What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 233 added, 568 removed, 352 unchanged (69% of the section changed)

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

Teledyne Technologies Incorporated (“Teledyne” or the “Company”) provides enabling technologies for industrial growth markets that require advanced technology and high reliability.

Teledyne provides enabling technologies for industrial growth markets that require advanced technology and high reliability.

These markets include factory automation and condition monitoring, aerospace and defense, air and water quality environmental monitoring, electronics design and development, medical imaging and pharmaceutical research, oceanographic research, and deepwater energy exploration and production.

Following the 2021 acquisition of FLIR Systems, Inc.

( “FLIR”), we further evolved into a global sensing and decision-support technology company:

Following the 2021 acquisition of FLIR, we further evolved into a global sensing and decision-support technology company:

providing specialty sensors, cameras, instrumentation, algorithms and software across the electromagnetic spectrum, as well as unmanned systems, in the subsea, land and air domains.

1 unchanged sentence

We believe that technological capabilities and innovation and the ability to invest in the development of new and enhanced products are critical to obtaining and maintaining leadership in our markets and the industries in which we compete.

Information about results of operations and financial condition for 2021 and 2020 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in the Company’s Annual Report on Form 10-K for the year ended January 2, 2022.

Strategy/Overview

Our strategy continues to emphasize growth in our core markets of digital imaging, instrumentation, aerospace and defense electronics and engineered systems.

Our core markets are characterized by high barriers to entry and include specialized products and services not likely to be commoditized.

We intend to strengthen and expand our core businesses with targeted acquisitions and through product development.

Our strategy continues to emphasize growth in our four business segments:

digital imaging, instrumentation, aerospace and defense electronics and engineered systems.

The markets in which we sell our enabling technologies are characterized by high barriers to entry and include specialized products and services not likely to be commoditized.

We intend to strengthen and expand our business with targeted acquisitions and through product development.

We continue to focus on balanced and disciplined capital deployment among capital expenditures, acquisitions and product development.

1 unchanged sentence

At Teledyne, operational excellence includes the rapid integration of the businesses we acquire.

Using complementary technology across our businesses and internal research and development, we seek to create new products to grow our company and expand our addressable markets.

Using complementary technology across our businesses and through targeted research and development, we seek to create new products to grow our company and expand our addressable markets.

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

In connection with this strategy, on May 14, 2021, Teledyne completed the acquisition of FLIR, our largest acquisition to date.

In addition to the acquisition of FLIR, we made one acquisition in 2020 and three acquisitions in 2019.

See the Recent Acquisitions section for additional information.

COVID and Other Matters

COVID and Other Matters impact

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

Our manufacturing sites are deemed essential businesses and remain operational.

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

Although the COVID pandemic continued to impact our business operations and practices, we experienced limited disruptions in 2021.

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

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

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

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

While no company is immune to global economic challenges, Teledyne's business portfolio is well-balanced across end markets and geographies, and includes a high degree of businesses serving critical infrastructure sectors such as the defense industrial base, water and wastewater, and healthcare and public health.

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

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

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

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 2023.

As part of a continuing effort to reduce costs and improve operating performance, as well as to respond to the impact of the COVID pandemic, beginning in 2020 we took actions to reduce headcount across various businesses, reducing our exposure to weak end markets, such as commercial aerospace.

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 2022, and may continue to do so in future periods.

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

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

Our total net sales from these three countries in 2022 and 2021 constituted less than 1.0% of total net sales, respectively.

As part of a continuing effort to reduce costs and improve operating performance, as well as to respond to the impact of the COVID pandemic, beginning in 2020 we commenced actions to reduce headcount across various businesses, reducing our exposure to weak end markets, such as commercial aerospace.

We also exited certain facilities no longer needed.

In 2021, we took actions to integrate FLIR into our businesses resulting in higher severance and facility closure costs in the Digital Imaging segment.

At January 2, 2022, an immaterial amount remains to be paid related to these actions.

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

2021 2020 2019

Digital Imaging $ 23.9 $ 2.9 $ 1.1

Instrumentation 1.3 5.9 1.5

Aerospace and Defense Electronics 0.7 11.1 0.5

Engineered Systems 0.4 0.5 0.1

Corporate 0.1 0.4 —

$ 26.4 $ 20.8 $ 3.2

2021 2020 2019

Severance $ 14.5 $ 16.0 $ 3.5

Facility consolidations (a) 11.9 4.8 (0.3)

$ 26.4 $ 20.8 $ 3.2

(a) 2019 includes the reversal of certain amounts recorded in 2018 no longer needed.

2021 2020 2019

Cost of sales $ 2.4 $ 10.3 $ 0.8

Selling, general and administrative expenses 24.0 10.5 2.4

$ 26.4 $ 20.8 $ 3.2

In 2021, we incurred $26.4 million of severance and facility consolidation costs, primarily related to our Digital Imaging Segment.

Severance and facility consolidation costs incurred in 2022 were not material, and, at January 1, 2023, an immaterial amount remains to be paid related to these actions.

Recent Acquisitions

See Note 3 of the Notes to Consolidated Financial Statements for additional information about our recent acquisitions.

Acquisition of FLIR Systems, Inc.

On May 14, 2021, Teledyne acquired the outstanding stock of FLIR for approximately $8.1 billion, comprising of net cash payments of $3.7 billion, $3.9 billion of Teledyne common stock, and the assumption of FLIR debt of $0.5 billion.

FLIR stockholders received $28.00 per share in cash and 0.0718 shares of Teledyne common stock for each FLIR share, and Teledyne issued approximately 9.5 million shares of common stock at $409.41 per share.

See Note 9 to these Notes to Consolidated Financial Statements for information regarding financing activities undertaken in connection with the FLIR acquisition.

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

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

FLIR develops technologies that enhance perception and awareness.

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

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

FLIR is part of the Digital Imaging segment.

The significant factors that resulted in recognition of goodwill include the acquired businesses market presence and leading positions, growth opportunities in the markets in which they operate, their experienced work force and established operating infrastructures.

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

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

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

As of January 2, 2022, the measurement period (not to exceed one year) is open;

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

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

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

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

The amounts recorded as of January 2, 2022 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.

2020 Acquisition

On January 5, 2020, we acquired OakGate Technology, Inc.

(“OakGate”) for $28.5 million in cash, net of cash acquired.

Based in Loomis, California, OakGate provides software and hardware designed to test electronic data storage devices from development through manufacturing and end-use applications.

The acquired business is part of the Test and Measurement product line within the Instrumentation segment.

2019 Acquisitions

On February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc.

for $224.8 million in cash.

The acquired businesses include Princeton Instruments, Photometrics and Lumenera.

The acquired businesses provide a range of imaging solutions, primarily for life sciences, academic research and customized OEM industrial imaging solutions.

Princeton Instruments and Photometrics manufacture state-of-the-art cameras, spectrographs and optics for advanced research in physical sciences, life sciences research and spectroscopy imaging.

Applications and markets include materials analysis, quantum technology and cell biology imaging using fluorescence and chemiluminescence.

Lumenera primarily provides rugged USB-based customized cameras for markets such as traffic management, as well as life sciences applications.

Principally located in the United States and Canada, the acquired businesses are part of the Digital Imaging segment.

On August 1, 2019, we acquired the gas and flame detection businesses of 3M Company for $233.5 million in cash.

The gas and flame detection businesses includes Oldham, Simtronics, Gas Measurement Instruments, Detcon and select Scott Safety products.

The gas and flame detection businesses provides a portfolio of fixed and portable industrial gas and flame detection instruments used in a variety of industries including petrochemical, power generation, oil and gas, food and beverage, mining and waste water treatment.

Principally located in France, the United Kingdom and the United States, the acquired businesses are part of the Environmental Instrumentation product line of the Instrumentation segment.

On August 30, 2019, we acquired Micralyne Inc.

(“Micralyne”) for $25.7 million in cash.

Micralyne provides micro electromechanical systems (“MEMS”) devices.

In particular, Micralyne possesses unique microfluidic technology for biotech applications, as well as capabilities in non-silicon-based MEMS (e.g.

gold, polymers) often required for human body compatibility.

Based in Edmonton, Alberta, Canada, the acquired business is part of the Digital Imaging segment.

Consistent with our strategy, we completed two acquisitions in 2022 and one acquisition in 2021.

Our May 2021 acquisition of FLIR was our largest acquisition to date.

The financial results of these acquisitions have been included since the respective date of each acquisition.

All acquisitions in 2022 and 2021 were part of the Digital Imaging segment.

See Note 3 for additional information about our recent acquisitions.

As discussed in Note 18 , we have completed one acquisition in early 2023, which is part of the Digital Imaging segment.

Consolidated Operating Results

Our fiscal year is determined based on a 52- or 53-week convention ending on the Sunday nearest to December 31.

Fiscal years 2021 and 2019 contained 52 weeks while fiscal year 2020 contained 53 weeks.

Fiscal years 2022 and 2021 each contained 52 weeks.

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

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

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

In addition, the Company now discloses the balance of long-term deferred tax liabilities on the face of the balance sheet.

Long-term deferred tax liabilities was previously included in other long-term liabilities.

The following are selected financial highlights for 2021, 2020 and 2019 (in millions, except per-share amounts):

2021 2020 2019

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

Our businesses are aligned in four segments:

Digital Imaging, Instrumentation, Aerospace and Defense Electronics and Engineered Systems.

Additional financial information about our business segments can be found in Note 4 .

The following are financial highlights for 2022 and 2021 (in millions, except per-share amounts):

2022 2021 % Change

Net sales $ 5,458.6 $ 4,614.3 18.3 %

1 unchanged sentence

Cost of sales 3,128.3 2,772.9 12.8 %

Selling, general and administrative expenses (a) 1,067.8 662.0 715.1

Acquired intangible asset amortization (a) 149.3 38.8 36.5

Selling, general and administrative 1,156.6 1,067.8 8.3 %

Acquired intangible asset amortization 201.7 149.3 35.1 %

Total costs and expenses 4,486.6 3,990.0 12.4 %

Operating income 624.3 480.1 491.7

Interest and debt expense, net (104.2) (15.3) (21.0)

Non-service retirement benefit income 11.2 12.1 8.0

Other income (expense), net 2.5 (7.2) (5.0)

Income before income taxes 533.8 469.7 473.7

Provision for income taxes 88.5 67.8 71.4

Net income $ 445.3 $ 401.9 $ 402.3

Basic earnings per common share $ 10.31 $ 10.95 $ 11.08

Operating income (loss) 972.0 624.3 55.7 %

Net income (loss) attributable to Teledyne $ 788.6 $ 445.3 77.1 %

Diluted earnings per common share $ 16.53 $ 10.05 64.5 %

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

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

Our businesses are aligned in four business segments:

Digital Imaging, Instrumentation, Aerospace and Defense Electronics and Engineered Systems.

Our four business segments and their respective percentage contributions to our total net sales in 2021, 2020 and 2019 are summarized in the following table:

Percentage of Total Net Sales

Segment contribution to total net sales:

2021 2020 2019

Digital Imaging 52 % 32 % 31 %

Instrumentation 25 % 35 % 35 %

Aerospace and Defense Electronics 14 % 19 % 22 %

Engineered Systems 9 % 14 % 12 %

100 % 100 % 100 %

Total year 2022 net sales included $593.7 million in incremental net sales from current and prior year acquisitions, primarily related to the acquisition of FLIR.

In connection with the FLIR acquisition, Teledyne incurred pretax expenses in 2021 of $350.3 million, which included $110.3 million in acquired intangible asset amortization expense, $106.4 million in acquired inventory step-up expense, $103.0 million of transaction and integration-related costs and $30.6 million in bridge loan and debt extinguishment fees.

Total year 2021 also included $39.0 million of acquired intangible asset amortization expense for acquisitions completed in prior periods.

Net income for 2022 and 2021 also included net discrete tax benefits of $86.7 million and $34.7 million, respectively.

Results of Operations

2022 compared with 2021

Net sales (dollars in millions) 2021 2020 %

Net sales (dollars in millions) 2022 2021 % Change

Digital Imaging $ 3,110.9 $ 2,412.9 28.9 %

3 unchanged sentences

Total net sales $ 5,458.6 $ 4,614.3 18.3 %

Results of operations (dollars in millions) 2021 2020 %

Results of operations (dollars in millions) 2022 2021 % Change

Digital Imaging $ 519.3 $ 325.6 59.5 %

3 unchanged sentences

Corporate expense (65.9) (136.8) (51.8) %

Operating income 624.3 480.1 30.0 %

Operating income (loss) 972.0 624.3 55.7 %

Interest and debt expense, net (89.3) (90.8) (1.7) %

Non-service retirement benefit income 11.4 11.2 1.8 %

Gain (loss) on debt extinguishment 10.6 (13.4) (179.1) %

Other income (expense), net 3.4 2.5 36.0 %

Income before income taxes 533.8 469.7 13.6 %

Provision for income taxes 88.5 67.8 30.5 %

Net income $ 445.3 $ 401.9 10.8 %

Income (loss) before income taxes 908.1 533.8 70.1 %

Provision (benefit) for income taxes 119.2 88.5 34.7 %

Net income (loss) including noncontrolling interest 788.9 445.3 77.2 %

Net income (loss) attributable to noncontrolling interest 0.3 — *

Net income (loss) attributable to Teledyne $ 788.6 $ 445.3 77.1 %

* not meaningful

Net sales and cost of sales by segment and total company (dollars in millions):

2021 2020 Change

Digital Imaging

Net sales $ 2,412.9 $ 986.0 $ 1,426.9

Cost of sales $ 1,421.7 $ 569.2 $ 852.5

Cost of sales % of net sales 58.9 % 57.7 %

Instrumentation

Net sales $ 1,166.9 $ 1,094.5 $ 72.4

Cost of sales $ 617.8 $ 603.4 $ 14.4

Cost of sales % of net sales 53.0 % 55.1 %

Aerospace and Defense Electronics

Net sales $ 628.7 $ 589.4 $ 39.3

Cost of sales $ 400.9 $ 395.1 $ 5.8

Cost of sales % of net sales 63.8 % 67.0 %

Engineered Systems

Net sales $ 405.8 $ 416.3 $ (10.5)

Cost of sales $ 332.5 $ 337.6 $ (5.1)

Cost of sales % of net sales 81.9 % 81.1 %

Total Company

Net sales $ 4,614.3 $ 3,086.2 $ 1,528.1

Cost of sales $ 2,772.9 $ 1,905.3 $ 867.6

Cost of sales % of net sales 60.1 % 61.7 %

We reported net sales of $4,614.3 million in 2021, compared with net sales of $3,086.2 million for 2020, an increase of 49.5%.

Net income increased 10.8% to $445.3 million ($10.05 per diluted share) in 2021, compared with net income of $401.9 million ($10.62 per diluted share) in 2020.

Total year 2021 net sales included $1,273.6 million in incremental net sales from the acquisition of FLIR.

In connection with the 2021 FLIR acquisition, Teledyne incurred pretax expenses of $350.3 million, which included $110.3 million in acquired intangible asset amortization expense, $106.4 million in acquired inventory step-up expense, $103.0 million of transaction and integration-related costs and $30.6 million in bridge loan and debt extinguishment fees.

Total year 2021 also included $39.0 million of acquired intangible asset amortization expense for acquisitions completed in prior periods.

Total year 2020 included pretax charges of $72.1 million which included $38.8 million in acquired intangible asset amortization expense and $33.3 million in severance, facility consolidation and other costs.

Net income for 2021 and 2020 also included net discrete tax benefits of $34.7 million and $34.6 million, respectively.

The increase in net sales in 2021, compared with 2020, reflected higher net sales in each segment except the Engineered Systems segment.

Total year 2021 also included net sales from the acquisition of FLIR in the Digital Imaging segment, as well as organic sales growth.

Sales under contracts with the U.S.

Government were approximately 26% of net sales in both 2021 and in 2020.

Net sales increased across all business segments.

Refer to the “Segments” discussion later in this section for additional discussion of changes in net sales.

Sales to international customers represented approximately 47% of net sales in 2022 and 47% of net sales in 2021.

Approximately 25% and 26% of our total net sales 2022 and 2021, respectively, were derived from contracts with agencies of, and prime contractors to, the U.S.

Cost of Sales

Cost of sales increased by $867.6 million in 2021, compared with 2020, which primarily reflected the impact of higher net sales and $106.4 million in acquired inventory step-up expense from the acquisition of FLIR.

Cost of sales as a percentage of net sales for 2021 was 60.1%, compared with 61.7% for 2020.

The lower cost of sales percentage in 2021, primarily reflects the impact of the FLIR acquisition which carries a lower cost of sales percentage than the other Teledyne businesses, partially offset by the impact of acquired inventory step-up expense from the acquisition of FLIR.

Cost of sales increased by $355.4 million in 2022, primarily driven by the impact of higher net sales.

Cost of sales in 2021 included $106.4 million recorded in 2021 related to acquired inventory step-up expense from the acquisition of FLIR.

No comparable inventory step-up expense was recorded in 2022.

Cost of sales as a percentage of net sales for 2022 was 57.3%, compared with 60.1% for 2021, with the decrease in percentage from 2021 primarily related to the 2021 impact of acquired inventory step-up expense from the FLIR acquisition.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development expense, were higher in 2021, compared with 2020, and primarily reflected the impact of higher net sales, as well as $102.7 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition and higher research and development expense.

Corporate administrative expense in 2021 was $136.8 million, compared with $56.8 million in 2020.

Selling, general and administrative expenses, including research and development expense, were higher in 2022, primarily driven by higher net sales in 2022.

Selling, general and administrative expenses in 2021 included $102.7 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

Corporate expense in 2022 was $65.9 million, compared with $136.8 million in 2021.

The higher 2021 amount included $77.1 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

For 2021, we recorded a total of $20.0 million in stock option expense, of which $6.1 million was recorded within corporate

expense and $13.9 million was recorded in the operating segment results.

For 2020, we recorded a total of $24.7 million in stock option expense, of which $7.2 million was recorded within corporate expense and $17.5 million was recorded in the operating segment results.

Selling, general and administrative expenses as a percentage of net sales was 21.2% for 2022, compared with 23.2% for 2021.

1 unchanged sentence

Acquired Intangible Asset Amortization

Acquired intangible asset amortization for 2021 was $149.3 million, compared with $38.8 million for 2020.

The 2021 includes $110.3 million in acquired intangible asset amortization from the FLIR acquisition.

Pension Service Expense

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

Pension service expense in 2021 was $10.6 million compared with $10.4 million in 2020.

Acquired intangible asset amortization for 2022 was $201.7 million, compared with $149.3 million for 2021, with the increase primarily related to a full year of acquired intangible asset amortization in 2022 from the FLIR acquisition.

Operating Income

Operating income for 2022 was $972.0 million, compared with $624.3 million for 2021, an increase of 55.7%.

The increase in operating income primarily reflected higher operating income in each segment except the Engineered Systems segment.

Corporate expense was $136.8 million in 2021 compared with $56.8 million and included $77.1 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition in 2021.

Operating income in 2021 and 2020 included charges of $26.4 million and $33.3 million, respectively, primarily related to severance, facility consolidation and other costs.

Of these amounts, severance and facility consolidation expense totaled $26.4 million in 2021 and $20.8 million in 2020.

The incremental operating income included in the results for 2021 from the FLIR acquisitions was $80.4 million, which included $242.6 million of acquisition-related transaction and purchase accounting expenses.

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

Interest expense, including credit facility fees and other bank charges, was $104.8 million in 2021, compared with $15.8 million in 2020.

The 2021 amount primarily reflected interest and debt expense on the debt incurred to fund the cash portion of the FLIR acquisition, which included $30.6 million in bridge loan and debt extinguishment fees.

Interest income was less than $1.0 million in both 2021 and 2020.

Non-service retirement benefit income was $11.2 million in 2021, compared with $12.1 million in 2020.

Other income and expense was income of $2.5 million for 2021, compared with expense of $7.2 million in 2020.

The 2020 amount reflected higher foreign currency translation losses.

The increase in operating income primarily reflected higher operating income in each segment except the Engineered Systems

Corporate expense for 2022 was $65.9 million compared with $136.8 million, and the 2021 amount included $77.1 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

Non-operating Income and Expenses

Interest expense, including credit facility fees and other bank charges and net of interest income, was $89.3 million in 2022, compared with $90.8 million in 2021, with the 2022 year including a full year of debt outstanding since the FLIR acquisition.

The 2021 amount reflected interest and debt fees incurred to fund the cash portion of the FLIR acquisition, which included $30.6 million in bridge loan fees.

In 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.

In 2021, the Company called $493.3 million of existing fixed rate senior notes and incurred debt extinguishment expenses of $13.4 million.

The Company’s effective tax rate for 2022 was 13.1%, compared with 16.6% for 2021.

For 2021, net discrete income tax benefits were $34.7 million, which included an income tax benefit of $18.2 million primarily related to the resolution of certain FLIR tax reserves and a $13.1 million income tax benefit related to share-based accounting.

For 2020, net discrete income tax benefits were $34.6 million, which included a $20.9 million income tax benefit related to share-based accounting, $9.8 million in income tax benefit related to U.S.

export sales, U.S.

research credits and other items.

For 2022, net discrete income tax benefits were $86.7 million, which primarily related to income tax benefits of $72.7 million for acquisition-related tax matters and $10.2 million income tax benefits related to share-based accounting.

For 2021, net discrete income tax benefits were $34.7 million, which primarily related to income tax benefits of $18.2 million for acquisition-related tax matters and $13.1 million income tax benefit related to share-based accounting.

Excluding the net discrete income tax benefits in both years, the effective tax rates would have been 22.7% for 2022 and 23.1% for 2021.

2020 compared with 2019

Net sales (dollars in millions) 2020 2019 %

Digital Imaging $ 986.0 $ 992.9 (0.7) %

Instrumentation 1,094.5 1,105.1 (1.0) %

Aerospace and Defense Electronics 589.4 690.1 (14.6) %

Engineered Systems 416.3 375.5 10.9 %

Total sales $ 3,086.2 $ 3,163.6 (2.4) %

Results of operations (dollars in millions) 2020 2019 %

Digital Imaging $ 192.8 $ 176.5 9.2 %

Instrumentation 213.2 200.4 6.4 %

Aerospace and Defense Electronics 80.8 143.4 (43.7) %

Engineered Systems 50.1 36.5 37.3 %

Corporate expense (56.8) (65.1) (12.7) %

Operating income 480.1 491.7 (2.4) %

Interest and debt expense, net (15.3) (21.0) (27.1) %

Non-service retirement benefit income 12.1 8.0 51.3 %

Other expense, net (7.2) (5.0) 44.0 %

Income before income taxes 469.7 473.7 (0.8) %

Provision for income taxes 67.8 71.4 (5.0) %

Net income $ 401.9 $ 402.3 (0.1) %

Net sales and cost of sales by segment and total company (dollars in millions):

2020 2019 Change

The following discussion of our four segments should be read in conjunction with Note 4 .

Digital Imaging

Net sales $ 986.0 $ 992.9 $ (6.9)

Cost of sales $ 569.2 $ 580.6 $ (11.4)

Cost of sales % of net sales 57.7 % 58.5 %

Instrumentation

Net sales $ 1,094.5 $ 1,105.1 $ (10.6)

Cost of sales $ 603.4 $ 612.8 $ (9.4)

Cost of sales % of net sales 55.1 % 55.5 %

Aerospace and Defense Electronics

Net sales $ 589.4 $ 690.1 $ (100.7)

Cost of sales $ 395.1 $ 414.7 $ (19.6)

Cost of sales % of net sales 67.0 % 60.1 %

Engineered Systems

Net sales $ 416.3 $ 375.5 $ 40.8

Cost of sales $ 337.6 $ 312.2 $ 25.4

Cost of sales % of net sales 81.1 % 83.1 %

Total Company

(Dollars in millions) 2022 2021

Net sales $ 3,110.9 $ 2,412.9

Cost of sales $ 1,705.6 $ 1,421.7

Cost of sales % of net sales 61.7 % 60.7 %

We reported net sales of $3,086.2 million in 2020, compared with net sales of $3,163.6 million for 2019, a decrease of 2.4%.

Net income was $401.9 million ($10.62 per diluted share) in 2020, compared with net income of $402.3 million ($10.73 per diluted share) in 2019, a decrease of 0.1%.

Total year 2020 and 2019 reflected pretax charges totaling $33.3 million and $8.8 million, respectively, primarily in severance, facility consolidation, acquisition and certain changes in contract cost estimates.

Net income for 2020 and 2019 also included net discrete tax benefits of $34.6 million and $26.1 million, respectively.

The decrease in net sales in 2020, compared with 2019, reflected lower net sales in each segment except the Engineered Systems segment.

Net sales in 2020 included $68.9 million in incremental net sales from recent acquisitions.

Sales under contracts with the U.S.

Government were approximately 26% of net sales in 2020 and 24% of net sales in 2019.

Sales to international customers represented approximately 45% of net sales in 2020 and 44% of net sales in 2019.

Cost of Sales

Cost of sales decreased by $15.0 million in 2020, compared with 2019, which primarily reflected the impact of lower net sales, partially offset by higher severance and facility consolidation expense.

Cost of sales as a percentage of net sales for 2020 was 61.7%, compared with 60.7% for 2019.

Selling, general and administrative expenses $ 702.3 $ 537.2

Selling, general and administrative expenses, including research and development expense, were lower in 2020, compared with 2019.

The decrease primarily reflected the impact of lower net sales.

Corporate administrative expense in 2020 was $56.8 million, compared with $65.1 million in 2019.

The lower 2020 amount primarily reflected lower compensation expense.

For 2020, we recorded a total of $24.7 million in stock option expense, of which $7.2 million was recorded within corporate expense and $17.5 million was recorded in the operating segment results.

For 2019, we recorded a total of $26.1 million in stock option expense, of which $9.7 million was recorded within corporate expense and $16.4 million was recorded in the operating segment results.

Selling, general and administrative expenses as a percentage of net sales was 21.5% for 2020, compared with 22.6% for 2019.

Acquired intangible asset amortization $ 183.7 $ 128.4

Acquired intangible asset amortization for 2020 was $38.8 million, compared with $36.5 million for 2019.

Pension Service Expense

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

Pension service expense in 2020 was $10.4 million compared with $9.4 million in 2019.

Operating income $ 519.3 $ 325.6

Operating income for 2020 was $480.1 million, compared with $491.7 million for 2019, a decrease of 2.4%.

The decrease in operating income primarily reflected lower operating income in the Aerospace and Defense Electronics segment, partially offset by higher operating income in our other three segments.

Operating income in 2020 and 2019 included charges of $33.3 million and $8.8 million, respectively, primarily related to severance, facility consolidation and acquisition expense and certain changes in contract cost estimates.

Of these amounts, severance and facility consolidation expense totaled $20.8 million in 2020 and $3.2 million in 2019.

The incremental operating income included in the results for 2020 from acquisitions was $4.1 million.

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

Interest expense, including credit facility fees and other bank charges, was $15.8 million in 2020 compared with $22.0 million in 2019 and reflected the impact of lower average debt levels in 2020.

Interest income was $0.5 million in 2020 and $1.0 million in 2019.

Non-service retirement benefit income was $12.1 million in 2020, compared with $8.0 million in 2019.

Other expense was $7.2 million for 2020, compared with expense of $5.0 million in 2019 and reflected higher foreign currency translation losses.

The Company’s effective tax rate for 2020 was 14.4%, compared with 15.1% for 2019.

For 2020, net discrete income tax benefits were $34.6 million, which included a $20.9 million income tax benefit related to share-based accounting, $9.8 million primarily related to U.S.

export sales, U.S.

research credits and other items.

For 2019, net discrete income tax benefits were $26.1 million, which included a $15.4 million income tax benefit related to share-based accounting, $13.1 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitations, a favorable tax settlement and a tax benefit related to U.S.

export sales.

Excluding the net discrete income tax benefits in both years, the effective tax rates would have been 21.8% for 2020 and 20.6% for 2019.

The following discussion of our four segments should be read in conjunction with Note 12 of the Notes to Consolidated Financial Statements.

Digital Imaging

(Dollars in millions) 2021 (a) 2020 2019

Net sales $ 2,412.9 $ 986.0 $ 992.9

Cost of sales $ 1,421.7 $ 569.2 $ 580.6

Selling, general and administrative expenses (b) $ 537.2 $ 205.9 $ 217.2

Acquired intangible asset amortization (b) $ 128.4 $ 18.1 $ 18.6

Operating income $ 325.6 $ 192.8 $ 176.5

Cost of sales % of net sales 54.8 % 58.9 %

4 unchanged sentences

Government sales % of net sales 19.9 % 21.4 %

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

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

Our Digital Imaging segment includes high-performance sensors, cameras and systems, within the visible, infrared and X-ray spectra for use in industrial, government and medical applications, as well as MEMS and high-performance, high-reliability semiconductors including analog-to-digital and digital-to-analog converters.

It also includes our sponsored and centralized research laboratories which benefit government programs and commercial businesses.

Teledyne acquired FLIR in May 2021.

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

FLIR develops technologies that enhance perception and awareness.

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

2022 compared with 2021

1 unchanged sentence

Operating income for 2022 increased 59.5%, compared with 2021.

Total year 2021 net sales included $1,273.6 million of incremental net sales from the FLIR acquisition as well as organic sales growth from industrial and scientific sensors and cameras, x-ray products, micro-electro-mechanical systems (“MEMS”) and detectors for space imaging applications, partially offset by lower sales for geospatial imaging systems.

The increase in operating income in the 2021 reflected the contribution from FLIR, partially offset by $242.6 million of FLIR acquisition-related transaction and purchase accounting expenses, which included $110.3 million in acquired intangible asset amortization expense, $106.4 million in inventory step-up expense and $25.9 million of integration-related costs.

Total year 2022 net sales included $593.7 million in incremental net sales from current and prior year acquisitions as well as organic sales growth from industrial and scientific sensors and cameras, X-ray products and MEMS, partially offset by lower sales of detectors for space imaging applications and lower sales for geospatial imaging systems.

The increase in operating income in 2022 reflected the contribution from FLIR, and 2021 included $242.6 million of FLIR acquisition-related transaction and purchase accounting expenses, which consisted of $110.3 million in acquired intangible asset amortization expense, $106.4 million in inventory step-up expense and $25.9 million of integration-related costs.

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

The incremental operating income included in the results for 2021 from the FLIR acquisition was $80.4 million, which included $242.6 million of acquisition-related transaction and purchase accounting expenses.

Cost of sales for 2021 increased by $852.5 million, compared with 2020, and reflected the impact of higher net sales and $106.4 million in acquired inventory step-up expense relating to the acquisition of FLIR.

The cost of sales percentage in 2021 increased to 58.9% compared with 57.7% in 2020 and reflected the impact of acquired inventory step-up expense.

Selling, general and administrative expenses for 2021 increased to $537.2 million, compared with $205.9 million in 2020 and reflected the impact of higher net sales, as well as the acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

The selling, general and administrative expense percentage increased to 22.3% in 2021 from 20.9% in 2020 and reflected the impact of acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition.

2020 compared with 2019

Our Digital Imaging segment net sales for 2020 decreased 0.7%, compared with 2019.

Operating income for 2020 increased 9.2%, compared with 2019.

Total year 2020 net sales primarily reflected lower sales of X-ray products for dental and medical applications, due in part to deferred patient treatments, partially offset by greater sales of infrared detectors for defense and space applications, MEMS products, and $2.3 million in incremental sales from recent acquisitions.

The increase in operating income for 2020 reflected the impact of favorable product mix.

Cost of sales for 2020 decreased by $11.4 million, compared with 2019, and reflected the impact of lower net sales.

The cost of sales percentage in 2020 decreased to 57.7% compared with 58.5% in 2019.

Selling, general and administrative expenses for 2020 decreased to $205.9 million, compared with $217.2 million in 2019 and reflected the impact of lower net sales and lower research and development expense.

The selling, general and administrative expense percentage decreased to 20.9% in 2020 from 21.9% in 2019 and reflected the impact of lower selling and research and development expense.

Cost of sales for 2022 increased by $283.9 million, compared with 2021, and reflected the impact of higher net sales, partially offset by the 2021 amount including $106.4 million in acquired inventory step-up expense relating to the acquisition of FLIR.

The cost of sales percentage in 2022 decreased to 54.8% compared with 58.9% in 2021 and reflected the impact of acquired inventory step-up expense in 2021.

Selling, general and administrative expenses for 2022 increased to $702.3 million, compared with $537.2 million in 2021 and reflected the impact of higher net sales and higher research and development expense partially offset by lower integration-related costs, as the 2021 amount included $25.9 million of integration-related costs.

Research and development expense increased $67.2 million in 2022, and $63.4 million of this increase related to a full year of FLIR in 2022.

The selling, general and administrative expense percentage increased to 22.6% in 2022 from 22.3% in

2021, with the 2022 percentage including a full year of FLIR operating results, which carry a higher research and development expense as a percentage of sales.

The increase in selling, general and administrative expense percentage was partially offset by lower FLIR integration-related costs in 2022 as compared to 2021.

Instrumentation

2 unchanged sentences

Cost of sales $ 668.7 $ 617.8

Selling, general and administrative expenses (a) $ 275.3 $ 258.1 $ 274.9

Acquired intangible asset amortization (a) $ 20.1 $ 19.8 $ 17.0

Selling, general and administrative expenses $ 272.8 $ 275.3

Acquired intangible asset amortization $ 17.2 $ 20.1

Operating income $ 295.3 $ 253.7

5 unchanged sentences

Government sales % of net sales 8.6 % 7.9 %

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

Our Instrumentation segment provides monitoring and control instruments for marine, environmental, industrial and other applications, as well as electronic test and measurement equipment.

3 unchanged sentences

Operating income for 2022 increased 16.4%, compared with 2021.

The 2021 net sales increase primarily resulted from higher sales of test and measurement instrumentation and environmental instrumentation, partially offset by lower sales of marine instrumentation.

Sales of test and measurement instrumentation and environmental instrumentation increased $39.6 million and $35.0 million, respectively.

Sales of marine instrumentation decreased $2.2 million.

The increase in operating income in 2021 reflected the impact of higher sales and improved margins across most product categories resulting from ongoing margin improvement initiatives.

Cost of sales increased by $14.4 million in 2021, compared with 2020, and primarily reflected the impact of higher net sales.

The cost of sales percentage decreased to 53.0% in 2021 from 55.1% in 2020.

Selling, general and administrative expenses, including research and development expense, in 2021, increased by $17.2 million, compared with 2020, and reflected the impact of higher net sales, $6.0 million in higher research and development expense, partially offset by $4.6 million in lower severance and facility consolidation expense.

Selling, general and administrative expenses for 2021, as a percentage of sales, remained at 23.6%.

2020 compared with 2019

Our Instrumentation segment net sales for 2020 decreased 1.0%, compared with 2019.

Operating income for 2020 increased 6.4%, compared with 2019.

The 2020 net sales decrease primarily resulted from lower sales of marine instrumentation and test and measurement instrumentation, partially offset by higher sales of environmental instrumentation.

Sales of environmental instrumentation increased $19.9 million and included $51.8 million in incremental sales from the gas and flame detection business acquisition.

Sales of marine instrumentation decreased by $23.9 million.

Sales of test and measurement instrumentation decreased $6.6 million and included $14.8 million in incremental sales from the acquisition of OakGate.

The increase in operating income reflected the impact of improved product line margins and lower severance, facility consolidation and acquisition expense.

The incremental operating income included in the results for 2020 from recent acquisitions was $4.1 million, including $3.4 million in incremental intangible asset amortization expense.

Operating income in 2020 included $7.6 million in severance, facility consolidation and acquisition expense compared with $2.9 million in similar costs for 2019.

Cost of sales decreased by $9.4 million in 2020, compared with 2019, and primarily reflected the impact of lower net sales.

The cost of sales percentage decreased slightly to 55.1% in 2020 from 55.5% in 2019.

Selling, general and administrative expenses, including research and development expense, in 2020, decreased by $16.8 million, compared with 2019, and reflected the impact of lower sales, $3.0 million in lower research and development expense, partially offset by higher severance, facility consolidation and acquisition expense.

Selling, general and administrative expenses for 2020, as a percentage of sales, decreased to 23.6%, compared with 24.9% for 2019, and reflected the impact of $3.0 million in lower research and development expense, partially offset by the impact of higher severance and facility consolidation and acquisition expense.

The 2022 net sales increased in all product lines.

Sales of marine instrumentation increased $36.6 million, sales of test and measurement instrumentation increased $31.8 million and sales of environmental instrumentation increased $18.7 million compared with 2021.

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

Cost of sales increased $50.9 million in 2022, compared with 2021, and primarily reflected the impact of higher net sales.

The cost of sales percentage increased to 53.3% in 2022 from 53.0% in 2021.

Selling, general and administrative expenses, including research and development expense decreased by $2.5 million in 2022 compared with 2021.

Selling, general and administrative expenses for 2022, as a percentage of sales, decreased to 21.8% from 23.6%, primarily due to the impact of higher sales.

Aerospace and Defense Electronics

2 unchanged sentences

Cost of sales $ 407.8 $ 400.9

Selling, general and administrative expenses (a) $ 93.8 $ 112.6 $ 131.1

Acquired intangible asset amortization (a) $ 0.8 $ 0.9 $ 0.9

Selling, general and administrative expenses $ 89.7 $ 93.8

Acquired intangible asset amortization $ 0.8 $ 0.8

Operating income $ 184.1 $ 133.2

5 unchanged sentences

Government sales % of net sales 39.0 % 36.2 %

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

Our Aerospace and Defense Electronics segment provides sophisticated electronic components and subsystems and communications products, including defense electronics, harsh environment interconnects, data acquisition and communications equipment for aircraft, and components and subsystems for wireless and satellite communications, as well as general aviation batteries.

2 unchanged sentences

Operating income for 2022 increased 38.2%, compared with 2021.

The 2021 net sales increase reflected $32.4 million of higher sales for defense and space electronics and $6.9 million for aerospace electronics.

The increase in operating income for 2021 primarily reflected the impact of higher sales, $10.4 million of lower severance, facility consolidation cost and lower research and development expense of $11.8 million.

The lower research and development expense primarily reflected lower spending for aerospace electronics.

The 2022 net sales increase reflected $35.7 million of higher sales for aerospace electronics and $18.0 million of higher sales for defense electronics.

The increase in operating income for 2022 primarily reflected the impact of higher sales and lower research and development expense.

Cost of sales for 2022 increased by $6.9 million, compared with 2021, and reflected the impact of higher net sales, partially offset by the impact of lower severance and facility consolidation costs.

Cost of sales as a percentage of net sales for 2021 decreased to 63.8% from 67.0% in 2020 and reflected the impact of lower severance, facility consolidation costs.

Selling, general and administrative expenses, including research and development expense, decreased to $93.8 million in 2021, from $112.6 million in 2020 and reflected impact of lower severance, facility consolidation and lower research and development expense.

The selling, general and administrative expense percentage was 14.9% in 2021 compared to 19.1% in 2020 and reflected impact of lower severance, facility consolidation and lower research and development expense.

2020 compared with 2019

Our Aerospace and Defense Electronics segment net sales for 2020 decreased 14.6%, compared with 2019.

Operating income for 2020 decreased 43.7%, compared with 2019.

The 2020 net sales decrease reflected $94.8 million of lower sales of aerospace electronics and lower sales of $5.9 million of defense electronics.

The weakness in the commercial aerospace industry, due to COVID, negatively affected sales of aerospace electronics.

The decrease in operating income in 2020 primarily reflected the impact of lower sales and $18.3 million of higher severance, facility consolidation expense and certain unfavorable changes in contract cost estimates.

Cost of sales for 2020 decreased by $19.6 million, compared with 2019, and reflected the impact of lower net sales.

Cost of sales as a percentage of net sales for 2020 increased to 67.0% from 60.1% in 2019 and reflected the impact of higher severance, facility consolidation expense and certain unfavorable changes in contract cost estimates.

Selling, general and administrative expenses, including research and development expense, decreased to $112.6 million in 2020, from $131.1 million in 2019 and reflected the impact of lower net sales, partially offset by higher severance and facility consolidation expense.

The selling, general and administrative expense percentage was 19.1% in 2020 compared to 19.0% in 2019.

Cost of sales as a percentage of net sales for 2022 decreased to 59.8% from 63.8% in 2021 and primarily reflected product mix, including the increased sales of aerospace electronics which carry a higher margin than most defense electronics products.

Selling, general and administrative expenses, including research and development expense, decreased to $89.7 million in 2022, from $93.8 million in 2021 and reflected $4.9 million of lower research and development expense in 2022.

The lower research and development expense primarily reflected lower spending for aerospace electronics.

The selling, general and administrative expense percentage was 13.1% in 2022 compared to 14.9% in 2021 and reflected the impact of higher sales and lower research and development expense.

Engineered Systems

11 unchanged sentences

2022 compared with 2021

Our Engineered Systems segment net sales for 2021 decreased 2.5%, compared with 2020.

Our Engineered Systems segment net sales for 2022 increased 1.4%, compared with 2021.

Operating income for 2022 decreased 19.3%, compared with 2021.

The 2021 net sales decrease primarily reflected lower sales of $19.1 million for turbine engines, partially offset by higher sales of $8.3 million for engineered products $0.3 million for energy systems.

The higher net sales for engineered products primarily reflected increased sales from missile defense, medical modeling and analysis, and marine and other manufacturing programs.

The 2022 net sales increase primarily reflected $8.2 million of higher sales for energy systems and $2.5 million of higher sales for engineered products, partially offset by lower sales of $5.2 million for turbine engines.

The higher net sales for engineered products primarily reflected increased sales from marine and electronic manufacturing services programs products, partially offset by decreased sales in missile defense and space programs.

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

Operating income in 2021 primarily reflected the impact of lower sales.

Cost of sales for 2021 decreased by $5.1 million, compared with 2020, and primarily reflected the impact of lower net sales.

Cost of sales as a percentage of net sales for 2021 increased slightly to 81.9%, compared with 81.1% in 2020.

Selling, general and administrative expenses, including research and development and bid and proposal expense, decreased to $24.7 million in 2021, compared with $28.6 million in 2020.

The selling, general and administrative expense percentage decreased slightly to 6.1% for 2021, compared with 6.9% in 2020.

2020 compared with 2019

Our Engineered Systems segment net sales for 2020 increased 10.9%, compared with 2019.

Operating income for 2020 increased 37.3%, compared with 2019.

The 2020 net sales increase reflected higher sales of $35.2 million of engineered products and services and $8.4 million of turbine engines, partially offset by lower sales of $2.8 million of energy systems products.

The higher sales of engineered products and services primarily reflected increased sales from marine, space, nuclear and other manufacturing programs, as well as electronic manufacturing services products, partially offset by lower sales related to missile defense.

The higher sales of turbine engines reflected increased sales for the Harpoon missile program.

Operating income in 2020 reflected the impact of higher sales and a greater mix of higher margin fixed-price manufacturing programs.

Cost of sales for 2020 increased by $25.4 million, compared with 2019, and primarily reflected the impact of higher net sales.

Cost of sales as a percentage of net sales for 2020 decreased to 81.1%, compared with 83.1% in 2019.

Operating income in 2022 primarily reflected the impact of unfavorable product mix, primarily related to electronic manufacturing services products and turbine engines.

Cost of sales for 2022 increased by $13.7 million, compared with 2021, and primarily reflected the impact of higher net sales and unfavorable product mix.

Cost of sales as a percentage of net sales for 2022 increased to 84.2%, compared with 81.9% in 2021.

Selling, general and administrative expenses, including research and development and bid and proposal expense, increased to $25.9 million in 2022, compared with $24.7 million in 2021.

The selling, general and administrative expense percentage decreased slightly to 6.9% for 2020, compared with 7.2% in 2019.

The selling, general and administrative expense percentage increased to 6.3% for 2022 compared to 6.1% in 2021.

Financial Condition, Liquidity and Capital Resources

1 unchanged sentence

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.

It is anticipated that operating cash flow, together with available borrowings under the credit facility and the debt financing arrangement described below will be sufficient to meet these requirements.

It is anticipated that operating cash flow, together with available borrowings under the credit facility and the debt financing arrangements described below, will be sufficient to meet these requirements.

To support acquisitions, we may need to raise additional capital.

1 unchanged sentence

We have no off-balance sheet financing arrangements that incorporate the use of special purpose or unconsolidated entities.

Credit Facility, Senior Notes and Term Loan

Long-term debt (dollars in millions, except as noted) :

January 2, 2022 January 3, 2021

$1.15 billion credit facility due March 2026, weighted average variable rate of 1.20% at January 2, 2022 and 1.05% at January 3, 2021 $ 125.0 $ 125.0

Term loan due October 2024, variable rate of 1.35% at January 2, 2022 and 1.15% at January 3, 2021, swapped to a Euro fixed rate of 0.612% 150.6 150.0

0.65% Fixed Rate Senior Notes due April 2023 300.0 —

0.95% Fixed Rate Senior Notes due April 2024, callable after April 2022 450.0 —

1.60% Fixed Rate Senior Notes due April 2026 450.0 —

2.25% Fixed Rate Senior Notes due April 2028 700.0 —

2.50% Fixed Rate Senior Notes due August 2030 500.0 —

2.75% Fixed Rate Senior Notes due April 2031 1,100.0 —

Term loan due May 2026, variable rate of 1.35% at January 2, 2022 355.0 —

3.09% Fixed Rate Senior Notes due December 2021 — 95.0

3.28% Fixed Rate Senior Notes due November 2022 — 100.0

0.70% €50 Million Fixed Rate Senior Notes due April 2022 — 61.1

0.92% €100 Million Fixed Rate Senior Notes due April 2023 — 122.1

1.09% €100 Million Fixed Rate Senior Notes due April 2024 — 122.1

Other debt 0.7 4.0

Debt issuance costs (31.9) (0.8)

Total long-term debt 4,099.4 778.5

Current portion of long-term debt — (97.6)

Total long-term debt, net of current portion $ 4,099.4 $ 680.9

Cash and Cash Equivalents

Cash and cash equivalents totaled $638.1 million at January 1, 2023, of which $403.2 million was held by foreign subsidiaries.

Cash equivalents consist of highly liquid money-market mutual funds and bank deposits with maturities of three months or less when purchased.

Long-term Debt

Long-term debt, including unamortized debt issuance costs was $3,920.6 million at January 1, 2023 compared to $4,099.4 million at January 2, 2022.

During 2022, the Company repaid $185.0 million of debt.

The Company made $110.0 million of floating rate debt payments on 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 January 1, 2023, we had $38.6 million in outstanding letters of credit.

Of this amount, $244.6 million was released in February 2022.

Our credit facility, senior notes and term loan agreement require the Company to comply with various financial and operating covenants, including maintaining certain consolidated leverage and interest coverage ratios, as well as minimum net worth levels and limits on acquired debt.

At January 2, 2022, the Company was in compliance with these covenants and we had a significant amount of margin between required financial covenant ratios and our actual ratios.

Currently, we do not believe our ability to undertake additional debt financing, if needed, is reasonably likely to be materially impacted by debt restrictions under our credit agreements subject to our complying with required financial covenants listed in the table below.

Financial covenant ratios and the actual ratios at January 2, 2022:

$1.15 billion Credit Facility expires March 2026, $1.0 billion term loan due May 2026 and $150.0 million term loan due October 2024 (issued October 2019)

Financial Covenant Requirement Actual Measure

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

No more than 4.75 to 1 2.913 to 1

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

No less than 3.0 to 1 10.6 to 1

(a) The Consolidated Leverage Ratio is equal to Net Debt/EBITDA as defined in our $1.15 billion credit agreement.

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

(b) The Consolidated Interest Coverage Ratio is equal to EBITDA/Interest as defined in our $1.15 billion credit agreement.

The credit agreement and term loans require the Company to comply with various financial and operating covenants and at January 1, 2023, the Company was in compliance with these covenants and had a significant amount of margin between required financial covenant ratios and our actual ratios.

Currently, we do not believe our ability to undertake additional debt financing, if needed, is reasonably likely to be materially impacted by debt restrictions under our credit agreements.

Available borrowing capacity under the $1.15 billion credit facility, which is reduced by borrowings and $21.3 million in outstanding letters of credit, was $1,003.7 million at January 1, 2023.

Of the $281.9 million in outstanding letters of credit, $244.6 million was released in February 2022.

See Note 9, Long-Term Debt to these Consolidated Financial Statements for additional information regarding our credit facility and term loan.

See Note 8 for additional information regarding our credit facility and long-term debt.

Contractual Obligations

14 unchanged sentences

Unrecognized tax benefits of $162.8 million and accrued interest and penalties on these tax matters of $45.6 million are not included in the table above.

As discussed in Note 10 of the Notes to Consolidated Financial Statements, Teledyne paid $296.4 million in February 2022 for the Swedish tax matter, including accrued interest and penalties.

The remaining unrecognized tax benefits and accrued interest and penalties are not included in the table above because $32.1 million is offset by deferred tax assets, and the remainder cannot be reasonably estimated to be settled in cash due to a lack of prior settlement history and offsetting credits.

At January 1, 2023, we were not required, and accordingly are not planning, to make any cash contributions to the domestic qualified pension plans for 2023.

Our minimum funding requirements after 2021 as set forth by ERISA, are dependent on several factors as discussed under “Accounting for Pension Plans” in the Critical Accounting Policies section of this Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Our minimum funding requirements after 2022 as set forth by the Employee Retirement Income Security Act, are dependent on several factors as discussed under “Accounting for Pension Plans” in the Critical Accounting Policies and Estimates section of this Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Estimates beyond 2023 have not been provided due to the significant uncertainty of these amounts, which are subject to change until the Company’s pension assumptions can be updated at the appropriate times.

3 unchanged sentences

These plans are not required to be funded in advance but are pay as you go.

See further discussion in Note 11 of the Notes to Consolidated Financial Statements.

Teledyne intends to continue to monitor and manage its defined benefit pension plans obligation and may take additional actions to manage risk in the future.

See further discussion in Note 10.

Teledyne monitors and manages its defined benefit pension plans obligation and may take additional actions to manage risk in the future.

Operating Activities

In 2021, net cash provided by operating activities was $824.6 million, compared with $618.9 million in 2020 and $482.1 million in 2019.

The higher cash provided by operating activities in 2021, compared with 2020, reflected the impact of higher net income and the cash flow contribution from FLIR, partially offset by $9.1 million of higher income tax payments.

The higher cash provided by operating activities in 2020, compared with 2019, was driven by the timing of accounts receivable collections, cash flow from recent acquisitions and $35.6 million of lower income tax payments.

Free cash flow (cash provided by operating activities less capital expenditures) was $723.0 million in 2021, compared with $547.5 million in 2020 and $393.7 million in 2019.

Net cash provided by operating activities was $486.8 million and $824.6 million in 2022 and 2021, respectively.

The lower cash provided by operating activities in 2022, compared with 2021 primarily resulted from a payment of $296.4 million to the Swedish Tax Authority in the first quarter of 2022, related to a disputed pre-acquisition 2018 tax reassessment issued to a FLIR subsidiary in Sweden, greater inventory purchases in 2022 as compared to 2021, to mitigate supply chain constraints and higher income tax payments of $128.8 million in 2022.

These changes were partially offset by higher net income in 2022.

Free cash flow (cash provided by operating activities less capital expenditures) and adjusted free cash flow (both non-GAAP measures) were as follows (in millions):

Free Cash Flow(a)

(in millions, brackets indicate use of funds)

2021 2020 2019

Cash provided by operating activities $ 824.6 $ 618.9 $ 482.1

Cash provided by (used in) operating activities $ 486.8 $ 824.6

Capital expenditures for property, plant and equipment (92.6) (101.6)

Free cash flow 394.2 723.0

a) We define free cash flow as cash provided by operating activities (a measure prescribed by generally accepted accounting principles) less capital expenditures for property, plant and equipment.

We believe that this supplemental non-GAAP information is useful to assist management and the investment community in analyzing our ability to generate cash flow.

On January 26, 2022, the Administrative Court of Appeal in Stockholm, Sweden generally affirmed the March 2020 ruling of the First Instance Court and determined a tax liability in the amount of SEK 2.765 billion.

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

Payment for acquisition-related tax matter 296.4 —

FLIR transaction-related cash payments, net of tax — 71.6

Adjusted free cash flow $ 690.6 $ 794.6

(a) We define free cash flow as cash provided by operating activities (a measure prescribed by GAAP) less capital expenditures for property, plant and equipment.

Adjusted free cash flow eliminates the impact of cash paid for transaction related expenses for the FLIR acquisition on a net of tax basis as

well as the payment of a pre-acquisition 2018 tax reassessment issued to a FLIR subsidiary in Sweden.

We believe that this supplemental non-GAAP information is useful to assist management and the investment community in analyzing the company’s ability to generate cash flow.

Investing Activities

Net cash used in investing activities was $3,824.3 million, $99.4 million and $571.9 million for 2021, 2020 and 2019, respectively.

Cash flows relating to investing activities consist primarily of cash used for acquisitions and other investments and capital expenditures.

Net cash used in investing activities was $175.4 million and $3,824.3 million for 2022 and 2021, respectively.

Investing activities used cash for acquisitions and other investments of $99.6 million and $3,723.3 million in 2022 and 2021, respectively (see “Recent Acquisitions”).

Teledyne funded the acquisitions from borrowings under its credit facilities, issuance of senior notes and term loans, the issuance of Teledyne common stock and cash on hand.

Cash flows relating to investing activities for capital expenditures.

Capital expenditures (in millions):

2021 2020 2019

Digital Imaging $ 63.9 $ 64.2

5 unchanged sentences

During 2023, we plan to invest approximately $100 million in capital expenditures, principally to upgrade facilities and manufacturing equipment.

Investing activities used cash for acquisitions and other investments of $3,723.3 million, $29.0 million and $484.0 million, in 2021, 2020 and 2019, respectively (see “Recent Acquisitions”).

Teledyne funded the acquisitions from borrowings under its credit facilities, issuance of senior notes and term loans, the issuance of Teledyne common stock and cash on hand.

For all acquisitions, the results of operations and cash flows are included in our consolidated financial statements from the date of each respective acquisition.

The following table shows the purchase price (net of cash acquired), goodwill acquired and intangible assets acquired for the acquisitions and other investments made in 2021 and 2020 (in millions):

Acquisition Acquisition date Consideration Transferred(a)

Goodwill Acquired Acquired Intangible Assets

FLIR May 14, 2021 $ 7,620.9 $ 5,905.5 $ 2,490.0

(a) Net of cash acquired.

The consideration included approximately $3.9 billion of Teledyne shares issued to existing shareholders of the acquired company.

This $3.9 billion of equity consideration is a non-cash transaction.

An immaterial portion of the cash consideration for certain vested FLIR restricted stock awards was deferred at the election of the award holder and will be paid out in future periods.

Acquisition Acquisition date Cash Paid (a) Goodwill Acquired Acquired Intangible Assets

OakGate Technology, Inc.

January 5, 2020 $ 28.5 $ 16.9 $ 7.0

Purchase price adjustment - Micralyne Inc.

(acquired in 2019) 0.5 — —

Total $ 29.0 $ 16.9 $ 7.0

(a) Net of cash acquired .

Goodwill resulting from the OakGate and Micralyne acquisitions will not be deductible for tax purposes.

Financing Activities

Financing activities for 2021 reflected net proceeds from debt of $2,834.2 million, compared with net payments on debt of $98.1 million in 2020 and net proceeds from debt of $108.8 million for 2019.

Fiscal years 2021, 2020 and 2019 reflect proceeds from the exercise of stock options of $25.4 million, $36.3 million and $34.6 million, respectively.

In the first quarter of 2021, Teledyne completed various financing activities related to the then pending acquisition of FLIR.

These activities included entering into a $4.5 billion short term stand-by bridge facility on January 4, 2021, as required by the definitive agreement, resulting in debt expense of $17.2 million.

In addition, on March 17, 2021 Teledyne called $493.3 million of existing fixed rate senior notes and incurred debt extinguishment expenses of $13.4 million, which is included in interest and debt expense, net.

On March 22, 2021, Teledyne completed all permanent financing for the acquisition of FLIR and terminated the $4.5 billion stand-by bridge facility.

Financing activities reflected net payments from debt of $174.8 million in 2022 and net proceeds from debt of $2,834.2 million in 2021.

Fiscal years 2022 and 2021 reflect proceeds from the exercise of stock options of $23.6 million and $25.4 million, respectively.

During 2022, the Company repaid $185.0 million of debt.

The Company made $110.0 million of floating rate debt payments on 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.

During 2021, the Company completed various financing activities as follows, with activity through the first half of 2021 primarily related to funding the cash portion of the FLIR acquisition:

• On January 4, 2021, the Company entered into a $4.5 billion short term stand-by bridge facility to support the completion of the FLIR acquisition, resulting in debt expense of $17.2 million.

• On March 4, 2021, the Company entered into a $1.0 billion Term Loan Credit Agreement (maturing May 2026) and an Amended and Restated Credit Agreement (maturing March 2026) with capacity of $1.15 billion.

The terms of the $1.0 billion Term Loan Credit Agreement allow for prepayments, at the Company’s option, at any time or from time to time, in whole or in part without premium or penalty.

• On March 17, 2021, the Company called $493.3 million of existing fixed rate senior notes and incurred debt extinguishment expenses of $13.4 million, which is included in interest and debt expense, net.

• On March 22, 2021, the Company completed all permanent financing for the acquisition of FLIR and terminated the $4.5 billion stand-by bridge facility.

The permanent financing consists of $3.0 billion investment-grade bonds (the “Notes”), including $300.0 million aggregate principal amount of 0.65% Notes due 2023, $450.0 million aggregate principal amount of 0.95% Notes due 2024, $450.0 million aggregate principal amount of 1.60% Notes due 2026, $700.0 million aggregate principal amount of 2.25% Notes due 2028 and $1.1 billion aggregate principal amount of 2.75% Notes due 2031.

Teledyne may redeem the $450.0 million of 0.95% Notes due 2024 at any time or from time to time, in whole or in part, at the Company’s option, from and after April 1, 2022, at a redemption price equal to 100% of the principal amount of the Notes redeemed.

In addition, we guaranteed FLIR’s $500.0 million, 2.50% Fixed Rate Senior Notes due August 2030.

Previously on March 4, 2021, Teledyne entered into a $1.0 billion Term Loan Credit Agreement (maturing May 2026) and an Amended and Restated Credit Agreement (maturing March 2026) with capacity of $1.15 billion.

The terms of the $1.0 billion Term Loan Credit Agreement allow for prepayments, at the Company’s option, at any time or from time to time, in whole or in part without premium or penalty.

Teledyne used the proceeds from the Notes together with the proceeds from the $1.0 billion Term Loan Credit Agreement and cash on hand to pay the cash portion of the consideration for the FLIR acquisition and refinance certain existing debt.

• As part of the acquisition of FLIR, the Company assumed and guaranteed FLIR’s $500.0 million, 2.50% Fixed Rate Senior Notes due August 2030.

• In the second half of 2021, the Company made $645.0 million of floating rate debt payments on its term loan due May 2026.

Other Matters

10 unchanged sentences

Significant judgments and estimates are required in determining the consolidated income tax expense.

We intend to reinvest indefinitely the earnings of our material foreign subsidiaries in our operations outside of the United States.

The cash that the Company’s foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign operations and investments, including foreign acquisitions.

We estimate that future domestic cash generation will be sufficient to meet future domestic cash requirements.

federal and applicable state income taxes have been accrued for deemed repatriations.

At January 2, 2022, the amount of undistributed foreign earnings was $619.8 million, for which we have not recorded a deferred tax liability of approximately $1.3 million for corporate income taxes which would be due if reinvested foreign earnings were repatriated.

Should we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that we would no longer indefinitely reinvest the earnings outside the United States.

The Company continually evaluates its global cash needs and has historically asserted that most of its unremitted foreign earnings are permanently reinvested and did not generally record deferred taxes on such amounts.

During 2022, the Company determined that it could no longer make the assertion foreign earnings are permanently reinvested, as cash from most foreign subsidiaries may be remitted without incurring additional U.S.

federal income tax.

As a result, the Company changed its indefinite reinvestment assertion of unremitted earnings and certain other aspects of outside basis differences on a majority of its foreign subsidiaries.

The Company continues to make an indefinite reinvestment assertion on the historic excess of the financial reporting bases over tax bases in its material foreign subsidiaries in Canada.

The unremitted earnings of the Company’s Canadian foreign subsidiaries held for indefinite reinvestment are used to finance Canadian operations and investments.

The Company estimate that future cash generation from non-Canadian operations will be sufficient to meet future domestic cash requirements.

Determination of the unrecognized deferred tax liability for unremitted Canadian earnings is not practicable due to uncertainty and overall complexity of the potential calculations.

The Company continues to evaluate its cash needs and may update its assertion in future periods.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements, which will result in taxable or deductible amounts in the future.

11 unchanged sentences

The Company emphasizes cost containment and cost reductions in all aspects of its business.

Hedging Activities and Market Risk Disclosures

Market Risk Disclosures

Our primary exposure to market risk relates to changes in interest rates and foreign currency exchange rates.

We periodically evaluate these risks and have taken measures to mitigate these risks.

We own assets and operate facilities in countries that have been politically stable.

Interest Rate Risk

We are exposed to market risk through the interest rate on our borrowings under our $1.15 billion credit facility and our term loan due May 2026.

As of January 1, 2023, all outstanding borrowings under our floating rate credit facility were subject to existing interest rate swap agreements, and $245.0 million outstanding under our floating rate term loan due May 2026 was exposed to interest rate risk.

A 100 basis point increase in interest rates would result in an increase in annual interest expense of approximately $2.5 million, assuming the $245.0 million term loan was outstanding for the full year.

Foreign Currency Exchange Rate Risk

Teledyne transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk.

The Company’s primary foreign currency risk objective is to protect the U.

dollar value of future cash flows and minimize the volatility of reported earnings.

The Company utilizes foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in Canadian dollars for our Canadian companies, and in British pounds for our U.K.

The Company’s primary foreign currency risk management objective is to protect the U.S.

dollar value of future cash flows and minimize the volatility of reported earnings, primarily achieved through the following:

• The Company utilizes foreign currency forward contracts to reduce the volatility of cash flows primarily related to

forecasted revenue and expenses denominated in Canadian dollars for our Canadian companies, and in British pounds for our U.K.

These contracts are designated and qualify as cash flow hedges.

• The Company has converted U.S.

dollar denominated, variable rate and fixed

rate debt obligations of a European subsidiary, into euro fixed rate obligations using a receive float, pay fixed cross currency swap, and a receive fixed, pay fixed cross currency swap.

dollar denominated, variable rate and fixed rate debt obligations of a European subsidiary, into euro fixed rate obligations using a receive float, pay fixed cross currency swap, and a receive fixed, pay fixed cross currency swap.

These cross currency swaps are designated as cash flow hedges.

In addition, the Company has converted domestic U.S.

variable rate debt to fixed rate debt using a receive variable, pay fixed interest rate swap.

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

The effectiveness of the cash flow hedge forward contracts, the cross currency swap hedges, and the interest rate swap cash flow hedge is assessed prospectively and retrospectively on a monthly basis using regression analysis, as well as using other timing and probability criteria.

To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges and must be highly effective in offsetting changes to future cash flows on hedged transactions.

The effective portion of the cash flow hedge 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 accumulated other comprehensive income/(loss) (“AOCI”) in stockholders’ equity until the underlying hedged item is reflected in our consolidated statements of income, at which time the effective amount in AOCI is reclassified to revenue in our consolidated statements of income.

For the cross currency swap and interest rate cash flow hedges, effective amounts are recorded in AOCI, and reclassified into interest expense in the consolidated statements of income.

In addition, for the cross currency swaps an amount is reclassified from AOCI to other income and expense each reporting period, to offset the earnings impact of the remeasurement of the hedged liabilities.

Net deferred losses recorded in AOCI, net of tax, for forward contracts that will mature in the next 12 months total $0.7 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 coming 12 months total $2.8 million.

In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges will be reclassified from AOCI to other income and expense.

During the current reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other income and expense, due to missed forecasts.

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

dollars totaling $148.2 million.

These foreign currency forward contracts have maturities ranging from March 2022 to February 2023.

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

dollars totaling $18.9 million.

These foreign currency forward contracts have maturities ranging from March 2022 to February 2023.

The cross currency swaps have notional amounts of €113.0 million and $125.0 million, and €135.0 million and $150.0 million, and mature in March 2023 and October 2024, respectively.

The interest rate swap has a notional amount of $125.0 million and matures in March 2023.

In addition, 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 January 2, 2022, Teledyne primarily had foreign currency contracts of this type in the following currency pairs (in millions):

Contracts to Buy Contracts to Sell

Currency Amount Currency Amount

Canadian Dollars C$ 169.4 U.S.

Dollars US$ 132.0

Euros € 147.3 U.S.

Dollars US$ 167.1

Euros € 33.5 Canadian Dollars C$ 48.4

Great Britain Pounds £ 59.2 U.S.

Dollars US$ 78.9

Dollars US$ 31.0 Swedish Krona kr 280.1

Danish Krone Kr.

Dollars US$ 60.2

Swedish Krona kr 355.7 Euros € 35.0

Norwegian Krone kr 228.0 Swedish Krona kr 227.1

Norwegian Krone kr 78.9 U.S.

Dollars US$ 8.6

The above table includes non-designated hedges derived from terms contained in triggered or previously designated cash flow hedges.

These contracts had a positive fair value of $1.6 million at January 2, 2022.

The gains and losses on these derivatives which are not designated as hedging instruments, are intended to, at a minimum, partially offset the transaction gains and losses recognized in earnings.

• 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.

All derivatives are recorded on the balance sheet at fair value.

As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting.

The accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting.

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

Refer to Notes 2 , 14 and 1 5 for further disclosures around our derivative instruments and hedging activities

Notwithstanding our efforts to mitigate portions of our foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations.

hypothetical 10 percent price change of the U.S.

A hypothetical 10% price change of the U.S.

dollar from its value at January 1, 2023, would result in a decrease or increase in the fair value of our foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S.

dollars by approximately $12.6 million.

A hypothetical 10 percent price change in the U.S.

A hypothetical 10% price change in the U.S.

dollar from its value at January 1, 2023 would result in a decrease in the fair value of our foreign currency forward contracts designated as cash flow hedges to buy British Pounds and to sell U.S.

dollars by approximately $1.7 million.

A hypothetical 10 percent price change in the U.S.

A hypothetical 10% price change in the U.S.

dollar from its value at January 1, 2023 would result in a decrease or increase in the fair value of our Euro/U.S.

Dollar cross currency swaps designated as cash flow hedges by approximately $30.8 million.

A hypothetical 100 basis point increase in U.S.

interest rates at January 3, 2021 would result in an increase in the fair value of our U.S.

Dollar interest rate swap designated as a cash flow hedge by approximately $1.4 million, while a 100 basis point decrease would result in a decrease in its fair value of $0.8 million.

Borrowings under our credit facility are at fixed rates that vary with the term and timing of each loan under the facility.

Loans under the facility typically have terms of one, two, three or six months and the interest rate for each such loan is subject to change if the loan is continued or converted following the applicable maturity date.

Interest rates are also subject to change based on our debt to earnings before interest, taxes, depreciation and amortization ratio.

As of January 2, 2022, we had $125.0 million outstanding under our $1.15 billion credit facility.

Any borrowings under the Company’s credit facility are based on a fluctuating market interest rate and, consequently, the fair value of any outstanding debt should not be affected materially by changes in market interest rates.

Our primary exposure to market risk relates to changes in interest rates and foreign currency exchange rates.

We periodically evaluate these risks and have taken measures to mitigate these risks.

We own assets and operate facilities in countries that have been politically stable.

Environmental

3 unchanged sentences

Reserves for environmental investigation and remediation totaled $5.8 million and $6.3 million as of January 1, 2023 and January 2, 2022, respectively.

As investigation and remediation of these sites proceed and new information is received, the Company will adjust accruals to reflect new information.

As investigation and remediation of these sites proceed and new information is received, the Company will adjust reserves to reflect new information.

Based on current information, we do not believe that future environmental costs, in excess of those already accrued, will materially and adversely affect our financial condition or liquidity.

See also our environmental risk factor disclosure beginning on page 16 and Notes 2 and 14 of the Notes to Consolidated Financial Statements.

See also our environmental risk factor disclosure in Item 1A.

Risk Factors as well as additional discussion in Notes 2 and 1 7.

Government Contracts

4 unchanged sentences

Government, which included contracts with the U.S.

Department of Defense, were approximately 26% of total net sales in both 2021 and 2020 and 24% of total net sales in 2019.

Department of Defense, were approximately 25% and 26% of our total net sales in 2022 and 2021, respectively.

For a summary of sales to the U.S.

Government by segment, see Note 12 of the Notes to Consolidated Financial Statements.

Government by segment, see Note 4.

Sales to the U.S.

2 unchanged sentences

Government contracts are conditioned upon the continuing availability of Congressional appropriations, which usually are made available on a fiscal year basis even though contract performance may take more than one year.

See also our government contracts risks factor disclosure beginning on page 12.

See also our government contracts risks factor disclosure in Item 1A.

Risk Factors.

For information on accounts receivable from the U.S.

Government, see Note 5 of the Notes to Consolidated Financial Statements.

Government, see Note 7 .

Estimates and Reserves

1 unchanged sentence

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities.

On an ongoing basis, we evaluate our estimates, including those related to product returns and replacements, allowance for doubtful accounts, inventories, intangible assets, income taxes, warranty obligations, pension and other postretirement benefits, long-term contracts, environmental, workers’ compensation and general liability, employee benefits and other contingencies and litigation.

On an ongoing basis, we evaluate our estimates, including those related to product returns and replacements, allowance for doubtful accounts, inventory, intangible assets, income taxes, warranty obligations, pension and other postretirement benefits, long-term contracts, environmental, workers’ compensation and general liability, employee benefits and other contingencies and litigation.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances at the time, the results of which form the basis for making our judgments.

1 unchanged sentence

In some cases, such differences may be material.

See also Critical Accounting Policies and Estimates.

The following table reflects significant reserves and valuation accounts, which are estimates and based on judgments as described above, at January 2, 2022, and January 3, 2021:

Reserves and Valuation Accounts (in millions):

Allowance for doubtful accounts $ 13.8 $ 12.3

Workers’ compensation and general liability reserves (b) $ 5.9 $ 6.2

Environmental reserves (b) $ 6.3 $ 6.5

Other accrued liability reserves (b) $ 12.4 $ 12.9

(a) This table should be read in conjunction with the Notes to Consolidated Financial Statements.

(b) Includes both long-term and short-term reserves.

Some of the Company’s products are subject to standard warranties and the Company provides for the estimated cost of product warranties.

See Critical Accounting Policies and Estimates for further information on key estimates.

Some of the Company’s products are subject to standard warranties and the Company provides for the estimated cost of

product warranties.

We regularly assess the adequacy of our pre-existing warranty liabilities and adjust amounts as necessary based on a review of historical warranty experience with respect to the applicable business or products, as well as the length and actual terms of the warranties, which are typically one year.

The product warranty reserve is included in current accrued liabilities and other long-term liabilities on the balance sheet.

Warranty Reserve (in millions):

2021 2020 2019

Balance at beginning of year $ 22.4 $ 24.8 $ 21.0

Product warranty expense 11.9 3.3 13.1

Deductions (10.1) (8.2) (14.2)

Acquisitions 25.3 2.5 4.9

Balance at year-end $ 49.5 $ 22.4 $ 24.8

See further discussion in Note 7 .

Critical Accounting Policies and Estimates

7 unchanged sentences

and accounting for pension plans.

For additional discussion of the application of these and other accounting policies, see Note 2 of the Notes to Consolidated Financial Statements.

For additional discussion of the application of these and other accounting policies, see Note 2 .

Revenue Recognition

Prior to the acquisition of FLIR, approximately 40% of our revenue was recognized over time, with the remaining 60% of our revenue recognized at a point in time.

The majority of FLIR revenue is recognized at a point in time.

In future periods, we expect approximately 30% of revenue to be recognized over time, with the remaining 70% recognized at a point in time.

The majority of Teledyne FLIR revenue is recognized at a point in time.

In 2022, approximately 30% of revenue was recognized over time, with the remaining 70% recognized at a point in time.

Revenue recognized over time relates primarily to contracts to design, develop and/or manufacture highly engineered products used in both defense and commercial applications.

6 unchanged sentences

Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

For over time contracts using cost-to-cost, we have an Estimate at Completion (“EAC”) process in which management reviews the progress and execution of our performance obligations.

For over time contracts using the cost-to-cost method, we have an Estimate at Completion (“EAC”) process in which management reviews the progress and execution of our performance obligations.

This EAC process requires management judgment relative to assessing risks, estimating contract revenue, determining reasonably dependable cost estimates, and making assumptions for schedule and technical issues.

1 unchanged sentence

This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters.

Additionally, if the

current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident.

Contract cost and revenue estimates for significant contracts are generally reviewed and reassessed quarterly.

We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in contract estimates for 2021, 2020 or 2019 was material to the consolidated statements of income for such annual periods.

Additionally, if the current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident.

Contract cost and revenue estimates for significant contracts are generally reviewed and reassessed at least quarterly.

We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in contract estimates for 2022 and 2021 was material to the consolidated statement of income for such annual periods.

Revenue recognized at a point in time relates primarily to the sale of standard or minimally customized products, with control transferring to the customer generally upon the transfer of title.

See Note 2 of the Notes to Consolidated Financial Statements for additional revenue recognition disclosures.

See Note 5 for additional revenue recognition disclosures.

Business Combinations, Goodwill and Acquired Intangible Assets

8 unchanged sentences

The Company also performs an annual impairment test in the fourth quarter of each year.

We test goodwill and acquired indefinite-lived intangible assets for impairment between annual tests if events occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value.

We test goodwill and acquired indefinite-lived intangible assets for impairment between annual tests if events occur or

circumstances change that would more likely than not reduce our enterprise fair value below its book value.

These events or circumstances could include a significant change in the business climate, including a significant sustained decline in an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other factors.

12 unchanged sentences

Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions may have a material effect on the results of our impairment analysis.

As of January 2, 2022, the Company had eleven reporting units for goodwill impairment testing.

A qualitative test was performed for all reporting units in the four quarter of 2021.

Excluding the FLIR reporting unit, the carrying value of goodwill included in the Company’s individual reporting units ranged from $20.4 million to $885.0 million on the most recent quantitative test date.

While goodwill for the FLIR reporting unit is provisional during the measurement period, the provisional acquired goodwill balance is $5,905.5 million.

The Company’s analysis in 2021 indicated that in all instances, the fair value of the Company’s reporting units exceeded their carrying values and consequently did not result in an impairment charge.

Recently acquired reporting units generally represent a higher inherent risk of impairment, which typically decreases as the businesses are integrated into the Company.

As of January 1, 2023, the Company had ten reporting units for goodwill impairment testing.

In the fourth quarter of 2022, a qualitative test was performed for each reporting unit excluding the FLIR reporting unit, and the carrying value of goodwill included in these nine reporting units subject to the current year qualitative test ranged from $20.4 million to $889.7 million.

The Company’s qualitative analysis in 2022 indicated that in all instances, the fair value of the Company’s reporting units exceeded their carrying values and consequently did not result in an impairment charge.

For the FLIR reporting unit, the Company bypassed the qualitative assessment and performed a quantitative test in the fourth quarter of 2022.

At the assessment date, the FLIR reporting unit exceeded its carrying value, which included $5,748.0 million of goodwill, by approximately 14%.

Although no impairment exists for the FLIR reporting unit, an impairment of goodwill could result from a number of circumstances, including different assumptions used in determining the fair value of the reporting unit, changes to customer spending priorities, or a sharp increase in interest rates without a corresponding increase in future net sales.

For a description of the Company’s tax accounting policies, refer to Note 2 and Note 9.

We make certain estimates and judgments in determining income tax expense for financial statement purposes.

These estimates and judgments occur in the calculation of tax credits, benefits and deductions, and in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

In addition, uncertainty exists regarding tax positions taken in previously filed tax returns still under

examination and positions expected to be taken in the current year and future returns which may impact income tax expense.

In addition, uncertainty exists regarding tax positions taken in previously filed tax returns still under examination and positions expected to be taken in the current year and future returns which may impact income tax expense.

On a quarterly basis, we provide for income taxes based upon an estimated annual effective tax rate which is dependent on the geographic composition of worldwide earnings, tax regulations governing each region, availability of tax credits, and the effectiveness of our tax planning strategies.

6 unchanged sentences

In assessing the need for a valuation allowance, we consider all available positive and negative evidence including past operating results, estimates of future taxable income and the feasibility of tax planning strategies.

In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

In the event that we change

our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations across domestic and foreign jurisdictions.

5 unchanged sentences

When it is more-likely-than-not that a tax position will be sustained, we record a liability for the anticipated tax and interest due upon ultimate settlement with a taxing authority.

Unrecognized tax benefits, including accrued penalties and interest, increased $529.3 million from the prior year, primarily related to the FLIR acquisition on May 14, 2021.

During the first quarter of 2022, we paid approximately $296.4 million related to an acquired uncertain tax position, refer to Note 3 of the Notes to Consolidated Financial Statements for additional detail.

Unrecognized tax benefits, including accrued penalties and interest, increased in 2021 due to the acquisition of FLIR.

During the first quarter of 2022, we paid approximately $296.4 million related to an acquired uncertain tax position;

refer to Note 3 for additional detail.

To the extent we prevail in matters for which reserves have been established or are required to pay amounts in excess of reserves, there could be a significant impact on our consolidated financial position and annual results of operations.

For a description of the Company’s tax accounting policies, refer to Note 2 and Note 10 of the Notes to Consolidated Financial Statements.

Pension Plans

2 unchanged sentences

Net actuarial gains or losses are amortized to expense on a plan-by-plan basis when they exceed the accounting corridor.

The accounting corridor is a defined range within which amortization of net gains and losses is not required and is equal to 10 percent of the greater of the market related value of assets or benefit obligations.

The accounting corridor is a defined range within which amortization of net gains and losses is not required and is equal to 10% of the greater of the market related value of assets or benefit obligations.

Gains or losses outside of the corridor are subject to amortization.

2 unchanged sentences

For our other plan, gains and losses subject to amortization are amortized over the average employee future service period which is approximately nine years.

Significant assumptions used in determining the our pension income or expense are the expected long-term rate of return on plan assets, participant mortality estimates, expected rates of increase in future compensation levels, employee turnover, as well as the assumed discount rate on pension obligations.

Significant assumptions used in determining our pension income or expense are the expected long-term rate of return on plan assets, participant mortality estimates, expected rates of increase in future compensation levels, employee turnover, as well as the assumed discount rate on pension obligations.

Differences in the discount rate and expected long-term rate of return on assets within the indicated range would have had the following impact on 2022 pension expense (in millions):

5 unchanged sentences

Change in long-term rate of return on plan assets $ (2.1) $ 2.1

See Note 11 of the Notes to Consolidated Financial Statements for additional pension disclosures.

See Note 10 for additional pension disclosures.

Recent Accounting Standards

For a discussion of recent accounting standards see Note 2 of the Notes to Consolidated Financial Statements.

For a discussion of recent accounting standards see Note 2.

Safe Harbor Cautionary Statement Regarding Forward-Looking Information

4 unchanged sentences

Many factors could change the anticipated results, including:

ongoing challenges and uncertainties posed by the COVID pandemic for businesses and governments around the world, including production, supply, contractual and other disruptions, facility closures, furloughs and travel restrictions;

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

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

changes in relevant tax and other laws;

foreign currency exchange risks;

rising interest rates;

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

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

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

labor shortages and competition for skilled personnel;

the inability to develop and market new competitive products;

1 unchanged sentence

GAAP and related standards;

operating results of FLIR being lower than anticipated;

disruptions in the global economy;

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

customer and supplier bankruptcies;

9 unchanged sentences

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

the ongoing conflict between Russia and Ukraine;

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

2 unchanged sentences

Lower oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, and new regulations or restrictions relating to energy production, including those implemented in response to climate change, could further negatively affect our businesses that supply the oil and gas industry.

Continued weakness in the commercial aerospace industry will negatively affect the markets of our commercial aviation businesses.

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

In addition, financial market fluctuations affect the value of the Company’s pension assets.

2 unchanged sentences

While Teledyne’s growth strategy includes possible acquisitions, we cannot provide any assurance as to when, if or on what terms any acquisitions will be made.

Acquisitions involve various inherent risks, such as, among others, our ability to integrate acquired businesses, retain key management and customers and achieve identified financial and operating synergies.

There are additional risks associated with acquiring, owning and operating businesses outside of the United States, including those arising from U.S.

Acquisitions, including the recent acquisition of ChartWorld, involve various inherent risks, such as, among others, our ability to integrate acquired businesses, retain key management and customers and achieve identified financial and operating synergies.

There are additional risks associated with acquiring, owning and operating businesses internationally, including those arising from U.S.

and foreign government policy changes or actions and exchange rate fluctuations.

5 unchanged sentences

Quantitative and Qualitative Disclosures About Market Risk

The information required by this item is included in this Report on page 36 under the caption “Other Matters - Hedging Activities;

Market Risk Disclosures” of “Item 7.

The information required by this item is included in this Report under the caption “Other Matters - Market Risk Disclosures” of “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

4 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis