other income, net 1.0 6.1 — 5.1

Income before income taxes 221.5 92.1 424.5 193.4

Provision (benefit) for income taxes (9.6) 16.6

Provision for income taxes 50.2 27.4 40.6 44.0

Net income $ 171.3 $ 64.7 $ 383.9 $ 149.4

First Quarter %

(dollars in millions) 2022 2021 Change

Second Quarter % Six Months %

(dollars in millions) 2022 2021 Change 2022 2021 Change

Net sales (a):

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Total operating income $ 229.5 $ 104.4 119.8 % $ 453.0 $ 239.6 89.1 %

(a) Net sales excludes inter-segment sales of $5.5 million and $4.2 million for the first quarter of 2022 and 2021, respectively.

(a) Net sales excludes inter-segment sales of $5.1 million and $10.6 million for the second quarter and six months of 2022, respectively, and $5.1 million and $9.3 million for the second quarter and six months of 2021, respectively.

(b) On May 14, 2021, the Company completed the acquisition of FLIR, and the financial results of FLIR have been included since the date of the acquisition.

The first quarter of 2022 includes $452.6 million in incremental net sales from FLIR.

(c) Corporate expense for the first quarter of 2021 includes $5.9 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

The second quarter and first six months of 2022 includes $167.6 million and $620.2 million in incremental net sales from FLIR, respectively.

(c) Corporate expense for the second quarter and six months of 2021 includes $70.5 million and $76.4 million, respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

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

First Quarter

Second Quarter Six Months

(dollars in millions) 2022 2021 2022 2021

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Cost of sales as a % of net sales 58.2 % 59.2 % 57.6 % 60.0 %

First Quarter Results

The following is a discussion of our 2022 first quarter results compared with the first quarter results of 2021.

Second Quarter Results

The following is a discussion of our 2022 second quarter results compared with the second quarter results of 2021.

Comparisons are with the corresponding reporting period of 2021, unless noted otherwise.

Acquired intangible asset amortization was previously included in selling, general and administrative expenses.

Prior period amounts have been reclassified to conform to the current presentation.

First quarter of 2022 compared with the first quarter of 2021

Our first quarter of 2022 net sales increased 64.0%.

Net income for the first quarter of 2022 increased 151.0%.

Net income per diluted share was $4.46 for the first quarter of 2022, compared with net income per diluted share of $2.23.

The first quarter of 2022 net sales included $452.6 million in incremental net sales from the acquisition of FLIR.

In connection with the FLIR acquisition, Teledyne incurred pretax acquired intangible asset amortization expense of $44.1 million.

The first quarter of 2022 and 2021, included $9.5 million and $9.8 million, respectively, of acquired intangible asset amortization expense for acquisitions completed in prior periods.

The first quarter of 2021, in connection with the then pending acquisition of FLIR, Teledyne incurred pretax charges of $36.5 million which included $30.6 million in interest and debt expense related to obtaining permanent financing for the pending acquisition and $5.9 million in corporate expense for related transaction costs.

The first quarter of 2022 reflected net discrete income tax benefits of $56.5 million compared with net discrete income tax benefits of $6.3 million.

The first quarter of 2022 net sales, compared with the first quarter of 2021 net sales, reflected higher net sales in each segment, except the Engineered Systems segment.

The first quarter of 2022 included $452.6 million in incremental net sales from the acquisition of FLIR in the Digital Imaging segment, as well as organic sales growth.

Second quarter of 2022 compared with the second quarter of 2021

Our second quarter of 2022 net sales increased 20.9%.

Net income for the second quarter of 2022 increased 164.8%.

Net income per diluted share was $3.59 for the second quarter of 2022, compared with net income per diluted share of $1.48.

The second quarter of 2022 net sales included $167.6 million in incremental net sales from the acquisition of FLIR, which was acquired in May 2021.

In the second quarter of 2021, in connection with the FLIR acquisition, Teledyne incurred pretax expenses of $117.9 million, which included $42.3 million of transaction and integration-related costs, $52.2 million for the settlement of FLIR employee and director stock awards and $23.4 million in acquired inventory step-up expense.

No comparable pretax expenses were incurred in the second quarter of 2022.

The second quarter of 2022 net sales, compared with the second quarter of 2021 net sales, reflected higher net sales in each segment.

The second quarter of 2022 included $167.6 million in incremental net sales from the acquisition of FLIR in the Digital Imaging segment, as well as organic sales growth.

Cost of Sales

Cost of sales increased $260.1 million in the first quarter of 2022 and primarily reflected the increase in net sales.

Cost of sales as a percentage of net sales decreased for the first quarter of 2022 to 57.0% from 61.1%.

The lower cost of sales percentage in 2022, reflects the impact of the FLIR acquisition which carries a lower cost of sales percentage than the other Teledyne businesses.

Cost of sales increased $125.5 million in the second quarter of 2022 and primarily reflected the increase in net sales.

Cost of sales as a percentage of net sales decreased for the second quarter of 2022 to 58.2% from 59.2%.

The lower cost of sales percentage in 2022 reflects the impact of the FLIR acquisition, which carries a lower cost of sales percentage than the average of other Teledyne businesses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development expense, increased $123.1 million in the first quarter of 2022 and primarily reflected the impact of higher net sales.

Selling, general and administrative expenses for the first quarter of 2022, as a percentage of net sales increased to 22.1% from 20.9%.

Corporate expense, which is included in selling, general and administrative expenses, was $16.1 million for the first quarter of 2022, compared with $19.4 million.

Corporate expense in 2021 included $5.9 million of transaction costs related to the then pending FLIR acquisition.

Stock option compensation expense was $4.3 million for the first quarter of 2022 compared with $4.2 million.

Selling, general and administrative expenses, including research and development expense, decreased $34.3 million in the second quarter of 2022.

Selling, general and administrative expenses for the second quarter of 2022, as a percentage of net sales decreased to 21.1% from 28.6%.

Corporate expense, which is included in selling, general and administrative expenses, was $14.7 million for the second quarter of 2022, compared with $84.2 million.

Corporate expense in 2021 included $70.5 million in acquisition-related transaction and purchase accounting expenses.

Stock option compensation expense was $3.6 million for both the second quarter of 2022 and 2021, respectively.

Acquired Intangible Asset Amortization

Acquired intangible asset amortization for the first quarter of 2022 was $53.6 million, compared with $9.8 million.

The first quarter of 2022 includes $44.1 million in acquired intangible asset amortization from the FLIR acquisition.

Acquired intangible asset amortization for the second quarter of 2022 was $51.3 million, compared with $32.8 million.

The second quarter of 2022 includes a full quarter of FLIR intangible asset amortization as compared to the second quarter of 2021 which includes a partial quarter of amortization of FLIR intangibles due to the timing of the acquisition in that period.

Pension Service Expense

Pension service expense is included in both cost of sales and selling general and administrative expense.

For the first quarter of 2022 pension service expense was $2.2 million, compared with $2.7 million.

For the second quarter of 2022 pension service expense was $2.1 million, compared with $2.7 million.

For 2022, the weighted-average discount rate used to determine the benefit obligation for the domestic qualified pension plans is 2.97% compared with 2.64% in 2021.

Operating Income

Operating income for the first quarter of 2022 increased 65.3%.

The first quarter of 2022, compared with the first quarter of 2021, reflected higher operating income in each business segment, except the Engineered Systems segment.

Operating income in the first quarter of 2022 included $44.1 million of expense in the Digital Imaging segment for acquired intangible asset amortization related to the FLIR acquisition.

The first quarter of 2021 included pretax charges of $5.9 million in acquisition-related transaction and purchase accounting expenses.

The incremental operating income included in the results for the first quarter of 2022 from the FLIR acquisition was $45.9 million, which included $44.1 million of acquired intangible asset amortization expense.

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

Interest and debt expense, net of interest income, was $22.3 million for the first quarter of 2022, compared with $35.7 million.

The 2022 amount reflects interest expense on the higher debt levels associated with the FLIR acquisition, compared with the 2021 amount.

The 2021 amount primarily reflected $30.6 million in interest and debt expense on the debt incurred to fund the cash portion of the then pending FLIR acquisition.

Non-service retirement benefit income was $2.8 million for both the first quarter of 2022 and 2021.

Other income and expense was expense of $1.0 million for both the first quarter of 2022 and 2021.

Operating income for the second quarter of 2022 increased 119.8%.

The second quarter of 2022, compared with the second quarter of 2021, reflected higher operating income in each business segment, except the Engineered Systems segment.

The incremental operating income included in the results for the second quarter of 2022 from the FLIR acquisition was $21.8 million.

Interest and Debt Expense, Debt Extinguishment, Non-Service Retirement Benefit Income and Other Income and Expense

Interest and debt expense, net of interest income, was $22.5 million for the second quarter of 2022, compared with $21.2 million.

During the second quarter of 2022, Teledyne repurchased and retired $75.0 million of its Fixed Rate Senior Notes due August 2030 and April 2031, recording a $10.6 million non-cash gain on the extinguishment of this debt.

Non-service retirement benefit income was $2.9 million for the second quarter of 2022 compared with $2.8 million for the second quarter of 2021.

Other income and expense was income of $1.0 million for the second quarter of 2022 compared with other income of $6.1 million for the second quarter of 2021 and reflected higher foreign currency transaction gains in 2021.

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 first quarter of 2022 was a negative 4.7%, compared with 16.4%.

The first quarter of 2022 included net discrete income tax benefits of $56.5 million, which included $50.0 million of net discrete income tax benefits primarily related to the resolution of certain FLIR tax reserves and a $6.7 million income tax benefit related to share-based accounting.

The first quarter of 2021 included net discrete tax benefits of $6.3 million, which included a $4.8 million income tax benefit related to share-based accounting.

Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.1% for the first quarter of 2022 and 22.6% for the first quarter of 2021.

The Company’s effective income tax rate for the second quarter of 2022 was 22.7%, compared with 29.8%.

The second quarter of 2022 included net discrete income tax benefits of $1.0 million, which included a $1.8 million income tax benefit related to share-based accounting.

The second quarter of 2021 included net discrete tax expense of $4.1 million, which included $11.5 million expense related to foreign tax rate changes, partially offset by a $5.3 million income tax benefit related to the release of a valuation allowance and a $2.1 million income tax benefit related to share-based accounting.

The foreign tax rate changes are a result of the United Kingdom Parliament enacting legislation to increase the corporate tax rate to 25% effective April 2023.

Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.1% for the second quarter of 2022 and 25.3% for the second quarter of 2021.

The Company’s annual effective tax rate for fiscal year 2022 is expected to be 23.1% before discrete tax items.

First six months of 2022 compared with the first six months of 2021

The first six months of 2022 net sales increased 38.9% and included $620.2 million in incremental net sales from the acquisition FLIR.

Net income for the first six months of 2022 increased 157.0%.

Net income per diluted share was $8.05 for the first six months of 2022 compared with net income per diluted share of $3.66.

In the first six months of 2021 and in connection with the FLIR acquisition, Teledyne incurred pretax expenses of $154.4 million, which included $48.2 million of transaction and integration-related costs, $52.2 million for the settlement of FLIR employee and director stock awards, $23.4 million in acquired inventory step-up expense and $30.6 million in bridge loan and debt extinguishment fees.

The first six months of 2022 included net discrete income tax benefits of $57.5 million, compared with $2.2 million.

The first six months of 2022 net sales, compared with the first six months of 2021 net sales, reflected higher net sales in each segment other than the Engineered Systems segment.

The first six months of 2022 included $620.2 million in incremental net sales from the acquisition of FLIR in the Digital Imaging segment, as well as organic sales growth.

Cost of Sales

Cost of sales increased $385.6 million in the first six months of 2022 and primarily reflected the impact of higher net sales.

Cost of sales as a percentage of net sales for the six months of 2022 decreased to 57.6%, compared with 60.0%.

The lower cost of sales percentage in 2022 primarily reflects the impact of the FLIR acquisition, which carries a lower cost of sales percentage than the average of other Teledyne businesses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development, increased by $88.8 million in the first six months of 2022 and primarily reflected the impact of higher net sales, partially offset by $100.1 million in 2021 for acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

Selling, general and administrative expenses for the first six months of 2022, as a percentage of net sales, decreased to 21.6% compared with 25.4%.

In the first six months of 2022 and 2021, we recorded a total of $7.9 million and $7.8 million, respectively, in stock option compensation expense.

Acquired Intangible Asset Amortization

Acquired intangible asset amortization for the first six months of 2022 was $104.9 million, compared with $42.6 million.

The first six months of 2022 includes $86.5 million in acquired intangible asset amortization from the FLIR acquisition compared with $22.8 million in the first six months of 2021 due to the timing of the FLIR acquisition midway through the second quarter of 2021.

Pension Service Expense

Pension service expense for the first six months of 2022 was $4.3 million compared with $5.4 million.

Operating Income

Operating income for the first six months of 2022 increased 89.1%.

The first six months of 2022 compared with the first six months of 2021, reflected higher operating income in each segment other than the Engineered Systems segment.

Corporate expense was $30.8 million in the first six months of 2022 compared with $103.6 million, and the 2021 amount included $76.4 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

The incremental operating income included in the results for the first six months of 2022 from the FLIR acquisition was $67.7 million.

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

Interest expense, net of interest income, was $44.8 million for the first six months of 2022, compared with $43.5 million.

During the first six months of 2022, Teledyne repurchased and retired $75.0 million of its Fixed Rate Senior Notes due August 2030 and April 2031, recording a $10.6 million non-cash gain on the extinguishment of this debt.

During the first six months of 2021 and in connection with acquisition of FLIR, Teledyne called $493.3 million of existing fixed rate senior notes and incurred debt extinguishment expenses of $13.4 million.

Other income and expense was immaterial for the first six months of 2022 compared with income of $5.1 million and reflected higher foreign currency transaction gains in 2021.

The Company’s effective income tax rate for the first six months of 2022 was 9.6% compared with 22.8%.

The first six months of 2022 reflected $57.5 million in net discrete income tax benefits, which included $49.4 million of net discrete income tax benefits primarily related to the resolution of certain FLIR tax reserves and an $8.5 million income benefit related to share-based accounting.

The first six months of 2021 reflected $2.2 million in net discrete income tax benefits, which included a $6.9 million income benefit related to share-based accounting and a $5.3 million income tax benefit related to the release of a valuation allowance partially offset by $11.5 million expense related to foreign tax rate changes.

The foreign tax rate changes were a result of the United Kingdom Parliament enacting legislation to increase the corporate tax rate to 25% effective April 2023.

Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.1% for both the first six months and second quarter of 2022, 23.9% for the first six months of 2021, and 25.3% for the second quarter of 2021.

Segment Results

3 unchanged sentences

Digital Imaging (a)

First Quarter

(dollars in millions) 2022 2021

Second Quarter Six Months

(dollars in millions) 2022 2021 (a) 2022 2021 (a)

Net sales $ 775.8 $ 579.5 $ 1,526.3 $ 842.8

8 unchanged sentences

(a) On May 14, 2021, the Company completed the acquisition of FLIR, and the financial results of FLIR have been included since the date of the acquisition.

First quarter of 2022 compared with the first quarter of 2021

The Digital Imaging segment’s first quarter of 2022 net sales increased 185.0%.

Operating income for the first quarter of 2022 increased 122.5%.

The first quarter of 2022 net sales increase included $452.6 million of incremental net sales from the FLIR acquisition as well as strong organic sales growth from industrial sensors and cameras, X-ray products and micro-electro-mechanical systems (“MEMS”).

The increase in operating income in the first quarter of 2022 reflected the contribution from the FLIR acquisition, partially offset by $44.1 million in acquired intangible asset amortization expense for FLIR.

The increase in operating income also reflected the impact of organic sales growth, as well as margin improvement.

The first quarter of 2022 cost of sales increased $251.4 million and primarily reflected the impact of higher net sales.

The cost of sales percentage decreased to 54.0% in the first quarter of 2022 from 58.4%.

The lower cost of sales percentage in 2022, reflects the impact of the FLIR acquisition which carries a lower cost of sales percentage than the other Digital Imaging business units.

First quarter 2022 selling, general and administrative expenses increased to $181.1 million and primarily reflected the impact of higher net sales and includes $44.1 million in research and development expense for FLIR.

The selling, general and administrative expense percentage increased to 24.1% in the first quarter of 2022 from 20.2%.

The higher selling, general and administrative expense percentage in 2022, reflects the impact of research and development expense for FLIR.

Acquired intangible asset amortization expense for the first quarter of 2022 was $48.5 million, compared with $4.6 million.

The incremental operating income included in the results for the first quarter of 2022 from the FLIR acquisition was $45.9 million, which included $44.1 million in acquired intangible asset amortization expense.

Second quarter of 2022 compared with the second quarter of 2021

The Digital Imaging segment’s second quarter of 2022 net sales increased 33.9%.

Operating income for the second quarter of 2022 increased 39.4%.

The second quarter of 2022 net sales increase included $167.6 million of incremental net sales from the FLIR acquisition as well as strong organic sales growth from industrial and scientific sensors and cameras and X-ray products.

The increase in operating income in the second quarter of 2022 reflected the contribution from the FLIR acquisition as well as the impact of organic sales growth during the period.

The incremental operating income included in the results for the second quarter of 2022 from the FLIR acquisition was $21.8 million.

The second quarter of 2022 cost of sales increased $105.6 million and primarily reflected the impact of higher net sales.

The cost of sales percentage decreased to 56.0% in the second quarter of 2022 from 56.7%.

Second quarter 2022 selling, general and administrative expenses increased to $177.2 million and primarily reflected the impact of higher net sales.

The selling, general and administrative expense percentage decreased to 22.8% in the second quarter of 2022 from 24.0%.

Acquired intangible asset amortization expense for the second quarter of 2022 was $46.4 million, compared with $27.4 million.

First six months of 2022 compared with the first six months of 2021

The Digital Imaging segment’s first six months of 2022 net sales increased 81.1%.

Operating income for the first six months of 2022 increased 71.0%.

The first six months of 2022 net sales included $620.2 million incremental net sales from the FLIR acquisition as well as organic sales growth from industrial and scientific sensors and cameras and X-Ray products.

The first six months of 2021 included $70.2 million of acquisition-related transaction and purchase accounting expenses related to FLIR which included $24.0 million of integration-related costs, $22.8 million in acquired intangible asset amortization expense and $23.4 million in inventory step-up expense.

The increase in operating income also reflected the impact of organic sales growth.

The incremental operating income included in the results for the first six months of 2022 from the FLIR acquisition was $67.7 million.

The first six months of 2022 cost of sales increased $357.0 million and reflected the impact of higher sales.

The cost of sales percentage in 2022 decreased to 55.0%, compared with 57.3%.

The 2021 cost of sales amount included $23.4 million in inventory step-up expense related to the acquisition of FLIR, and no comparable amount occured in 2022.

Selling, general and administrative expenses increased $166.6 million in the first six months of 2022 and reflected the impact of higher net sales, partially offset by acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition in 2021.

The selling, general and administrative expense percentage increased to 23.5% in the first six months of 2022 from 22.7% and reflects the impact of higher research and development expense for FLIR as a percentage of net sales.

Instrumentation

First Quarter

Second Quarter Six Months

(dollars in millions) 2022 2021 2022 2021

8 unchanged sentences

Operating income as a % of net sales 23.6 % 22.2 % 23.4 % 21.5 %

First quarter of 2022 compared with the first quarter of 2021

The Instrumentation segment’s first quarter of 2022 net sales increased 7.8%.

Operating income for the first quarter of 2022 increased 20.5%.

The first quarter of 2022 net sales increase resulted from higher sales of test and measurement instrumentation and marine instrumentation, partially offset by lower sales of environmental instrumentation.

Sales of test and measurement instrumentation and marine instrumentation increased $13.3 million and $9.9 million, respectively.

Sales of environmental instrumentation were slightly lower by $0.8 million.

The increase in operating income primarily reflected the impact of higher sales, as well as margin improvement.

The first quarter of 2022 cost of sales increased $8.0 million.

The cost of sales percentage decreased to 53.0% in the first quarter of 2022 from 54.4%.

First quarter 2022 selling, general and administrative expenses increased $2.3 million, primarily as a result of higher net sales.

The selling, general and administrative expense percentage decreased slightly to 22.2% in the first quarter of 2022 from 23.1%.

Second quarter of 2022 compared with the second quarter of 2021

The Instrumentation segment’s second quarter of 2022 net sales increased 7.4%.

Operating income for the second quarter of 2022 increased 13.9%.

The second quarter of 2022 net sales increase resulted from higher sales across all product lines.

Sales of marine instrumentation increased $10.4 million, sales of test and measurement instrumentation increased $8.3 million and sales of environmental instrumentation increased $2.7 million.

The increase in operating income primarily reflected the impact of higher sales and favorable product mix.

The second quarter of 2022 cost of sales increased $13.5 million.

The cost of sales percentage increased to 53.4% in the second quarter of 2022 from 52.7%.

Second quarter 2022 selling, general and administrative expenses decreased $0.6 million.

The selling, general and administrative expense percentage decreased to 21.5% in the second quarter of 2022 from 23.3%.

First six months of 2022 compared with the first six months of 2021

The Instrumentation segment’s first six months 2022 net sales increased 7.6%.

Operating income for the first six months of 2022 increased of 17.1%.

The first six months of 2022 net sales increase resulted from higher sales across all product lines.

Sales of marine instrumentation increased $20.3 million, sales of test and measurement instrumentation increased $21.6 million and sales of environmental instrumentation increased $1.9 million.

The increase in operating income the first six months of 2022 reflected the impact of higher sales and favorable product mix.

The first six months of 2022 cost of sales increased by $21.5 million and primarily reflected the impact of higher sales.

The cost of sales percentage decreased to 53.2% from 53.5%.

The first six months of 2022 selling, general and administrative expenses increased by $1.7 million.

The selling, general and administrative expense percentage decreased to 21.9% in the first six months of 2022 from 23.2%.

Aerospace and Defense Electronics

First Quarter

Second Quarter Six Months

(dollars in millions) 2022 2021 2022 2021

8 unchanged sentences

Operating income as a % of net sales 26.1 % 18.6 % 26.0 % 18.7 %

First quarter of 2022 compared with the first quarter of 2021

The Aerospace and Defense Electronics segment’s first quarter of 2022 net sales increased 9.9%.

Operating income for the first quarter of 2022 increased 51.6%.

The first quarter of 2022 net sales increase reflected $13.8 million for aerospace electronics and $1.2 million for defense electronics.

Operating income in the first quarter of 2022 reflected the impact of higher sales and favorable product mix.

The first quarter of 2022 cost of sales increased $3.4 million and reflected the impact of higher sales.

The cost of sales percentage decreased to 62.0% for the first quarter of 2022, from 65.9%.

Selling, general and administrative expenses, including research and development expense, decreased to $20.1 million in the first quarter of 2022 from $23.1 million and reflected the impact lower research and development expense of $2.2 million, partially offset by the impact of higher net sales.

The selling, general and administrative expense percentage decreased to 12.1% in the first quarter of 2022 from 15.3% and reflected the impact of lower research and development expense.

Second quarter of 2022 compared with the second quarter of 2021

The Aerospace and Defense Electronics segment’s second quarter of 2022 net sales increased 10.8%.

Operating income for the second quarter of 2022 increased 55.3%.

The second quarter of 2022 net sales increase reflected $12.3 million for aerospace electronics and $4.1 million for defense electronics.

Operating income in the second quarter of 2022 reflected the impact of higher sales and favorable product mix primarily driven by stronger sales of aerospace electronics.

The second quarter of 2022 cost of sales increased $3.3 million and reflected the impact of higher sales.

The cost of sales percentage decreased to 61.1% for the second quarter of 2022, from 65.6% and reflected favorable product mix.

Selling, general and administrative expenses, including research and development expense, decreased to $21.3 million in the second quarter of 2022 from $23.9 million and reflected $1.8 million of lower research and development expense.

The selling, general and administrative expense percentage decreased to 12.7% in the second quarter of 2022 from 15.7% and reflected the impact of lower research and development expense and higher sales.

First six months of 2022 compared with the first six months of 2021

The Aerospace and Defense Electronics segment’s first six months of 2022 net sales increased 10.3%.

Operating income for the first six months of 2022 increased 53.4%.

The first six months of 2022 net sales reflected $26.1 million of higher sales for aerospace electronics and $5.3 million of higher sales for defense electronics.

The increase in operating income in the first six months of 2022 primarily reflected the impact of higher sales and favorable product mix, primarily driven by the stronger sales of aerospace electronics.

The first six months of 2022 cost of sales increased by $6.7 million and reflected the impact of higher sales.

Cost of sales as a percentage of sales for the first six months of 2022 decreased to 61.6% from 65.7% and reflected favorable product mix.

Selling, general and administrative expenses, including research and development expense, decreased to $41.4 million in the first six months of 2022, compared with $47.0 million for the first six months of 2021, primarily due to lower research and development expense.

The selling, general and administrative expense percentage decreased to 12.3% in the first six months of 2022, compared with 15.5% and reflected the impact of lower research and development expense and higher sales.

Engineered Systems

First Quarter

Second Quarter Six Months

(dollars in millions) 2022 2021 2022 2021

6 unchanged sentences

Operating income as a % of net sales 8.7 % 11.2 % 9.3 % 12.8 %

First quarter of 2022 compared with the first quarter of 2021

The Engineered Systems segment’s first quarter of 2022 net sales decreased 8.9%.

Operating income for the first quarter of 2022 decreased 36.9%.

The first quarter of 2022 net sales primarily reflected lower sales of $4.3 million for engineered products and no sales , partially offset by higher sales of $0.2 million for energy systems.

The first quarter of 2021 included net sales of $5.2 million for turbine engines.

Teledyne exited the cruise missile turbine engine business in the first quarter of 2021.

Second quarter of 2022 compared with the second quarter of 2021

The Engineered Systems segment’s second quarter of 2022 net sales increased 0.7%.

Operating income for the second quarter of 2022 decreased 21.8%.

The second quarter of 2022 net sales primarily reflected higher sales of $0.9 million for energy systems partially offset by lower sales of $0.2 million for engineered products.

The lower sales for engineered products primarily reflected decreased sales from electronic manufacturing services products and space programs, partially offset by higher sales from marine and other manufacturing programs.

Operating income in the first quarter of 2022 reflected the impact of lower sales, including no sales of higher margin turbine engines.

The first quarter of 2022 cost of sales decreased $2.7 million.

The cost of sales percentage increased to 84.4% for the first quarter of 2022 from 79.5%.

Selling, general and administrative expense was $5.5 million for the first quarter of 2022, compared with $6.6 million.

The selling, general and administrative expense percentage decreased slightly to 5.7% for the first quarter of 2022 from 6.3%.

Operating income in the second quarter of 2022 primarily reflected the impact of decreased sales and lower gross margins for electronic manufacturing services products.

The second quarter of 2022 cost of sales increased $3.1 million.

The cost of sales percentage increased to 85.3% for the second quarter of 2022 from 82.8%.

Selling, general and administrative expense was $5.9 million for both the second quarter of 2022 and 2021, respectively.

The selling, general and administrative expense percentage for the second quarter of 2022 and 2021 was 6.0%, respectively.

First six months of 2022 compared with the first six months of 2021

The Engineered Systems segment’s first six months of 2022 net sales decreased 4.2%.

Operating income for the first six months of 2022 decreased 30.5%.

The first six months of 2022 net sales reflected lower net sales of $5.2 million for turbine engines and $4.5 million of lower sales of engineered products, partially offset by higher sales of $1.1 million for energy systems.

Teledyne exited the cruise missile turbine engine business in the first quarter of 2021.

Operating income in the first six months of 2022 reflected the

impact of lower sales, including no sales of higher margin turbine engines and lower margins for electronic manufacturing services products.

The first six months of 2022 cost of sales increased by $0.4 million and primarily reflected the impact of higher cost of sales for electronic manufacturing services.

Cost of sales as a percentage of sales for the first six months of 2022 increased to 84.9% from 81.1%.

Selling, general and administrative expenses, including research and development expense, decreased to $11.4 million for the first six months of 2022, compared with $12.5 million for the first six months of 2021.

The selling, general and administrative expense percentage decreased to 5.8% for the first six months of 2022 compared with 6.1%.

Financial Condition, Liquidity and Capital Resources

Our net cash used by operating activities was $216.7 million for the first three months of 2022, compared with net cash provided by operating activities of $124.9 million.

The first quarter of 2022 included a payment of $296.4 million to the Swedish Tax Authority, related to a disputed pre-acquisition 2018 tax reassessment issued to a FLIR subsidiary in Sweden.

The first quarter of 2022 also reflected investments in inventories, semi-annual interest payments, increased incentive compensation payments and cash income tax payments of $25.9 million compared with cash income tax payments of $21.0 million in the first quarter of 2021.

Our net cash used by investing activities was $19.6 million for the first three months of 2022, compared with $17.6 million.

Capital expenditures for the first three months of 2022 and 2021 were $21.0 million and $17.6 million, respectively.

Our goodwill was $7,977.0 million at April 3, 2022 and $7,986.7 million at January 2, 2022.

Teledyne’s net acquired intangible assets were $2,682.8 million at April 3, 2022 and $2,741.6 million at January 2, 2022.

The decrease in the balance of net acquired intangible assets primarily reflected amortization expense.

The balance of net acquired intangible assets reflects preliminary amounts recorded for the FLIR acquisition.

The Company is in the process of specifically identifying the amount assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the FLIR acquisition.

The Company is in the process of reviewing a third-party valuation of certain intangible assets and tangible assets of FLIR.

The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company.

The amounts recorded as of April 3, 2022 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.

Financing activities provided cash of $42.6 million for the first three months of 2022, compared with cash provided by financing activities of $2,454.0 million.

The first three months of 2021 included the proceeds of debt incurred to fund the cash portion of the then pending FLIR acquisition.

Proceeds from the exercise of stock options were $12.7 million for the first three months of 2022 compared with $10.8 million for the first three months of 2021.

Total debt at April 3, 2022 was $4,131.8 million compared with $4,099.4 million at January 2, 2022.

At April 3, 2022, $969.9 million was available under the $1.150 billion credit facility, after reductions of $157.0 million in borrowings and $23.1 million in outstanding letters of credit.

Net cash used in operating activities was $19.8 million for the first six months of 2022, compared with net cash provided by operating activities of $336.2 million.

The first six months of 2022 included a payment of $296.4 million to the Swedish Tax Authority, related to a disputed pre-acquisition 2018 tax reassessment issued to a FLIR subsidiary in Sweden.

The first six months of 2022 also reflected investments in inventories, semi-annual interest payments, increased incentive compensation payments and higher cash income tax payments compared to 2021, partially offset by higher net income in 2022.

Net cash used in investing activities was $35.4 million for the first six months of 2022, compared with $3,761.8 million, as the first six months of 2021 included the acquisition of FLIR.

Capital expenditures for the first six months of 2022 and 2021 were $41.8 million and $38.4 million, respectively.

Net cash used in financing activities was $110.6 million for the first six months of 2022, compared with cash provided by financing activities of $3,451.4 million.

During the first six months of 2022, the Company made $80.0 million of floating rate debt payments which reduced its term loan due May 2026.

In addition, during the first six months of 2022, the Company repurchased and retired $75.0 million of its Fixed Rate Senior Notes due August 2030 and April 2031, recording a $10.6 million non-cash gain on the extinguishment of this debt.

During the first six months of 2022, the Company terminated and re-designated certain cross-currency swaps, receiving $18.3 million of cash which is included in cash provided by financing activities.

The first six months of 2021 included the proceeds of debt incurred to fund the cash portion of the then pending FLIR acquisition.

Proceeds from the exercise of stock options were $17.5 million for the first six months of 2022 compared with $15.9 million for the first six months of 2021.

Total debt at July 3, 2022 was $3,945.7 million compared with $4,099.4 million at January 2, 2022.

At July 3, 2022, $1,004.0 million was available under the $1.15 billion credit facility, after reductions of $125.0 million in borrowings and $21.0 million in outstanding letters of credit.

Our principal cash and capital requirements are to fund working capital needs, capital expenditures, income tax payments, and debt service requirements, as well as acquisitions.

1 unchanged sentence

To support acquisitions, we may raise additional capital.

We currently expect to spend approximately $100.0 million for capital expenditures in 2022, of which $21.0 million has been spent in the first three months of 2022.

No cash pension contributions

have been made since 2013 or are planned for the remainder of 2022 for the domestic qualified pension plans.

Our credit agreements require Teledyne to comply with various financial and operating covenants and at April 3, 2022, the Company was in compliance with these covenants.

As of April 3, 2022, the Company had an adequate amount of margin between required financial covenant ratios (as required by applicable credit agreements) and our actual ratios.

At April 3, 2022, the required financial ratios and the actual ratios were as follows for our $1.15 billion Credit Facility expires March 2026, $355.0 million term loan due May 2026 and $150.0 million term loan due October 2024 (issued October 2019):

We currently expect to spend approximately $100.0 million for capital expenditures in 2022, of which $41.8 million has been spent in the first six months of 2022.

No cash pension contributions have been made since 2013 or are planned for the remainder of 2022 for the domestic qualified pension plans.

Our credit agreements require Teledyne to comply with various financial and operating covenants and at July 3, 2022, the Company was in compliance with these covenants.

As of July 3, 2022, the Company had an adequate amount of margin between required financial covenant ratios (as required by applicable credit agreements) and our actual ratios.

At July 3, 2022, the required financial ratios and the actual ratios were as follows for our $1.15 billion Credit Facility expires March 2026, $275.0 million term loan due May 2026 and $150.0 million term loan due October 2024 (issued October 2019):

Financial Covenants Requirement Actual Measure

2 unchanged sentences

a) The Consolidated Leverage Ratio is equal to Net Debt/EBITDA as defined in our $1.150 billion credit agreement.

Requirement changes to 4.5 to 1 for the second and third quarter of 2022 and to 4.0 to 1 for the fourth quarter of 2022 and 3.5 to 1 thereafter.

The requirement changes to 4.0 to 1 for the fourth quarter of 2022 and 3.5 to 1 thereafter.

b) The Consolidated Interest Coverage Ratio is equal to EBITDA/Interest as defined in our $1.150 billion credit agreement.

4 unchanged sentences

The amounts involved may be material.

The Company repurchased and retired $75.0 million of its Fixed Rate Senior Notes during the first six months of 2022.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates 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:

Our critical accounting policies are

the following:

accounting for revenue recognition;

8 unchanged sentences

Actual results could differ materially from these forward-looking statements.

Many factors could change anticipated results, including ongoing challenges and uncertainties posed by the COVID pandemic for businesses and governments around the world, including production, supply, contractual and other disruptions, such as the COVID related lockdowns in China, facility closures, furloughs and travel restrictions;

Many factors could change anticipated results, including ongoing challenges and uncertainties posed by the COVID pandemic for businesses and governments around the world, including production, supply, contractual and other disruptions, such as COVID related lockdowns, facility closures, furloughs and travel restrictions;

the inability to achieve operating synergies with respect to the FLIR acquisition;

changes in relevant tax and other laws;

foreign currency exchange risks;

rising interest rates;

risks associated with indebtedness, as well as our ability to reduce indebtedness and the timing thereof;

the impact of semiconductor and other supply chain shortages, higher inflation, including wage competition and higher shipping costs, and labor shortages and competition for skilled personnel;

the impact of semiconductor and other supply chain shortages;

higher inflation, including wage competition and higher shipping costs;

labor shortages and competition for skilled personnel;

the inability to develop and market new competitive products;

3 unchanged sentences

disruptions in the global economy;

the ongoing conflict between Russia and Ukraine;

customer and supplier bankruptcies;

2 unchanged sentences

cuts to defense spending resulting from existing and future deficit reduction measures or changes to U.S.

and foreign government spending and budget priorities triggered by the COVID pandemic;

and foreign government spending and budget priorities triggered by the COVID pandemic, inflation, rising interest costs, and economic conditions;

impacts from the United Kingdom’s exit from the European Union;

4 unchanged sentences

escalating economic and diplomatic tension between China and the United States;

the ongoing conflict between Russia and Ukraine;

threats to the security of our confidential and proprietary information, including cybersecurity threats;

1 unchanged sentence

and our ability to achieve emission reduction targets and decrease our carbon footprint.

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 those implemented in response to climate change, could further negatively affect our businesses that supply the oil and gas industry.

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 those implemented in response to climate change, could further negatively affect our businesses that supply the oil and gas industry.

Weakness in the commercial aerospace industry negatively affects the markets of our commercial aviation businesses.

8 unchanged sentences

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 2021 Form 10-K.

Various risks are identified in Teledyne’s 2021 Form 10-K and subsequent Quarterly Reports on Form 10-Q.

All forward-looking statements speak only as of the date they are made and are based on information available at that time.

We assume no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws.

securities laws.

As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements