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Item 1. Financial Statements

2022-11-02 compared with 2022-08-01 · 348 added, 327 removed, 761 unchanged (47% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

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

FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

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

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

10 unchanged sentences

Non-service retirement benefit income 2.9 2.8 8.6 8.4

Other income, net 1.0 6.1 — 5.1

Other income (expense), net 5.2 ( 0.7 ) 5.2 4.4

Income before income taxes

1 unchanged sentence

Provision for income taxes 53.1 33.8 93.7 77.8

Net income $ 171.3 $ 64.7 $ 383.9 $ 149.4

Net income including noncontrolling interest 178.2 134.1 $ 562.1 $ 283.5

Net income (loss) attributable to noncontrolling interest ( 0.1 ) — ( 0.1 ) —

Net income attributable to Teledyne $ 178.3 $ 134.1 $ 562.2 $ 283.5

Basic earnings per common share $ 3.81 $ 2.88 $ 12.01 $ 6.75

4 unchanged sentences

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(Unaudited - Amounts in millions)

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

Net income $ 171.3 $ 64.7 $ 383.9 $ 149.4

Net income including noncontrolling interest $ 178.2 $ 134.1 $ 562.1 $ 283.5

Other comprehensive income (loss):

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Other comprehensive income (loss) ( 359.2 ) ( 44.1 ) ( 534.2 ) ( 30.7 )

Comprehensive income $ 18.2 $ 72.9 $ 208.9 $ 162.8

Comprehensive income (loss) including noncontrolling interest ( 181.0 ) 90.0 27.9 252.8

Comprehensive (income) loss attributable to noncontrolling interest 0.1 — 0.1 —

Comprehensive income (loss) attributable to Teledyne $ ( 180.9 ) $ 90.0 $ 28.0 $ 252.8

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

2 unchanged sentences

(Unaudited - Amounts in millions, except share amounts)

July 3, 2022 January 2, 2022

October 2, 2022 January 2, 2022

Current Assets

5 unchanged sentences

Total current assets 2,519.4 2,429.4

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

Property, plant and equipment, net of accumulated depreciation and amortization of $ 830.6 at October 2, 2022 and $ 743.3

at January 2, 2022

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Total Assets $ 13,826.4 $ 14,430.3

Liabilities and Stockholders’ Equity

Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity

Current Liabilities

9 unchanged sentences

Commitments and contingencies

Redeemable Noncontrolling Interest 3.1 —

Stockholders’ Equity

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issued shares:

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

47,194,766 at October 2, 2022 and 47,194,766 at January 2, 2022;

outstanding shares:

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

46,868,187 at October 2, 2022 and 46,692,296 at January 2, 2022

Additional paid-in capital 4,340.6 4,317.1

Retained earnings 4,335.4 3,773.2

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

Treasury stock, 326,579 shares at October 2, 2022 and 502,470 shares at January 2, 2022

( 23.8 ) ( 38.8 )

1 unchanged sentence

Total Stockholders’ Equity 7,688.5 7,622.0

Total Liabilities and Stockholders’ Equity $ 14,047.5 $ 14,430.3

Total Liabilities, Redeemable Noncontrolling Interest and Equity $ 13,826.4 $ 14,430.3

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

16 unchanged sentences

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

Net income — — — 178.3 — 178.3

Other comprehensive loss, net of tax — — — — ( 359.2 ) ( 359.2 )

Treasury stock issued — ( 0.5 ) 0.5 — — —

Stock-based compensation — 6.6 — — — 6.6

Exercise of stock options — 0.9 — — — 0.9

Balance, October 2, 2022 $ 0.5 $ 4,340.6 $ ( 23.8 ) $ 4,335.4 $ ( 964.2 ) $ 7,688.5

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

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

Net income — — — 134.1 — 134.1

Other comprehensive income, net of tax — — — — ( 44.1 ) ( 44.1 )

Treasury stock issued — ( 4.1 ) 4.1 — — —

Stock-based compensation — 8.7 — — — 8.7

Exercise of stock options — 5.5 — — — 5.5

Balance, October 3, 2021 $ 0.5 $ 4,307.5 $ ( 42.0 ) $ 3,611.4 $ ( 460.8 ) $ 7,416.6

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

FOR THE NINE MONTHS ENDED OCTOBER 2, 2022 AND OCTOBER 3, 2021

(Unaudited - Amounts in millions)

Operating Activities

Net income $ 383.9 $ 149.4

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

Net income including noncontrolling interest $ 562.1 $ 283.5

Adjustments to reconcile net income including noncontrolling interest to net cash provided by operating activities:

Depreciation and amortization 250.4 237.8

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Other operating, net ( 26.9 ) 20.3

Net cash (used in) provided by operating activities ( 19.8 ) 336.2

Net cash provided by operating activities 249.1 529.0

Investing Activities

9 unchanged sentences

Proceeds from exercise of stock options 18.4 21.4

Liquidation of cross currency swap 18.3 —

Liquidations of cross currency swap 43.1 —

Payments for bridge financing and debt extinguishment — ( 30.5 )

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

October 2, 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 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.

In the opinion of Teledyne’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, Teledyne’s consolidated financial position as of October 2, 2022 and the consolidated results of operations, consolidated comprehensive income (loss) and consolidated cash flows for the third quarter and nine months ended October 2, 2022.

The results of operations and cash flows for the periods ended October 2, 2022 and cash flows for the nine months ended October 2, 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.

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.

Teledyne had $ 118.1 million of cash equivalents at October 2, 2022 and an immaterial amount of cash equivalents at January 2, 2022.

The Company has categorized its cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets.

Business Combinations, Goodwill and Acquired Intangible Assets

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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.

We accounted for the FLIR acquisition under the acquisition method and measured identifiable assets acquired and liabilities assumed of the acquiree at the fair values on the closing date.

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.

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

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

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We paid the tax on February 2, 2022 totaling $ 296.4 million.

We have requested for permission to appeal this ruling to the Swedish Administrative Supreme Court.

We have not yet received a response to our request.

We have requested for permission to appeal this ruling to the Swedish Administrative Supreme Court, and we received notification in the fourth quarter of 2022 that this appeal was denied.

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.

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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:

Second Quarter (a) Six Months (a)

Third Quarter (a) Nine Months (a)

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

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(a) The above unaudited proforma information is presented for the FLIR acquisition as it is considered a material acquisition.

Acquisition of NL Acoustics

During the third quarter of 2022, the Company acquired an approximate 80 % majority interest in Noiseless Acoustics Oy ("NL Acoustics"), paying $ 11.9 million in net cash during the period, with an immaterial amount payable next year.

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

NL Acoustics is part of the Digital Imaging segment.

The minority ownership interest in shares of NL Acoustics held by a third party is classified as a redeemable noncontrolling interest on the condensed consolidated balance sheet due to a put option under which the third party may require the Company to purchase the remaining ownership interest, with the put option exercisable beginning in the third quarter of 2025.

The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest.

Adjustments to the carrying value of the redeemable noncontrolling interest are recorded through retained earnings.

Changes in the redeemable noncontrolling interest balance during the period were not material.

Goodwill and Acquired Intangible Assets

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.

Teledyne’s goodwill was $ 7,718.2 million at October 2, 2022 and $ 7,986.7 million at January 2, 2022, with the decrease primarily related to the impact of foreign currency translation.

Teledyne’s net acquired intangible assets were $ 2,421.8 million at October 2, 2022 and $ 2,741.6 million at January 2, 2022.

The decrease in the balance of net acquired intangible assets primarily reflected the impact of foreign currency translation as well amortization of acquired intangible assets.

Acquired intangible assets are summarized as follows:

July 3, 2022 January 2, 2022

October 2, 2022 January 2, 2022

Acquired intangible assets (in millions):

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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):

The changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of tax, for the third quarter and nine months ended October 2, 2022 and October 3, 2021 are as follows (in millions):

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

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

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

Other comprehensive income (loss) before reclassifications ( 357.1 ) 7.7 — ( 349.4 )

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Net other comprehensive income (loss) ( 357.1 ) ( 6.2 ) 4.1 ( 359.2 )

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

Balance as of October 2, 2022 $ ( 673.5 ) $ ( 5.4 ) $ ( 285.3 ) $ ( 964.2 )

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 )

Other comprehensive income (loss) before reclassifications ( 44.0 ) 2.0 — ( 42.0 )

Amounts reclassified from AOCI — ( 6.5 ) 4.4 ( 2.1 )

Net other comprehensive income (loss) ( 44.0 ) ( 4.5 ) 4.4 ( 44.1 )

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

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

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Net other comprehensive income (loss) ( 544.5 ) ( 2.0 ) 12.3 ( 534.2 )

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

Balance as of October 2, 2022 $ ( 673.5 ) $ ( 5.4 ) $ ( 285.3 ) $ ( 964.2 )

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

Other comprehensive income (loss) before reclassifications ( 39.8 ) 13.7 — ( 26.1 )

Amounts reclassified from AOCI — ( 17.8 ) 13.2 ( 4.6 )

Net other comprehensive income 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):

Net other comprehensive income (loss) ( 39.8 ) ( 4.1 ) 13.2 ( 30.7 )

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

The reclassifications out of AOCI to net income for the third quarter and nine months ended October 2, 2022 and October 3, 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

July 3, 2022 July 4, 2021 Presentation

October 2, 2022 October 3, 2021 Presentation

(Gain) loss on cash flow hedges:

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Total $ 4.1 $ 4.4

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

Amount Reclassified from AOCI for the Nine Months Ended

Statement of Income

October 2, 2022 October 3, 2021 Presentation

(Gain) loss on cash flow hedges:

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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.

During the nine months ended October 2, 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 $ 47.8 million, which was primarily 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.

1 unchanged sentence

The effective portion of the cash flow hedge forward contracts’ gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of AOCI in stockholders’ equity until the underlying hedged item is reflected in our condensed consolidated statements of income, at which time the effective amount in AOCI is reclassified to revenue in our condensed consolidated statements of income.

Net deferred gains recorded in AOCI, net of tax, for the forward contracts that will mature in the next twelve months total $ 1.6 million.

These gains are expected to be offset by anticipated losses in the value of the forecasted underlying hedged item.

Net deferred losses recorded in AOCI, net of tax, for the forward contracts that will mature in the next twelve months total $ 8.0 million.

These losses are expected to be offset by anticipated gains in the value of the forecasted underlying hedged item.

Amounts related to the cross currency swaps and interest rate swap expected to be reclassified from AOCI into income in the next twelve months total $ 1.1 million.

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

As of October 2, 2022, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S.

dollars totaling $ 172.0 million.

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

These foreign currency forward contracts have maturities ranging from December 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 $ 22.9 million.

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

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

The cross currency swaps have notional amounts of € 130.0 million and $ 125.0 million, and € 156.0 million and $ 150.0 million, and mature in March 2023 and October 2024, respectively.

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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 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

At October 2, 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 third quarter and nine months ended October 2, 2022 and October 3, 2021 was as follows (in millions):

Third Quarter Nine 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) recognized in AOCI - Foreign Exchange Contracts (a) $ 10.2 $ ( 5.6 ) $ 36.0 $ 18.3

Net gain (loss) reclassified from AOCI into revenue - Foreign Exchange Contracts (a) $ ( 1.0 ) $ 1.8 $ ( 1.4 ) $ 7.8

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 $ 0.3 $ ( 0.1 ) 2.3 $ ( 0.1 )

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

As of October 2, 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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Swedish Krona SEK 491.1 Euros € 46.0

Dollars US$ 15.6 Swedish Krona SEK 168.8

Norwegian Krone kr 214.7 Swedish Krona SEK 231.4

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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 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 effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for the third quarter and nine months ended October 2, 2022 was expense of $ 40.5 million and $ 70.9 million, respectively.

The effect of derivative instruments not designated as cash flow hedges in other income and expense for the third quarter and nine months ended October 3, 2021 was expense of $ 11.7 million and $ 16.5 million, respectively.

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

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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 July 3, 2022 January 2, 2022

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

Derivatives designated as hedging instruments:

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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.

For the third quarter and first nine months of 2022, 397,854 and 262,894 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 third quarter and first nine 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):

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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Stock Incentive Plan

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.

Stock option compensation expense was $ 3.7 million for the third quarter of 2022 and $ 5.8 million the third quarter of 2021.

Stock option compensation expense was $ 11.6 million for the first nine months of 2022 and $ 13.6 million for the first nine months of 2021.

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

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

Second Quarter Six Months

Stock option transactions for the third quarter and nine months of 2022 are summarized as follows:

Third Quarter Nine Months

Shares Weighted

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Exercisable at end of period 1,437,305 $ 179.97 1,437,305 $ 179.97

On October 25, 2022, the Company granted 135,751 stock options at an exercise price of $ 360.39 per share and a weighted average fair value of $ 124.44 per share.

Restricted Stock

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

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

Shares Weighted average fair value per share

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Forfeited/Canceled ( 3,578 ) $ 403.34

Balance, July 3, 2022 70,036 $ 384.96

Balance, October 2, 2022 69,355 $ 384.72

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

On October 25, 2022, the Company granted 89,472 restricted stock units with a weighted average fair value of $ 360.39 per share.

Inventories are stated at current cost, net of reserves for excess, slow moving and obsolete inventory.

1 unchanged sentence

Inventories (in millions):

July 3, 2022 January 2, 2022

October 2, 2022 January 2, 2022

Raw materials and supplies $ 526.9 $ 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 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.

The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first nine months of 2022 was approximately $ 30.5 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging and Aerospace and Defense Electronics segments.

The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first nine months of 2021 was approximately $ 16.9 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging 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

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.

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 $ 155.5 million and $ 21.2 million as of October 2, 2022, and $ 186.0 million and $ 25.3 million as of January 2, 2022, respectively, with the decrease in contract liabilities from the beginning of the year due to timing and use of advance payments received on certain contracts within the Digital Imaging and Aerospace and Defense Electronic segments.

The Company recognized revenue of $ 129.6 million during the nine months ended October 2, 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 July 3, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 3,075.7 million.

As of October 2, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 3,188.5 million.

The Company expects approximately 73 % of remaining performance obligations to be recognized into revenue within the next twelve months , with the remaining 27 % recognized thereafter.

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Deductions ( 7.3 ) ( 6.8 )

Acquisition 1.6 23.2

Balance at end of period $ 48.3 $ 47.9

Accounts Receivable, net

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.

Accounts receivable is presented net of an allowance for doubtful accounts of $ 11.1 million at October 2, 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 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 Company’s effective income tax rate for the third quarter and first nine months of 2022 was 23.0 % and 14.3 %, respectively.

The Company's effective income tax rate for the third quarter and first nine months of 2021 was 20.1 % and 21.5 %, respectively.

The third quarter of 2022 includes net discrete income tax benefits of $ 0.3 million compared with net discrete income tax benefits of $ 6.3 million.

The first nine months of 2022 includes net discrete income tax benefits of $ 57.8 million compared with net discrete income tax benefits of $ 8.5 million.

The third quarter and first nine months of 2022 net discrete income tax amounts include $ 0.2 million and $ 8.7 million, respectively, related to share-based accounting.

The third quarter and first nine months of 2022 also includes non-cash income tax benefits of $ 0.1 million and non-cash income tax benefits of $ 49.1 million, with the first nine months of 2022 primarily related to the resolution of certain FLIR tax reserves.

The third quarter and first nine months of 2021 net discrete income tax amounts include $ 3.0 million and $ 9.9 million, respectively, related to share-based accounting.

The third quarter and first nine months of 2021 net discrete income tax amounts also include income tax benefits of $ 4.9 million primarily related to research and development and foreign tax credits.

The first nine months of 2021 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 2021 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.

Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.1 % for the

third quarter and first nine months of 2022, respectively, and 23.9 % for the third quarter and first nine months of 2021, respectively.

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):

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

October 2, 2022 January 2, 2022

$ 1.15 billion credit facility due March 2026, weighted average variable rate of 4.15 % at October 2, 2022 and 1.20 % at January 2, 2022

$ 125.0 $ 125.0

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 %

Term loan due October 2024, variable rate of 4.37 % at October 2, 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 2.86 % at July 3, 2022 and 1.35 % at January 2, 2022

Term loan due May 2026, variable rate of 4.30 % at October 2, 2022 and 1.35 % at January 2, 2022

Other debt 1.4 0.7

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Total long-term debt, net of current portion $ 3,618.4 $ 4,099.4

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.

The Company repaid $ 185.0 million of debt during the first nine months of 2022.

The Company made $ 110.0 million of floating rate debt payments which reduced its term loan due May 2026.

The Company also 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 October 2, 2022, $ 1,004.0 million was available under the $ 1.15 billion credit facility, after reductions of $ 125.0 million in borrowings and $ 21.4 million in outstanding letters of credit.

Our bank credit agreements require Teledyne to comply with various financial and operating covenants and at October 2, 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.

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.

As of October 2, 2022 and January 2, 2022, the aggregate fair values of our borrowings were $ 3,414.0 million and $ 4,146.6 million, respectively, and the carrying values were $ 3,946.3 million and $ 4,130.0 million, respectively.

Operating lease expense was $ 9.0 million and $ 28.0 million for the third quarter and first nine months of 2022.

Operating lease expense was $ 10.0 million and $ 24.3 million for the third quarter and first nine 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 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 October 2, 2022, the Company’s reserves for environmental remediation obligations totaled $ 5.9 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

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, 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.

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In April 2021, FLIR resolved allegations of misrepresentations made to BIS, between November 2012 and December 2013, in a commodity jurisdiction request relating to newly developed Lepton uncooled focal plane arrays by an administrative settlement and fine of $ 0.3 million and agreeing to perform two internal audits of its EAR export compliance programs.

The first internal audit has been completed and a voluntary disclosure was filed to report potential violations.

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

The first internal audit was completed and a voluntary disclosure was filed in October 2021 to report potential violations.

The second internal audit was completed in October 2022.

FLIR and its successor by mergers, Teledyne FLIR, have made other voluntary disclosures to 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 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

Second Quarter Six Months

Third Quarter Nine Months

2022 2021 2022 2021

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

Second Quarter % Six Months %

Third Quarter % Nine Months %

2022 2021 Change 2022 2021 Change

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Operating income $ 245.2 $ 189.6 29.3 % $ 698.2 $ 429.2 62.7 %

(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.

(a) Net sales excludes inter-segment sales of $ 4.8 million and $ 15.4 million for the third quarter and first nine months of 2022, respectively, and $ 5.4 million and $ 14.7 million for the third quarter and first nine 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 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.

The first nine months of 2022 includes $ 620.2 million in incremental net sales from FLIR.

(c) Corporate expense for the third quarter and first nine months of 2021 includes $ 0.3 million and $ 76.7 million, respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

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

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Identifiable assets:

July 3, 2022 January 2, 2022

October 2, 2022 January 2, 2022

Digital Imaging $ 10,973.1 $ 11,756.8

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

Second Quarter Six Months

Third Quarter Nine Months

Instrumentation 2022 2021 2022 2021

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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 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

For the nine months ended October 2, 2022, approximately 47 % of net sales in the Engineered Systems segment were derived from fixed price contracts.

Third Quarter Ended October 2, 2022

Nine Months Ended October 2.

Customer Type Customer Type

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

Second Quarter Ended July 3, 2022

Six Months Ended July 3, 2022

Third Quarter Ended October 2, 2022

Nine Months Ended October 2, 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

Third Quarter Ended October 3, 2021 Nine Months Ended October 3, 2021

Customer Type Customer Type

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

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

Third Quarter Ended October 3, 2021 Nine Months Ended October 3, 2021

Geographic Region (a) Geographic Region (a)

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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.

On October 28, 2022, the Company acquired ETM-Electromatic, Inc.

("ETM"), including ETM's manufacturing facility from an affiliate of ETM and its owners, for approximately $ 85 million in cash, net of cash acquired and subject to certain adjustments.

ETM, headquartered in Newark, California, designs and manufactures high-power microwave and high-energy X-ray subsystems for cancer radiotherapy, defense and X-ray security applications.

ETM will be part of the Digital Imaging segment.

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

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

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.

At October 2, 2022, total debt was $3,918.4 million, compared with total debt of $4,099.4 million at January 2, 2022.

During the first nine months of 2022, we made $110.0 million of floating rate debt payments which reduced our term loan due May 2026.

In addition, during the first nine 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 October 2, 2022, $1,004.0 million was available under the $1.150 billion credit facility, after reductions of $125.0 million in borrowings and $21.4 million in outstanding letters of credit.

During the first nine 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.

COVID and Other Challenges

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

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.

Although the COVID pandemic has impacted our business operations and practices, we experienced limited disruptions in the first nine 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.

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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.

We expect inflationary and supply chain constraint trends to continue in the remainder of 2022 and likely into 2023.

Costs incurred and sales recorded by subsidiaries operating outside of the United States are translated into U.S.

dollars using exchange rates effective during the respective period.

As a result, we are exposed to movements in the exchange rates of various currencies against the U.S.

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.

dollar relative to other currencies adversely impacted our sales in both the third 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.

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

first nine 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, particularly in regard to increased energy prices and reduced energy availability to our European operations.

Government and other governments in jurisdictions in which we operate have imposed severe sanctions and export controls against Russia and Russian interests and threatened additional sanctions and controls, the full impact of which on us may still be unknown to us or evolving.

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Results of Operations

Second Quarter Six Months

Third Quarter Nine Months

(in millions) 2022 2021 2022 2021

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Non-service retirement benefit income 2.9 2.8 8.6 8.4

Other income, net 1.0 6.1 — 5.1

Other income (expense), net 5.2 (0.7) 5.2 4.4

Income before income taxes 231.3 167.9 655.8 361.3

Provision for income taxes 53.1 33.8 93.7 77.8

Net income $ 171.3 $ 64.7 $ 383.9 $ 149.4

Second Quarter % Six Months %

Net income including noncontrolling interest $ 178.2 $ 134.1 $ 562.1 $ 283.5

net income (loss) attributable to noncontrolling interest (0.1) — (0.1) —

Net income attributable to Teledyne $ 178.3 $ 134.1 $ 562.2 $ 283.5

Third Quarter % Nine Months %

(dollars in millions) 2022 2021 Change 2022 2021 Change

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Total operating income $ 245.2 $ 189.6 29.3 % $ 698.2 $ 429.2 62.7 %

(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.

(a) Net sales excludes inter-segment sales of $4.8 million and $15.4 million for the third quarter and nine months of 2022, respectively, and $5.4 million and $14.7 million for the third quarter and nine 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 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 first nine months of 2022 includes $620.2 million in incremental net sales from FLIR.

(c) Corporate expense for the third quarter and nine months of 2021 includes $0.3 million and $76.7 million, respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

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

Second Quarter Six Months

Third Quarter Nine Months

(dollars in millions) 2022 2021 2022 2021

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

Second Quarter Results

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

Third Quarter Results

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

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

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

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.

Third quarter of 2022 compared with the third quarter of 2021

Our third quarter of 2022 net sales increased 3.9%.

Net income for the third quarter of 2022 increased 33.0%.

Net income per diluted share was $3.74 for the third quarter of 2022, compared with net income per diluted share of $2.81.

The third quarter of 2022 net sales, compared with the third quarter of 2021 net sales, reflected higher net sales in each segment, primarily driven by organic growth.

Cost of Sales

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.

Cost of sales decreased $1.9 million in the third quarter of 2022.

Non-cash inventory step-up expense related to FLIR was $35.2 million for the third quarter of 2021, and there was no comparable amount recorded in the third quarter of 2022.

The decrease in non-cash inventory step-up expense was primarily offset by higher net sales in the period.

Cost of sales as a percentage of net sales decreased for the third quarter of 2022 to 57.6% from 60.0%, primarily due to the decrease in inventory step-up expense related to FLIR in 2021.

Selling, General and Administrative Expenses

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.

Selling, general and administrative expenses, including research and development expense, increased $4.4 million in the third quarter of 2022.

Selling, general and administrative expenses as a percentage of net sales for the third quarter of 2022, decreased to 20.8% from 21.3%.

Corporate expense, which is included in selling, general and administrative expenses, was $15.8 million for the third quarter of 2022, compared with $15.7 million.

Stock option compensation expense was $3.7 million for the third quarter of 2022 compared with $5.8 million.

Acquired Intangible Asset Amortization

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.

Acquired intangible asset amortization for the third quarter of 2022 was $48.9 million, compared with $55.3 million, with the decrease from the previous year related primarily to foreign currency translation impacts.

Pension Service Expense

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

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

For the third quarter of 2022 pension service expense was $2.2 million, compared with $2.6 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 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.

Operating income for the third quarter of 2022 increased 29.3%.

The third quarter of 2022, compared with the third quarter of 2021, reflected higher operating income in each business segment.

Non-cash inventory step-up expense related to FLIR was $35.2 million for the third quarter of 2021, and there was no comparable amount recorded in the third quarter of 2022.

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

Interest and debt expense, net of interest income, was $22.0 million for the third quarter of 2022, compared with $23.8 million.

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

Other income and expense was income of $5.2 million for the third quarter of 2022, compared with other expense of $0.7 million for the third quarter of 2021, and primarily reflected higher income from deferred compensation plan activity in the third quarter of 2022.

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 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 effective income tax rate for the third quarter of 2022 was 23.0%, compared with 20.1%.

The third quarter of 2022 included net discrete income tax benefits of $0.3 million.

The third quarter of 2021 included net discrete tax benefit of $6.3 million, which included $3.0 million income tax benefit related to share-based accounting and an income tax benefit of $4.9 million primarily related to research and development and foreign tax credits.

Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.1% for the third quarter of 2022 and 23.9% for the third 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.

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

The first nine months of 2022 net sales increased 24.8% and included $620.2 million in incremental net sales from the acquisition FLIR.

Net income for the first nine months of 2022 increased 98.3%.

Net income per diluted share was $11.79 for the first nine months of 2022 compared with net income per diluted share of $6.58.

In the first nine months of 2021 and in connection with the FLIR acquisition, Teledyne incurred pretax expenses of $191.4 million, which included $51.2 million of transaction and integration-related costs, $51.0 million for the settlement of FLIR employee and director stock awards, $58.6 million in acquired inventory step-up expense and $30.6 million in bridge loan and debt extinguishment fees.

The first nine months of 2022 included net discrete income tax benefits of $57.8 million, compared with $8.5 million.

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

The first nine 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.

Cost of sales increased $383.7 million in the first nine months of 2022 and primarily reflected the impact of higher net sales.

Cost of sales as a percentage of net sales for the nine 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, with non-cash inventory step-up expense related to FLIR of $58.6 million for the first nine months of 2021, and no comparable amount recorded in the first nine months of 2022.

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.

Selling, general and administrative expenses, including research and development, increased by $93.2 million in the first nine months of 2022 and primarily reflected the impact of higher net sales, partially offset by $101.9 million in 2021 for acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

Selling, general and administrative expenses for the first nine months of 2022, as a percentage of net sales, decreased to 21.3% compared with 23.7%.

In the first nine months of 2022 and 2021, we recorded a total of $11.6 million and $13.6 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.

Acquired intangible asset amortization for the first nine months of 2022 was $153.8 million, compared with $97.9 million.

The first nine months of 2022 includes $127.4 million in acquired intangible asset amortization from the FLIR acquisition compared with $68.4 million in the first nine 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.

Pension service expense for the first nine months of 2022 was $6.5 million compared with $8.0 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.

Operating income for the first nine months of 2022 increased 62.7%.

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

Corporate expense was $46.6 million in the first nine months of 2022 compared with $119.3 million, and the 2021 amount included $76.7 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 nine months of 2022 from the FLIR acquisition was $67.7 million.

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

Interest expense, net of interest income, was $66.8 million for the first nine months of 2022, compared with $67.3 million.

During the first nine 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 nine 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 income of $5.2 million for the first nine months of 2022 compared with income of $4.4 million.

The Company’s effective income tax rate for the first nine months of 2022 was 14.3% compared with 21.5%.

The first nine months of 2022 reflected $57.8 million in net discrete income tax benefits, which included $49.1 million of net discrete income tax benefits primarily related to the resolution of certain FLIR tax reserves and an $8.7 million income benefit related to share-based accounting.

The first nine months of 2021 reflected $8.5 million in net discrete income tax benefits, which included a $9.9 million income benefit related to share-based accounting, a $5.3 million income tax benefit related to the release of a valuation allowance and an income tax benefit of $4.9 million primarily related to research and development and foreign tax credits, partially offset by $11.5 million expense related to foreign tax rate changes.

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 first nine months of 2022 and 23.9% for the first nine months of 2021.

Segment Results

3 unchanged sentences

Digital Imaging (a)

Second Quarter Six Months

Third Quarter Nine Months

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

9 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.

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.

Third quarter of 2022 compared with the third quarter of 2021

The Digital Imaging segment’s third quarter of 2022 net sales increased 2.3%.

Operating income for the third quarter of 2022 increased 40.9%.

The third quarter of 2022 net sales increase primarily resulted from greater sales of industrial and scientific sensors and cameras, X-ray products, and commercial infrared imaging solutions, partially offset by lower sales of surveillance systems for defense applications.

The third quarter of 2021 included $35.2 million in FLIR inventory step-up expense.

Acquired intangible

asset amortization expense for the third quarter of 2022 was $44.7 million, compared with $50.1 million.

Excluding these expenses, the remaining operating income impact declined slightly during the quarter.

The third quarter of 2022 cost of sales decreased $19.2 million and primarily reflected the decrease in FLIR inventory step-up expense partially offset by higher sales.

The cost of sales percentage decreased to 55.3% in the third quarter of 2022 from 59.1%.

Third quarter 2022 selling, general and administrative expenses increased $3.1 million and primarily reflected the impact of higher net sales.

The selling, general and administrative expense percentage was 21.8% in the third quarter of 2022 as compared to 21.9%.

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

The Digital Imaging segment’s first nine months of 2022 net sales increased 43.7%.

Operating income for the first nine months of 2022 increased 58.7%.

The first nine 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 nine months of 2021 included $84.1 million of acquisition-related transaction and purchase accounting expenses related to FLIR which included $25.5 million of integration-related costs and $58.6 million in inventory step-up expense.

Acquired intangible asset amortization expense for the first nine months of 2022 increased to $139.6 million compared with $82.1 million due to the timing of the FLIR acquisition midway through the second quarter of 2021.

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

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

The first nine months of 2022 cost of sales increased $337.8 million and primarily reflected the impact of higher sales.

The cost of sales percentage in 2022 decreased to 55.1%, compared with 58.2%.

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.

The 2021 cost of sales amount included $58.6 million in inventory step-up expense related to the acquisition of FLIR, and no comparable amount occurred in 2022.

Selling, general and administrative expenses increased $169.7 million in the first nine 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 22.9% in the first nine months of 2022 from 22.3% and primarily reflects the impact of higher research and development expense for FLIR as a percentage of net sales.

Instrumentation

Second Quarter Six Months

Third Quarter Nine Months

(dollars in millions) 2022 2021 2022 2021

8 unchanged sentences

Operating income as a % of net sales 23.2 % 21.9 % 23.3 % 21.6 %

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.

Third quarter of 2022 compared with the third quarter of 2021

The Instrumentation segment’s third quarter of 2022 net sales increased 6.7%.

Operating income for the third quarter of 2022 increased 12.9%.

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

Sales of test and measurement instrumentation increased $7.2 million, sales of environmental instrumentation increased $6.8 million and sales of marine instrumentation increased $5.3 million, respectively.

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%.

The third quarter of 2022 cost of sales increased $12.5 million.

The cost of sales percentage increased to 53.3% in the third quarter of 2022 from 52.5%.

Third quarter 2022 selling, general and administrative expenses decreased $0.3 million.

The selling, general and administrative expense percentage decreased to 22.2% in the third quarter of 2022 from 23.8%.

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

The Instrumentation segment’s first nine months of 2022 net sales increased 7.3%.

Operating income for the first nine months of 2022 increased 15.7%.

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

Sales of test and measurement instrumentation increased $28.8 million, sales of marine instrumentation increased $25.6 million, and sales of environmental instrumentation increased $8.7 million.

The increase in operating income the first nine months of 2022 reflected the impact of higher sales.

The first nine months of 2022 cost of sales increased by $34.0 million and primarily reflected the impact of higher sales.

The cost of sales percentage was 53.2% for both nine month periods.

The first nine months of 2022 selling, general and administrative expenses increased by $1.4 million.

The selling, general and administrative expense percentage decreased to 22.0% in the first nine months of 2022 from 23.4%.

Aerospace and Defense Electronics

Second Quarter Six Months

Third Quarter Nine Months

(dollars in millions) 2022 2021 2022 2021

8 unchanged sentences

Operating income as a % of net sales 26.2 % 22.2 % 26.1 % 19.9 %

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.

Third quarter of 2022 compared with the third quarter of 2021

The Aerospace and Defense Electronics segment’s third quarter of 2022 net sales increased 4.8%.

Operating income for the third quarter of 2022 increased 23.4%.

The third quarter of 2022 net sales increase reflected a $6.9 million increase for aerospace electronics and a $0.8 million increase for defense electronics.

Operating income in the third quarter of 2022 reflected the impact of higher sales of aerospace electronics and improved margins across most product categories.

The third quarter of 2022 cost of sales decreased $1.9 million and reflected the impact of improved product margins across most product categories.

The cost of sales percentage decreased to 59.7% for the third quarter of 2022 from 63.7%.

Selling, general and administrative expenses, including research and development expense, increased to $23.8 million in the third quarter of 2022 from $22.6 million and reflected higher research and development expense.

The selling, general and administrative expense percentage was 14.0% in both third quarter.

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

The Aerospace and Defense Electronics segment’s first nine months of 2022 net sales increased 8.4%.

Operating income for the first nine months of 2022 increased 41.8%.

The first nine months of 2022 net sales reflected $33.0 million of higher sales for aerospace electronics and $6.1 million of higher sales for defense electronics.

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

The first nine months of 2022 cost of sales increased by $4.8 million and reflected the impact of higher sales.

Cost of sales as a percentage of sales for the first nine months of 2022 decreased to 60.9% from 65.0% and reflected favorable product mix.

Selling, general and administrative expenses, including research and development expense, decreased to $65.2 million in the first nine months of 2022, compared with $69.6 million for the first nine months of 2021, and reflected $4.3 million of lower research and development expense.

The selling, general and administrative expense percentage decreased to 12.9% in the first nine months of 2022, compared with 15.0% and reflected the impact of lower research and development expense and higher sales.

Engineered Systems

Second Quarter Six Months

Third Quarter Nine Months

(dollars in millions) 2022 2021 2022 2021

6 unchanged sentences

Operating income as a % of net sales 10.8 % 11.2 % 9.8 % 12.3 %

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 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.

Third quarter of 2022 compared with the third quarter of 2021

The Engineered Systems segment’s third quarter of 2022 net sales increased 7.2%.

Operating income for the third quarter of 2022 increased 3.5%.

The third quarter of 2022 net sales primarily reflected higher sales of $5.1 million for engineered products and higher sales of $2.3 million for energy systems.

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

Operating income in the third quarter of 2022 primarily reflected the impact of increased sales.

The third quarter of 2022 cost of sales increased $6.7 million.

The cost of sales percentage increased to 83.2% for the third quarter of 2022 from 82.6%.

Selling, general and administrative expense was $6.6 million for the third quarter of 2022 compared with $6.3 million.

The selling, general and administrative expense percentage for the third quarter of 2022 was 6.0% compared with 6.2%.

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

The Engineered Systems segment’s first nine months of 2022 net sales decreased 0.4%.

Operating income for the first nine months of 2022 decreased 20.1%.

The first nine months of 2022 net sales reflected lower net sales of $5.2 million for turbine engines, partially offset by higher sales of $3.4 million for energy systems and $0.6 million of higher sales of engineered products.

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%.

Operating income in the first nine 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 nine months of 2022 cost of sales increased by $7.1 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 nine months of 2022 increased to 84.2% from 81.6%.

Selling, general and administrative expenses, including research and development expense, decreased to $18.0 million for the first nine months of 2022, compared with $18.8 million for the first nine months of 2021.

The selling, general and administrative expense percentage decreased to 6.0% for the first nine months of 2022 compared with 6.1%.

Financial Condition, Liquidity and Capital Resources

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.

Net cash provided by operating activities was $249.1 million for the first nine months of 2022, compared with $529.0 million.

The first nine 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 nine months of 2022 also reflected investments in inventories, semi-annual interest payments and higher cash income tax payments compared to 2021, partially offset by stronger trade receivable collections and higher net income in 2022.

Net cash used in investing activities was $63.9 million for the first nine months of 2022, compared with $3,790.4 million, as the first nine months of 2021 included the acquisition of FLIR.

Capital expenditures for the first nine months of 2022 and 2021 were $58.5 million and $67.6 million, respectively.

Net cash used in financing activities was $115.2 million for the first nine months of 2022, compared with net cash provided by financing activities of $3,147.3 million.

During the first nine months of 2022, the Company made $110.0 million of floating rate debt payments which reduced its term loan due May 2026.

In addition, during the first nine 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 nine months of 2022, the Company terminated and re-designated certain cross-currency swaps, receiving $47.8 million of cash which is primarily included in cash provided by financing activities.

The first nine 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 $18.4 million for the first nine months of 2022 compared with $21.4 million for the first nine months of 2021.

Total debt at October 2, 2022 was $3,918.4 million compared with $4,099.4 million at January 2, 2022.

At October 2, 2022, $1,004.0 million was available under the $1.15 billion credit facility, after reductions of $125.0 million in borrowings and $21.4 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.

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To support acquisitions, we may raise additional capital.

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.

We currently expect to spend approximately $90 million for capital expenditures in 2022, of which $58.5 million has been spent in the first nine 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

Consolidated Leverage Ratio (Net Debt/EBITDA) (a) No more than 4.5 to 1 2.5 to 1

Consolidated Interest Coverage Ratio (EBITDA/Interest) (b) No less than 3.0 to 1 16.2 to 1

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

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.

Our bank credit agreements, which includes our $1.15 billion Credit Facility expiring March 2026, our $245.0 million term loan due May 2026 and our $150.0 million term loan due October 2024, require Teledyne to comply with various financial and operating covenants.

At October 2, 2022, the Company was in compliance with these covenants.

Our liquidity is not dependent upon the use of off-balance sheet financial arrangements.

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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.

The Company repurchased and retired $75.0 million of its Fixed Rate Senior Notes during the first nine 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;

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disruptions in the global economy;

the ongoing conflict between Russia and Ukraine;

the ongoing conflict between Russia and Ukraine, including the impact to energy prices and availability, especially in Europe;

customer and supplier bankruptcies;

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Presidential Administration;

the imposition and expansion of, and responses to, trade sanctions and tariffs;

the imposition and expansion of, and responses to, trade sanctions and tariffs, including recent Chinese export controls announced by the U.S.

Commerce Department on advanced computing and semiconductor manufacturing items;

the continuing review and resolution of FLIR’s export and tax matters;

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

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

threats to the security of our confidential and

proprietary information, including cybersecurity threats;

and natural and man-made disasters, including those related to or intensified by climate change;

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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.

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