UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~October 1, 2017~~June 28, 2020



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

For the transition period from to

Commission file number 1-15295

TELEDYNE TECHNOLOGIES INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

25-1843385

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1049 Camino Dos Rios

~~Thousand Oaks, California~~

~~91360-2362~~

Thousand Oaks

California

91360-2362

(Address of principal executive offices)

(Zip Code)

~~(805)~~805 373-4545

(Registrant’s telephone number, including area code)

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


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

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No ¨☐

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


Large accelerated filer		☒			Accelerated filer		☐

~~Large accelerated filer~~		ý	~~Accelerated filer~~	¨

Non-accelerated filer	¨ ~~(Do not check if a smaller reporting company)~~ ☐		Smaller reporting company			¨☐

Emerging growth company		¨☐

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

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

No ý☒

There were ~~35,436,487~~36,863,419 shares of common stock, $.01 par value per share, outstanding as of ~~October 31, 2017.~~July 20, 2020.

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

TABLE OF CONTENTS

Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE ~~THIRD~~SECOND QUARTER AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER 1, 2017~~JUNE 28, 2020 AND ~~OCTOBER 2, 2016~~JUNE 30, 2019

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


	Third Quarter						Nine Months							Second Quarter						Six Months
	2017			2016			2017			2016				2020		2019		2020		2019
Net sales	$	662.2		$	526.8		$	1,899.4		$	1,597.0		Net sales	$	743.3	$	782.0	$	1,527.9	$	1,527.2
Costs and expenses													Costs and expenses
Cost of sales	405.8			317.0			1,178.3			978.0			Cost of sales	460.6		463.6		953.2		927.5
Selling, general and administrative expenses	163.5			141.0			483.9			435.7			Selling, general and administrative expenses	172.9		186.5		360.9		370.5
Total costs and expenses	569.3			458.0			1,662.2			1,413.7			Total costs and expenses	633.5		650.1		1,314.1		1,298.0
Operating income	92.9			68.8			237.2			183.3			Operating income	109.8		131.9		213.8		229.2
Interest and debt expense, net	(8.2		)	(5.6		)	(25.5		)	(17.2		)	Interest and debt expense, net	(3.7)		(5.4)		(7.8)		(10.8)
Other income/(expense), net	(3.0		)	(0.8		)	(13.0		)	15.1
Non-service retirement benefit income													Non-service retirement benefit income	3.2		2.0		5.7		4.2
Other expense, net													Other expense, net	(1.4)		(0.6)		(2.8)		(1.8)
Income before income taxes	81.7			62.4			198.7			181.2			Income before income taxes	107.9		127.9		208.9		220.8
Provision for income taxes	12.7			10.4			39.1			43.3			Provision for income taxes	14.2		23.3		33.0		40.9

Net income	$	69.0		$	52.0		$	159.6		$	137.9		Net income	$	93.7	$	104.6	$	175.9	$	179.9


Basic earnings per common share	$	1.95		$	1.50		$	4.53		$	4.00		Basic earnings per common share	$	2.55	$	2.89	$	4.81	$	4.97
Weighted average common shares outstanding	35.3			34.7			35.2			34.5			Weighted average common shares outstanding	36.7		36.2		36.6		36.2


Diluted earnings per common share	$	1.90		$	1.46		$	4.41		$	3.90		Diluted earnings per common share	$	2.48	$	2.80	$	4.65	$	4.82
Weighted average diluted common shares outstanding	36.4			35.6			36.2			35.4			Weighted average diluted common shares outstanding	37.8		37.4		37.8		37.3

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

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE ~~THIRD~~SECOND QUARTER AND ~~NINE~~SIX MONTHS ENDED ~~OCTOBER 1, 2017~~JUNE 28, 2020 AND ~~OCTOBER 2, 2016~~JUNE 30, 2019

(Unaudited - Amounts in millions)


	Third Quarter					Nine Months					Second Quarter						Six Months
	2017		2016			2017		2016			2020		2019		2020		2019
Net income	$	69.0	$	52.0		$	159.6	$	137.9	Net income	$	93.7	$	104.6	$	175.9	$	179.9
Other comprehensive income (loss):										Other comprehensive income (loss):
Foreign exchange translation adjustment	36.8		(7.7		)	91.6		3.6		Foreign exchange translation adjustment	1.4		(4.6)		(59.9)		12.4
Hedge activity, net of tax	1.9		(0.9		)	4.8		4.6		Hedge activity, net of tax	3.9		1.3		(2.0)		3.1
Pension and postretirement benefit adjustments, net of tax	3.2		3.3			10.0		10.8		Pension and postretirement benefit adjustments, net of tax	3.2		4.9		6.7		9.5
Other comprehensive income (loss)	41.9		(5.3		)	106.4		19.0		Other comprehensive income (loss)	8.5		1.6		(55.2)		25.0
Comprehensive income, net of tax	$	110.9	$	46.7		$	266.0	$	156.9

Comprehensive income										Comprehensive income	$	102.2	$	106.2	$	120.7	$	204.9

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - Amounts in millions, except share amounts)


	October 1, 2017			January 1, 2017				June 28, 2020		December 29, 2019
Assets							Assets
Current Assets							Current Assets
Cash	$	82.5		$	98.6
Cash and cash equivalents							Cash and cash equivalents	$	382.8	$	199.5

Accounts receivable, net	466.0			383.7			Accounts receivable, net	432.4		460.4
Unbilled receivables, net							Unbilled receivables, net	220.6		200.5
Inventories, net	431.9			314.2			Inventories, net	392.3		393.4

Prepaid expenses and other current assets	60.6			49.7			Prepaid expenses and other current assets	55.7		59.9

Total current assets	1,041.0			846.2			Total current assets	1,483.8		1,313.7
Property, plant and equipment, net of accumulated depreciation and amortization of $519.4 at October 1, 2017 and $468.5 at January 1, 2017	452.1			340.8
Property, plant and equipment, net of accumulated depreciation and amortization of $653.5 at June 28, 2020 and $623.9 at December 29, 2019							Property, plant and equipment, net of accumulated depreciation and amortization of $653.5 at June 28, 2020 and $623.9 at December 29, 2019	475.4		487.9
Goodwill	1,748.9			1,193.5			Goodwill	2,061.3		2,050.5
Acquired intangibles, net	408.2			234.6			Acquired intangibles, net	409.2		430.8
Prepaid pension assets	109.8			88.5			Prepaid pension assets	83.1		71.8
Operating lease right-of-use assets							Operating lease right-of-use assets	120.4		127.1
Other assets, net	87.5			70.8			Other assets, net	105.0		98.0
Total Assets	$	3,847.5		$	2,774.4		Total Assets	$	4,738.2	$	4,579.8
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current Liabilities							Current Liabilities
Accounts payable	$	186.0		$	138.8		Accounts payable	$	245.0	$	271.1
Accrued liabilities	336.6			261.0			Accrued liabilities	406.6		391.5
Current portion of long-term debt, capital leases and other debt	2.5			102.0
Current portion of long-term debt and other debt							Current portion of long-term debt and other debt	100.6		100.6

Total current liabilities	525.1			501.8			Total current liabilities	752.2		763.2
Long-term debt and capital leases	1,193.2			515.8
Long-term debt							Long-term debt	750.8		750.0
Long-term operating lease liabilities							Long-term operating lease liabilities	111.7		119.3

Other long-term liabilities	275.8			202.4			Other long-term liabilities	243.6		232.6
Total Liabilities	1,994.1			1,220.0			Total Liabilities	1,858.3		1,865.1
Commitments and contingencies							Commitments and contingencies
Stockholders’ Equity							Stockholders’ Equity
Preferred stock, $0.01 par value; outstanding shares - none	—			—
Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 37,697,865 at October 1, 2017 and January 1, 2017; outstanding shares: 35,436,187 at October 1, 2017 and 35,110,762 at January 1, 2017	0.4			0.4
Preferred stock, $0.01 par value; outstanding shares - NaN							Preferred stock, $0.01 par value; outstanding shares - NaN	—		—
Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 37,697,865 at June 28, 2020 and December 29, 2019; outstanding shares: 36,856,873 at June 28, 2020 and 36,547,966 at December 29, 2019							Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 37,697,865 at June 28, 2020 and December 29, 2019; outstanding shares: 36,856,873 at June 28, 2020 and 36,547,966 at December 29, 2019	0.4		0.4
Additional paid-in capital	337.1			335.7			Additional paid-in capital	376.2		360.5
Retained earnings	2,072.0			1,912.4			Retained earnings	3,101.9		2,926.0
Treasury stock, 2,261,678 at October 1, 2017 and 2,587,103 at January 1, 2017	(211.3		)	(242.9		)
Treasury stock, 840,992 shares at June 28, 2020 and 1,149,899 shares at December 29, 2019							Treasury stock, 840,992 shares at June 28, 2020 and 1,149,899 shares at December 29, 2019	(67.6)		(96.4)
Accumulated other comprehensive loss	(344.8		)	(451.2		)	Accumulated other comprehensive loss	(531.0)		(475.8)

Total Stockholders’ Equity	1,853.4			1,554.4			Total Stockholders’ Equity	2,879.9		2,714.7
Total Liabilities and Stockholders’ Equity	$	3,847.5		$	2,774.4		Total Liabilities and Stockholders’ Equity	$	4,738.2	$	4,579.8

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

~~FOR THE NINE MONTHS ENDED OCTOBER 1, 2017 AND OCTOBER 2, 2016~~STOCKHOLDERS' EQUITY

(~~Unaudited - Amounts in~~In millions)


	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 29, 2019	$	0.4	$	360.5	$	(96.4)	$	2,926.0	$	(475.8)	$	2,714.7
Net income	—		—		—		82.2		—		82.2
Other comprehensive income, net of tax	—		—		—		—		(63.7)		(63.7)
Treasury stock issued	—		(9.4)		9.4		—		—		—
Stock-based compensation	—		9.6		—		—		—		9.6
Exercise of stock options	—		10.2		—		—		—		10.2
Balance, March 29, 2020	0.4		370.9		(87.0)		3,008.2		(539.5)		2,753.0
Net income	—		—		—		93.7		—		93.7
Other comprehensive income, net of tax	—		—		—		—		8.5		8.5
Treasury stock issued	—		(19.4)		19.4		—		—		—
Stock-based compensation	—		6.7		—		—		—		6.7
Exercise of stock options	—		18.0		—		—		—		18.0
Balance, June 28, 2020	$	0.4	$	376.2	$	(67.6)	$	3,101.9	$	(531.0)	$	2,879.9

Nine Months
2017 2016
Operating Activities
Net income $ 159.6
$ 137.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 87.4
65.6
Deferred income taxes (1.3 ) 9.0
Stock-based compensation 14.3
12.2
Gain on sale of facility —
(17.9 )
Changes in operating assets and liabilities:
Accounts receivable (7.7 ) 2.3
Inventories (36.9 ) (18.9 )
Prepaid expenses and other assets (1.2 ) (1.4 )
Accounts payable 12.6
6.9
Accrued liabilities 11.4
37.5
Income taxes receivable/payable, net 11.9
26.7
Long-term assets (12.5 ) 0.8
Other long-term liabilities 16.1
6.0
Pension and postretirement benefits (13.9 ) (12.3 )
Other operating, net 8.5
(3.7 )
Net cash provided by operating activities 248.3
250.7
Investing Activities
Purchases of property, plant and equipment (40.5 ) (44.9 )
Purchase of businesses and other investments, net of cash acquired (773.8 ) (58.5 )
Proceeds from the sale of assets 1.1
29.6
Sales proceeds transferred to escrow as restricted cash —
(19.5 )
Net cash used in investing activities (813.2 ) (93.3 )
Financing Activities
Net proceeds from (payments on) credit facility 285.0
(150.5 )
Proceeds from senior notes 268.0
—
Proceeds from term loan 100.0
—
Payments on senior notes and other debt (131.7 ) (22.7 )
Proceeds from other debt —
6.1
Proceeds from exercise of stock options 18.7
26.7
Other financing, net (4.4 ) (1.1 )
Net cash provided by (used in) financing activities 535.6
(141.5 )
Effect of exchange rate changes on cash 13.2
(1.5 )
Change in cash (16.1 ) 14.4
Cash—beginning of period 98.6
85.1
Cash—end of period $ 82.5
$ 99.5


	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, December 30, 2018	$	0.4	$	343.7	$	(144.9)	$	2,523.7	$	(493.2)	$	2,229.7
Net income	—		—		—		75.3		—		75.3
Other comprehensive income, net of tax	—		—		—		—		23.4		23.4
Treasury stock issued	—		(15.0)		15.0		—		—		—
Stock-based compensation	—		10.9		—		—		—		10.9
Exercise of stock options	—		10.2		—		—		—		10.2

Balance, March 31, 2019	0.4		349.8		(129.9)		2,599.0		(469.8)		2,349.5
Net income	—		—		—		104.6		—		104.6
Other comprehensive income, net of tax	—		—		—		—		1.6		1.6
Treasury stock issued	—		(14.7)		14.7		—		—		—
Stock based compensation	—		6.8		—		—		—		6.8
Exercise of stock options	—		10.5		—		—		—		10.5
Balance, June 30, 2019	$	0.4	$	352.4	$	(115.2)	$	2,703.6	$	(468.2)	$	2,473.0

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 28, 2020 AND JUNE 30, 2019

(Unaudited - Amounts in millions)


	Six Months
	2020		2019
Operating Activities
Net income	$	175.9	$	179.9


Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	58.3		54.7

Stock-based compensation	16.2		17.7


Changes in operating assets and liabilities excluding the effect of business acquired:
Accounts receivable and unbilled receivables	0.5		(36.6)
Inventories	(6.0)		(10.1)

Accounts payable	(20.4)		(7.8)

Deferred and income taxes receivable/payable, net	28.3		(4.5)
Prepaid expenses and other assets	10.5		(16.0)
Accrued expenses and other liabilities	(35.5)		(14.7)



Other operating, net	4.4		0.7


Net cash provided by operating activities	232.2		163.3
Investing Activities
Purchases of property, plant and equipment	(36.8)		(39.4)
Purchase of businesses, net of cash acquired	(29.0)		(222.5)
Other investing, net	0.1		0.3




Net cash used in investing activities	(65.7)		(261.6)
Financing Activities
Net proceeds from credit facility	—		47.5



Net payments on other debt	(0.4)		(2.2)

Proceeds from exercise of stock options	28.2		20.7


Other financing, net	—		(1.4)
Net cash provided by financing activities	27.8		64.6
Effect of exchange rate changes on cash	(11.0)		(0.7)
Change in cash and cash equivalents	183.3		(34.4)
Cash and cash equivalents—beginning of period	199.5		142.5
Cash and cash equivalents—end of period	$	382.8	$	108.1

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

Table of Contents

TELEDYNE TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~October 1, 2017~~June 28, 2020

Note 1. General

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Teledyne Technologies Incorporated (“Teledyne” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in notes to consolidated financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with accounting principles generally accepted in the United States (“GAAP”) as they apply to interim reporting. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes in Teledyne’s Annual Report on Form 10-K for the fiscal year ended ~~January 1, 2017~~December 29, 2019 (“~~2016~~2019 Form 10-K”).

In the opinion of Teledyne’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, Teledyne’s consolidated financial position as of ~~October 1, 2017~~June 28, 2020 and the consolidated results of operations, ~~and~~ consolidated comprehensive income for the ~~three~~second quarter and ~~nine~~six months then ended and the consolidated cash flows for the ~~nine~~six months then ended. The results of operations and cash flows for the ~~period~~periods ended ~~October 1, 2017~~June 28, 2020 are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year. Certain prior year amounts have been reclassified to conform to the current period ~~presentation.~~presentation related to the segment realignment in the third quarter of 2019.

Cash Equivalents

Cash equivalents consist of highly liquid money-market mutual funds and bank deposits with maturities of three months or less when purchased. Cash equivalents totaled $203.0 million at June 28, 2020. There were 0 cash equivalents at December 29, 2019.

Recent Accounting Pronouncements

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the computation of the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record a goodwill impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. ~~The~~We adopted the new ~~standard is effective for interim and annual reporting periods beginning after~~guidance as of December ~~15,~~30, 2019 ~~with early adoption permitted. We expect the adoption of this standard will reduce~~which reduced the complexity surrounding the evaluation of goodwill for impairment. The ~~impact~~adoption of this ~~new standard for the Company will depend~~guidance did not have a material impact on ~~the outcomes of future goodwill impairment tests.~~our condensed consolidated financial statements.

In ~~March 2017,~~June 2016, the FASB issued ASU ~~No. 2017-07, “Improving~~2016-13, Financial Instruments - Credit Losses (Topic 326). The standard replaces the ~~Presentation of Net Periodic Pension Cost~~incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and ~~Net Periodic Postretirement Benefit Cost.” This ASU~~ requires the ~~service cost component~~use of ~~net benefit costs~~a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. The standard requires a modified retrospective approach through a cumulative-effect adjustment to ~~be disaggregated from all other components and be reported in the same line item or items~~retained earnings as other compensation costs and allow only the service cost component to be eligible for capitalization when applicable. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and before income from operations. This ASU is effective for the Company for interim and annual periods beginning January 1, 2018. Upon adoption, the amendments in this update will be applied retrospectively for the presentation of the ~~components of net benefit cost, and prospectively for the capitalization~~beginning of the ~~service cost component~~first reporting period in which the guidance is effective. We adopted the new guidance as of ~~net benefit cost.~~December 30, 2019 using the modified retrospective approach related to our accounts receivables and contract assets, resulting in no cumulative adjustment to retained earnings. The adoption of this ~~standard will~~guidance did not have a material impact pre-tax income or earnings per share reported for the years ended December 31, 2017 and January 1, 2017 and is not expected to materially impact pre-tax income or earnings per share for the year ended December 30, 2018. The impacts to operating income from the re-classification of the other components of net benefit cost for the years ended December 31, 2017 and January 1, 2017 are immaterial. The impacts to operating income from the re-classification of the other components on ~~net benefit cost for the year ended December 31, 2018 will be known when the Company measures its plan assets and benefit obligations as of December 31, 2017.~~

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard, as subsequently amended, is effective for Teledyne for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016. The new standard can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.

Under the new standard, an entity recognizes revenue when or as it satisfies a performance obligation by transferring control of a good or service to the customer, either at a point in time or over time. Under the new standard, Teledyne expects to recognize revenue over time on most of its contracts that are covered by contract accounting standards using cost inputs to measure progress toward completion of its performance obligations, which is similar to the percentage-of-completion (“POC”) cost-to-

~~cost method currently used on certain of these contracts. Therefore, adoption of the ASU will primarily impact~~ our contracts for which revenue is currently recognized using the POC units-of-delivery and milestone methods as we expect to recognize revenue for these contracts over time using the POC cost-to-cost method. These contracts represent approximately half of the revenue currently recognized under the POC method. The percentage of Teledyne revenue recognized using any POC method was 30.5% in 2016, 31.2% in 2015, and 28.7% in 2014. Also, to a lesser extent, we expect certain ship and bill contracts for custom products and products sold to the U.S. Government, as well as service and repair contracts will be recognized over time. Accordingly, revenue will be recognized earlier in the performance period as costs are incurred, as opposed to recognizing revenue when units are delivered, milestones achieved or services performed. This change will also impact our backlog and balance sheet presentation with an expected decrease in inventories, an increase in accounts receivable (i.e., unbilled receivables) and a net increase to retained earnings to primarily reflect the impact of converting certain ship and bill contracts and contracts currently applying the units-of-delivery and milestone methods to the cost-to-cost method for recognizing revenue and profits.

~~The Company will adopt the standard as of January 1, 2018, using the modified retrospective transition method and is currently quantifying the impact of the adoption on its~~condensed consolidated financial ~~statements and related disclosures. Under the modified retrospective transition method, the Company will be required to calculate and record the cumulative-effect~~statements.

Table of adopting the new standard as of January 1, 2018, in the Company’s Quarterly Report on Form 10-Q for the first quarter of 2018. The impact of adopting the new standard to retained earnings is not known at this time, as it will be dependent on the affected contracts that have not been substantially completed as of December 31, 2017.Contents

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities.” This ASU better aligns an entity’s risk management activities and financial reporting for hedging relationships. This ASU expands and refines hedge accounting for both nonfinancial and financial risk components, and this ASU simplifies and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. This ASU is effective for fiscal years beginning after December 15, 2018 and for interim periods therein, with early adoption permitted. Teledyne is currently evaluating the impact this guidance will have on the consolidated financial statements and footnote disclosures.

Note 2. Accumulated Other Comprehensive Loss

The changes in ~~accumulated other comprehensive income/(loss) (~~“AOCI”) by component, net of tax, for the ~~third~~second quarter ended June 28, 2020 and ~~nine months ended~~ ~~October 1, 2017~~ ~~and October 2, 2016~~June 30, 2019 are as follows (in millions):


	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of March 29, 2020	$	(211.7)	$	(8.2)	$	(319.6)	$	(539.5)
Other comprehensive income/(loss) before reclassifications	1.4		(0.2)		—		1.2
Amounts reclassified from AOCI	—		4.1		3.2		7.3
Net other comprehensive income	1.4		3.9		3.2		8.5

Balance as of June 28, 2020	$	(210.3)	$	(4.3)	$	(316.4)	$	(531.0)

	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of March 31, 2019	$	(164.5)	$	(3.1)	$	(302.2)	$	(469.8)
Other comprehensive income/(loss) before reclassifications	(4.6)		0.5		—		(4.1)
Amounts reclassified from AOCI	—		0.8		4.9		5.7
Net other comprehensive income/(loss)	(4.6)		1.3		4.9		1.6

Balance as of June 30, 2019	$	(169.1)	$	(1.8)	$	(297.3)	$	(468.2)


	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of December 29, 2019	$	(150.4)	$	(2.3)	$	(323.1)	$	(475.8)
Other comprehensive loss before reclassifications	(59.9)		(3.8)		—		(63.7)
Amounts reclassified from AOCI	—		1.8		6.7		8.5
Net other comprehensive income/(loss)	(59.9)		(2.0)		6.7		(55.2)
Balance as of June 28, 2020	$	(210.3)	$	(4.3)	$	(316.4)	$	(531.0)

	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of December 30, 2018	(181.5)		(4.9)		(306.8)		(493.2)
Other comprehensive income before reclassifications	12.4		3.7		—		16.1
Amounts reclassified from AOCI	—		(0.6)		9.5		8.9
Net other comprehensive income	12.4		3.1		9.5		25.0
Balance as of June 30, 2019	(169.1)		(1.8)		(297.3)		(468.2)

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Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of July 2, 2017 $ (144.0 ) $ 0.1
$ (242.8 ) $ (386.7 )
   Other comprehensive income before reclassifications 36.8
0.6
—
37.4
   Amounts reclassified from AOCI —
1.3
3.2
4.5
Net other comprehensive income 36.8
1.9
3.2
41.9
Balance as of October 1, 2017 $ (107.2 ) $ 2.0
$ (239.6 ) $ (344.8 )

Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of July 3, 2016 $ (162.9 ) $ (1.2 ) $ (224.8 ) $ (388.9 )
   Other comprehensive loss before reclassifications (7.7 ) (0.8 ) —
(8.5 )
   Amounts reclassified from AOCI —
(0.1 ) 3.3
3.2
Net other comprehensive income (loss) (7.7 ) (0.9 ) 3.3
(5.3 )
Balance as of October 2, 2016 $ (170.6 ) $ (2.1 ) $ (221.5 ) $ (394.2 )

Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of January 1, 2017 $ (198.8 ) $ (2.8 ) $ (249.6 ) $ (451.2 )
   Other comprehensive income (loss) before reclassifications 91.6
(1.5 ) —
90.1
   Amounts reclassified from AOCI —
6.3
10.0
16.3
Net other comprehensive income 91.6
4.8
10.0
106.4
Balance as of October 1, 2017 $ (107.2 ) $ 2.0
$ (239.6 ) $ (344.8 )

Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of January 3, 2016 $ (174.2 ) $ (6.7 ) $ (232.3 ) $ (413.2 )
   Other comprehensive income before reclassifications 3.6
2.5
��
6.1
   Amounts reclassified from AOCI —
2.1
10.8
12.9
Net other comprehensive income 3.6
4.6
10.8
19.0
Balance as of October 2, 2016 $ (170.6 ) $ (2.1 ) $ (221.5 ) $ (394.2 )

The reclassifications out of AOCI to net income for the ~~third~~second quarter and ~~nine~~six months ended ~~October 1, 2017~~June 28, 2020 and ~~October 2, 2016~~June 30, 2019 are as follows (in millions):


	Amount Reclassified from AOCI for the Three Months Ended		Amount Reclassified from AOCI for the Three Months Ended		Statement of Income
	June 28, 2020		June 30, 2019		Presentation
(Gain) loss on cash flow hedges:
(Gain) loss recognized in income on derivatives	$	5.5	$	1.1	See Note 4
Income tax impact	(1.4)		(0.3)		Provision for income taxes
Total	$	4.1	$	0.8

Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost	$	(1.5)	$	(1.5)	Costs and expenses
Amortization of net actuarial loss	5.7		7.9		Costs and expenses
Total before tax	4.2		6.4
Income tax impact	(1.0)		(1.5)		Provision for income taxes
Total	$	3.2	$	4.9


	Amount Reclassified from AOCI for the Six Months Ended		Amount Reclassified from AOCI for the Six Months Ended		Statement of Income
	June 28, 2020		June 30, 2019		Presentation
(Gain) loss on cash flow hedges:
(Gain) loss recognized in income on derivatives	$	2.4	$	(0.9)	See Note 4
Income tax impact	(0.6)		0.3		Provision for income taxes
Total	$	1.8	$	(0.6)

Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost	$	(3.0)	$	(3.0)	Costs and expenses
Amortization of net actuarial loss	11.7		15.5		Costs and expenses
Total before tax	8.7		12.5
Income tax impact	(2.0)		(3.0)		Provision for income taxes
Total	$	6.7	$	9.5

Amount Reclassified from AOCI Three Months Ended Amount Reclassified from AOCI Three Months Ended Statement of Income
October 1, 2017 October 2, 2016 Presentation
(Gain) loss on cash flow hedges:
(Gain) loss recognized in income on derivatives $ 1.8
$ (0.1 ) Cost of sales
Income tax benefit (0.5 ) —
Income tax benefit
Total $ 1.3
$ (0.1 )

Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost $ (1.5 ) $ (1.5 ) Costs and expenses
Amortization of net actuarial loss 6.7
6.6
Costs and expenses
Total before tax 5.2
5.1

Income tax benefit (2.0 ) (1.8 ) Income tax benefit
Total $ 3.2
$ 3.3

Amount Reclassified from AOCI Nine Months Ended Amount Reclassified from AOCI Nine Months Ended Statement of Income
October 1, 2017 October 2, 2016 Presentation
Loss on cash flow hedges:
Loss recognized in income on derivatives $ 8.5
$ 2.9
Cost of sales
Income tax benefit (2.2 ) (0.8 ) Income tax benefit
Total $ 6.3
$ 2.1

Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost $ (4.5 ) $ (4.5 ) Costs and expenses
Amortization of net actuarial loss 20.8
21.0
Costs and expenses
Total before tax 16.3
16.5

Income tax benefit (6.3 ) (5.7 ) Income tax benefit
Total $ 10.0
$ 10.8

Note 3. Business Combinations, Goodwill and Acquired Intangible Assets

Acquisition of ~~e2v~~the OakGate Technology, Inc.

On ~~March 28, 2017, Teledyne completed the acquisition of all of the outstanding common stock of e2v technologies plc~~January 5, 2020, we acquired OakGate Technology, Inc. (“~~e2v”~~OakGate”) for ~~$770.7~~$28.5 million ~~including stock options and assumed debt,~~in cash, net ~~of $24.4 million~~ of cash acquired. ~~e2v~~Based in Loomis, California, OakGate provides ~~high performance image sensors~~software and ~~custom camera solutions~~hardware designed to test electronic data storage devices from development through manufacturing and application specific standard products for the machine vision market. In addition, e2v provides high performance space qualified imaging sensors and arrays for space science and astronomy. e2v also produces components and subsystems that deliver high reliability radio frequency power generation for healthcare, industrial and defenseend-use applications. Finally, the company provides high reliability semiconductors and board-level solutions for use in aerospace, space and communications applications. Teledyne funded the acquisition of e2v with borrowings under its credit facility and cash on hand as well as $100.0 million in a newly issued term loan.

~~Most of e2v’s operations are included in the Digital Imaging and Aerospace and Defense Electronics segments.~~ The Instrumentation segment includes a small portion of e2v’s operations. Principally located in Chelmsford, United Kingdom and Grenoble, France, e2v had sales of approximately £236 million for its fiscal year ended March 31, 2016. e2v’s results have been included since the date of the acquisition and include $181.7 million in net sales and operating income of $19.1 million, which included $9.4 million in acquisition-related costs and $7.7 million in additional intangible asset amortization expense.

The first nine months of 2017 includes pretax charges of $28.1 million related to the acquisition of e2v, which included $13.0 million in transaction costs, including stamp duty, advisory, legal and other consulting fees and other costs recorded to selling, general and administrative expenses, $6.8 million in inventory fair value step-up amortization expense recorded to cost of sales, $2.3 million in bank bridge facility commitment expense recorded to interest expense and $6.0 million related to a foreign currency option contract expense to hedge the e2v purchase price recorded as other expense. Of these amounts, $9.4 million impacted segment operating income.

~~The unaudited proforma information below, as required by GAAP, assumes that e2v had been~~ acquired at the beginning of the 2016 fiscal year and includes the effect of increased interest expense on net acquisition debt and the amortization of acquired intangible assets. The 2016 first nine months proforma amounts also include $14.9 million in transaction costs, including legal and other consulting fees, $11.5 million in expense related to a foreign currency option contract to hedge the e2v purchase price, $2.8 million in bridge financing costs and $6.8 million in inventory fair value step-up amortization expense. These amounts totaling $36.0 million (which includes $2.9 million for the third quarter) should be considered non-recurring costs that were necessary to complete the acquisition and are not indicative of the ongoing operations of the combined company.

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

~~The following table presents proforma net sales, net income and earnings per share data assuming e2v was acquired at the beginning of the 2016 fiscal year:~~

Third Quarter (a) Nine Months (a)
(unaudited - in millions, except per share amounts) 2017 2016 2017 2016
Net sales $ 662.2
$ 614.6
$ 1,992.4
$ 1,853.0
Net income $ 69.0
$ 55.5
$ 142.2
$ 126.3
Basic earnings per common share $ 1.95
$ 1.60
$ 4.04
$ 3.66
Diluted earnings per common share $ 1.90
$ 1.56
$ 3.93
$ 3.57

~~a) The above unaudited proforma information is presented for the e2v acquisition as it is considered a material acquisition.~~

Fair values allocated to the assets acquired and liabilities assumed - e2v (in millions): (a)
Current assets, excluding cash acquired $ 152.3
Property, plant and equipment 104.7
Goodwill 471.1
Acquired intangible assets 173.4
Other long-term assets 8.9
Total assets acquired 910.4
Current liabilities (78.7 )
Long-term liabilities (89.3 )
Total liabilities assumed (168.0 )
Consideration transferred, net of cash acquired (b) $ 742.4


~~(a)~~	~~The amounts recorded as of October 1, 2017 are preliminary since there was insufficient time between the acquisition date of March 28, 2017 and the end of the period to finalize the analysis.~~


~~(b)~~	~~Consideration transferred includes a $2.0 million liability for the payment to former e2v share option holders paid prior to the end of fiscal year 2017.~~

~~The following table is a summary at the acquisition date of the acquired intangible assets and weighted average useful life in years for the e2v acquisition made in 2017 (dollars in millions):~~

Intangibles subject to amortization:(a) Intangible Assets Weighted average useful life in years
Proprietary technology $ 97.5
11.8
Customer list/relationships 26.3
13.0
Backlog 2.8
0.8
Total intangibles subject to amortization 126.6
11.8
Intangibles not subject to amortization:(a)
Trademarks 46.8

Total acquired intangible assets $ 173.4


~~(a)~~	~~The amounts recorded as of October 1, 2017 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.~~

~~Other Acquisitions~~

On July 20, 2017, a subsidiary of Teledyne acquired assets of Scientific Systems, Inc. (“SSI”) for $31.0 million in cash. Headquartered in State College, PA, SSI manufactures precision components and specialized subassemblies used primarily in analytical and diagnostic instrumentation, such as High Performance Liquid Chromatography systems and specific medical devices andbusiness is part of the Test and Measurement product line of the Instrumentation segment.

~~Teledyne spent $93.4 million on acquisitions and other investments in 2016.~~ Acquisition of Micralyne, Inc.

On ~~December 6, 2016, Teledyne Instruments,~~August 30, 2019, we acquired Micralyne Inc. ~~acquired Hanson Research Corporation (“Hanson Research”) which specializes in analytical instrumentation~~ for ~~the pharmaceutical industry, for $25.0~~$26.2 million in cash. On November 2, 2016, Teledyne Instruments, Inc. acquired assets of IN USA, Inc. (“IN USA”) which manufactures a range of ozone generators, ozone analyzers and other gas monitoring instruments utilizing ultraviolet and infrared based technologies, for $10.2 million in cash. On May 3, 2016, Teledyne DALSA, Inc., a Canadian-based subsidiary, acquired the assets and business of CARIS, Inc. (“CARIS”) a leading developer of geospatial software designed for the hydrographic and marine community, for a cash, ~~payment of $26.2 million,~~ net of cash ~~acquired. On April 15, 2016, Teledyne LeCroy, Inc.,~~acquired and including a ~~U.S.-based subsidiary, acquired assets of Quantum Data, Inc. (“Quantum Data”) which provides electronic test and measurement instrumentation and~~$0.5 million purchase price adjustment paid in January 2020. Based in Edmonton, Alberta, Canada, Micralyne is a ~~market leader~~privately-owned foundry providing Micro Electro Mechanical Systems or MEMS devices. In particular, Micralyne possesses unique microfluidic technology for biotech applications, as well as capabilities in ~~video protocol analysis test tools~~non-silicon-based MEMS (e.g. gold, polymers) often required for ~~$17.3 million in cash. On April 6, 2016, Teledyne LeCroy, Inc. also~~human body compatibility. The acquired Frontline Test Equipment, Inc. (“Frontline”) which provides electronic test and measurement instrumentation and is a market leader in wireless protocol analysis test tools, for $13.7 million in cash. Each of the 2016 acquisitions are part of the Instrumentation segment except for CARIS whichbusiness is part of the Digital Imaging segment.

~~Teledyne funded~~

Acquisition of the ~~SSI acquisition~~gas and flame detection business of 3M Company

On August 1, 2019, we acquired the gas and flame detection business of 3M Company for $233.5 million in cash, net of cash acquired. The gas and flame detection business includes Oldham, Simtronics, Gas Measurement Instruments, Detcon and select Scott Safety products. The gas and flame detection business provides a portfolio of fixed and portable industrial gas and flame detection instruments used in a variety of industries including petrochemical, power generation, oil and gas, food and beverage, mining and waste water treatment. Principally located in France, the United Kingdom and the ~~2016 acquisitions from borrowings under its credit facility and cash on hand. The results of all~~United States, the ~~acquisitions have been included in Teledyne’s results since the dates~~acquired business is part of the ~~respective acquisition. The primary reasons~~Environmental product line of the Instrumentation segment.

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

On February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for ~~the 2017~~$224.8 million in cash, net of cash acquired and 2016 acquisitions were to strengthen and expand our core businesses through adding complementary product and service offerings, allowing greater integrated products and services, enhancing our technical capabilities or increasing our addressable markets. The significant factors that resulted in recognition of goodwill were: (a) theincluding a purchase price ~~was based on cash flow~~adjustment. Principally located in the United States and ~~return on capital projections assuming integration with our~~Canada, the acquired businesses ~~and (b) the calculation~~are part of the ~~fair value~~Digital Imaging segment. The acquired businesses include Princeton Instruments, Photometrics and Lumenera. The acquired businesses provide a range of ~~tangible~~imaging solutions, primarily for life sciences, academic research and ~~intangible assets acquired that qualified~~customized OEM industrial imaging solutions. Princeton Instruments and Photometrics manufacture state-of-the-art cameras, spectrographs and optics for ~~recognition.~~

~~For a further description of the Company’s acquisition activity~~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 ~~fiscal year 2016, please refer to Note 3 of the Notes to Consolidated Financial Statements included in our 2016 Form 10-K.~~markets such as traffic management, as well as life sciences applications.

Goodwill and Acquired Intangible Assets

Teledyne’s goodwill was ~~$1,748.9~~$2,061.3 million at ~~October 1, 2017~~June 28, 2020 and ~~$1,193.5~~$2,050.5 million at ~~January 1, 2017.~~December 29, 2019. The increase in the balance of goodwill in ~~2017 primarily included $471.1 million in~~2020 resulted from goodwill from ~~e2v acquisition, as well as the impact of~~recent acquisitions, mostly offset by exchange rate changes. Goodwill resulting from the ~~e2v~~ acquisition of OakGate will not be deductible for tax purposes. Teledyne’s net acquired intangible assets were ~~$408.2~~$409.2 million at ~~October 1, 2017~~June 28, 2020 and ~~$234.6~~$430.8 million at ~~January 1, 2017.~~December 29, 2019. The ~~increase~~decrease in the balance of net acquired intangible assets ~~in 2017 reflected $173.4 million in~~resulted from amortization of acquired intangible assets ~~from~~and exchange rate changes. The Company completed the ~~e2v acquisition, partially offset by $29.2 million~~process of ~~amortization.~~specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the scientific imaging businesses acquisition. The Company is in the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the ~~e2v~~OakGate acquisition ~~including~~and the ~~allocation by segment. The amounts recorded as of October 1, 2017 are preliminary~~gas and flame detection business and the Micralyne acquisitions since there was insufficient time between the acquisition ~~date and the end of the period to finalize the analysis. In addition, the Company is still in the~~

process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the SSI acquisition made in July 2017 and the IN USA and Hanson Research acquisitions made in the fourth quarter of 2016. The amounts recorded as of October 1, 2017 are preliminary since there was insufficient time between the acquisition datedates and the end of the period to finalize the analysis.

During the second quarter of 2020, the Company evaluated the effects of the COVID-19 pandemic and its negative impact on the global economy on each of the Company’s reporting units and indefinite-lived intangible assets. Management reviewed key assumptions, including revisions of projected future revenues for reporting units and the results of the previous annual impairment testing performed during the fourth quarter of 2019. The Company did not identify an indication of impairment for each of its reporting units and indefinite-lived intangible assets. Although it was determined that a triggering event had not occurred as of June 28, 2020, we will continue to monitor the impacts of the COVID-19 pandemic on the Company’s reporting units and indefinite-lived intangible assets.

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

Note 4. Derivative Instruments

Teledyne transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company’s primary foreign currency risk management objective is to protect the ~~United States~~U.S. dollar value of future cash flows and minimize the volatility of reported earnings. All derivatives are recorded on the balance sheet at fair value. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. The Company utilizes foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenues and expenses denominated in Canadian dollars for our Canadian companies, ~~including DALSA~~ and in British pounds for our UK ~~companies, including e2v.~~companies. These contracts are designated and qualify as cash flow hedges. The Company has also converted a USU.S. dollar denominated, variable rate ~~debt~~ obligation into a euro fixed rate obligation using a ~~receive-float,~~receive float, pay fixed cross currency swap. ~~This~~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.

~~Cash Flow Hedging Activities~~

The effectiveness of the ~~forward contract~~ cash flow hedge ~~which exclude time value, and the cross currency swap cash flow hedge~~forward contracts, 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 hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash flow hedge forward contracts’ gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of AOCI in stockholders’ equity until the underlying hedged item is reflected in our consolidated statements of income, at which time the effective amount in AOCI is

Table of Contents

reclassified to ~~cost of sales~~revenue in our consolidated statements of income. For the cross currency swap cash flow hedge, effective amounts are recorded in AOCI, and reclassified into interest expense in the consolidated statements of income. In addition, for the cross currency swap an amount is reclassified from AOCI to other income and expense each reporting period, to offset the earnings impact of the remeasurement of the hedged liability. Net deferred ~~gains~~losses recorded in AOCI, net of tax, for the forward contracts that will mature in the next twelve months total ~~$3.8~~$0.9 million. These ~~gains~~losses are expected to be offset by anticipated ~~losses~~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~~next twelve months total ~~$1.9~~$2.0 million.

In the event that the gains or losses in AOCI are deemed to be ineffective, the ineffective portion of gains or losses resulting from changes in fair value, if any, is reclassified to other income and expense. In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges will be reclassified from AOCI to other income and expense. During the current reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other income and expense.

As of ~~October 1, 2017,~~June 28, 2020, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars totaling ~~$84.4~~$93.1 million. These foreign currency forward contracts have maturities ranging from ~~December 2017~~September 2020 to May 2021. Teledyne had foreign currency forward contracts designated as cash flow hedges to buy British pounds and to sell U.S. dollars totaling $6.5 million. These foreign currency forward contracts have maturities ranging from September 2020 to February ~~2019.~~2021. The cross currency ~~swap has~~swaps have notional amounts of ~~€93.0~~€113.0 million ~~equivalent to $100.0~~and $125 million, and €135.0 million and $150.0 million, and matures in ~~September 2019.~~March 2023 and October 2024, respectively. The interest rate swap has a notional amount of $125.0 million and matures in March 2023.

The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the ~~third~~second quarter and ~~nine~~six months ended ~~October 1, 2017~~June 28, 2020 and ~~October 2, 2016~~June 30, 2019 was as follows (in millions):

Third Quarter Nine Months
2017 2016 2017 2016
Net gain (loss) recognized in AOCI (a) $ 1.0
$ (1.0 ) $ (1.9 ) $ 3.4
Net gain (loss) reclassified from AOCI into cost of sales (a) $ (0.8 ) $ (0.1 ) $ —
$ 2.9
Net gain reclassified from AOCI into interest expense (a) $ 0.4
$ —
$ 0.9
$ —
Net loss reclassified from AOCI into other income and expense, net (b) $ (3.0 ) $ —
$ (9.3 ) $ —
Net foreign exchange gain (loss) recognized in other income and expense, net (c) $ 0.8
$ 0.1
$ (0.8 ) $ (0.2 )


	Second Quarter						Six Months
	2020		2019		2020		2019
Net gain (loss) recognized in AOCI (a)	$	0.2	$	0.7	$	(0.4)	$	5.0
Net gain (loss) reclassified from AOCI into COS - Foreign Exchange Contracts (a)	$	(1.6)	$	(0.6)	$	(1.8)	$	(1.2)
Net gain (loss) reclassified from AOCI Interest Rate Contracts	$	(0.6)	$	—	$	(4.6)	$	—
Net gain (loss) reclassified from AOCI into other income and expense, net - Foreign Exchange Contracts (b)	$	(4.7)	$	(1.2)	$	(3.0)	$	0.6
Net gain (loss) reclassified from AOCI into interest expense - Foreign Exchange Contracts	$	1.0	$	—	$	2.5	$	—
Net gain (loss) reclassified from AOCI into interest expense - Interest Rate Contracts	$	(0.3)	$	0.7	(0.2)		$	1.5
Net foreign exchange gain (loss) recognized in other income, net (c)	$	—	$	(0.2)	$	—	$	(0.4)

a) Effective portion, pre-tax

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

c) Amount excluded from effectiveness testing

Non-Designated Hedging Activities

In addition, the Company utilizes foreign currency forward contracts to mitigate foreign exchange rate risk associated with ~~foreign-currency-denominated~~foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. As of ~~October 1, 2017,~~June 28, 2020, Teledyne had non-designated foreign currency contracts, (in excess of approximately $311.2 million) of this type in the following pairs (in millions):


Contracts to Buy	Contracts to Buy		Contracts to Sell			Contracts to Buy				Contracts to Sell
Currency	Amount		Currency	Amount		Currency	Amount		Currency		Amount
Canadian Dollars	C$	155.4	U.S. Dollars	US$	124.1	Canadian Dollars	$	51.0	U.S. Dollars		US$	37.6
Canadian Dollars	C$	4.0	Euros	€	2.6	Canadian Dollars	$	15.1	Euros		€	9.9

Great Britain Pounds						Great Britain Pounds	£	61.8	U.S. Dollars		US$	76.9

Euros	€	36.8	Great Britain Pounds	£	33.8	Euros	€	31.0	U.S. Dollars		US$	34.8

Danish Krone						Danish Krone	DKR	139.4	U.S. Dollars		US$	21.0
Great Britain Pounds	£	1.7	Australian Dollars	A$	2.7	Great Britain Pounds	£	5.9	Euros		€	6.6
Great Britain Pounds	£	54.8	U.S. Dollars	US$	71.8
Singapore Dollars	S$	1.9	U.S. Dollars	US$	1.4
Euros	€	14.2	U.S. Dollars	US$	17.1
Swiss Franc	Fr.	1.2	U.S. Dollars	US$	1.3
U.S. Dollars	US$	0.9	Japanese Yen	¥	100.0
Danish Krone	DKR	31.2	U.S. Dollars	US$	5.0
Swedish Krone	kr	34.2	Great Britain Pounds	£	3.3

The above table includes non-designated hedges derived from terms contained in triggered or previously designated cash flow hedges. The gains and losses on these derivatives which are not designated as hedging instruments are intended to, at a minimum, partially offset the transaction gains and losses recognized in earnings. Teledyne does not use foreign currency forward contracts for speculative or trading purposes.

The effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for the ~~third~~second quarter and ~~nine~~six months ended ~~October 1, 2017~~June 28, 2020 was income of ~~$4.8~~$1.8 million and expense of ~~$1.7~~$8.6 million, ~~respectively.~~respectively.. The effect of derivative instruments not designated as cash flow hedges in other income and expense for the ~~third~~second quarter and ~~nine~~six months

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ended ~~October 2, 2016~~June 30, 2019 was expense of ~~$1.3~~$0.7 million and income of $0.9 million, respectively. The income/expense was largely offset by losses/gains in the value of the underlying hedged item excluding the impact of forward points.

Fair Value of Derivative Financial Instruments

The Company has elected to use the income approach to value the derivatives, using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR and EURIBOR) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and EURIBOR cash and swap rates, foreign currency forward rates and cross currency basis spreads). Mid-market pricing is used as a practical expedient for fair value measurements. The fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments and did not have a material impact on the fair value of these derivative instruments. Both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.

The fair values of the Company’s derivative financial instruments are presented below. All fair values for these derivatives were measured using Level 2 information as defined by the accounting standard hierarchy (in millions):


Asset/(Liability) Derivatives	Balance sheet location	June 28, 2020		December 29, 2019
Derivatives designated as hedging instruments:
Cash flow forward contracts	Other assets	$	0.6	$	1.3
Cash flow forward contracts	Accrued liabilities	(1.8)		(0.1)
Cash flow cross currency swap	Other non-current asset	0.2		—
Cash flow cross currency swap	Other current assets	2.7		5.4
Cash flow cross currency swap	Accrued liabilities	—		0.3
Cash flow cross currency swap	Other non-current liabilities	—		(7.8)
Cross currency swap	Other current assets	0.1		—
Cross currency swap	Other current assets	0.7		—
Cross currency swap	Other non-current liabilities	(4.9)		—
Interest rate contracts	Other current assets	—		0.2
Interest rate contracts	Other non-current assets	—		0.3
Interest rate contracts	Other current liabilities	(1.5)		—
Interest rate contracts	Other non-current liabilities	(2.4)		—

Total derivatives designated as hedging instruments		(6.3)		(0.4)
Derivatives not designated as hedging instruments:
Non-designated forward contracts	Other current assets	1.9		0.1
Non-designated forward contracts	Accrued liabilities	(2.4)		(0.4)
Total derivatives not designated as hedging instruments		(0.5)		(0.3)
Total derivatives, net		$	(6.8)	$	(0.7)

Asset/(Liability) Derivatives Balance sheet location October 1, 2017 January 1, 2017
Derivatives designated as hedging instruments:
Cash flow forward contracts Other assets $ 5.3
$ —
Cash flow cross currency swap Accrued liabilities (10.0 ) —
Cash flow forward contracts Accrued liabilities —
(1.0 )
Cash flow forward contracts Other long-term liabilities —
(0.1 )
Total derivatives designated as hedging instruments (4.7 ) (1.1 )
Derivatives not designated as hedging instruments:
Non-designated forward contracts Other current assets 4.7
6.4
Non-designated forward contracts Accrued liabilities (4.1 ) (1.0 )
Total derivatives not designated as hedging instruments 0.6
5.4
Total (liability) asset derivatives $ (4.1 ) $ 4.3

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Note 5. Earnings Per Share

For the ~~third~~second quarter of ~~2017, no~~2020 and first six months of 2020, 241,931 and 244,192 stock options, respectively, were excluded in the computation of diluted earnings per share because they had exercise prices that were greater than the weighted average market price of the Company’s common stock during the respective periods. For the second quarter of 2019, 0 stock options were excluded in the computation of earnings per share.For the first ~~nine~~six months of ~~2017, 600~~2019, 3,240 stock options were excluded in the computation of diluted earnings per share because they had exercise prices that were greater than the weighted average market price of the Company’s common stock during the period.

For the third quarter of 2016, no stock options were excluded in the computation of diluted earnings per share. For the first nine months of 2016, 336,457 stock options were excluded in the computation of diluted earnings per share because they had exercise prices that were greater than the weighted average market price of the Company’s common stock during the period.

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


	Second Quarter			Six Months
	2020	2019	2020	2019

Weighted average basic common shares outstanding	36.7	36.2	36.6	36.2
Effect of dilutive securities (primarily stock options)	1.1	1.2	1.2	1.1
Weighted average diluted common shares outstanding	37.8	37.4	37.8	37.3

Third Quarter Nine Months
2017 2016 2017 2016
Weighted average basic common shares outstanding 35.3
34.7
35.2
34.5
Effect of dilutive securities (primarily stock options) 1.1
0.9
1.0
0.9
Weighted average diluted common shares outstanding 36.4
35.6
36.2
35.4

Note 6. Stock-Based Compensation Plans

Teledyne has long-term incentive plans pursuant to which it has granted non-qualified stock options, restricted stock and performance shares to certain employees. The Company also has non-employee Board of Director stock compensation plans, pursuant to which ~~non-qualified~~common stock, stock options and ~~common stock, and beginning in 2015~~ restricted stock units have been issued to its directors. ~~After 2014, non-employee directors no longer receive non-qualified stock options.~~

Stock Incentive Plan

~~The following disclosures are based on stock options granted to Teledyne’s employees and directors.~~ Stock option compensation expense was ~~$3.2 million and $11.0~~$5.7 million for the ~~third~~second quarter ~~and first nine months~~ of ~~2017,~~2020 and was ~~$2.5 million and $8.8~~$5.8 million for the ~~third~~second quarter ~~and~~of 2019. Stock option compensation expense was $13.1 million for the first ~~nine~~six months of ~~2016.~~2020 and was $14.7 million for the first six months of2019. Employee stock option grants are charged to expense evenly over the three year vesting ~~period.~~period except for stock options that were granted after 2018 to Teledyne’s Executive Chairman and Teledyne’s President and Chief Executive Officer which were expensed immediately. For ~~2017,~~2020, the Company currently expects approximately ~~$14.4~~$25.2 million in stock option compensation expense based on stock options ~~currently outstanding.~~outstanding at June 28, 2020. This amount can be impacted by employee retirements and terminations or stock options granted during the remainder of the year. The Company issues shares of common stock upon the exercise of stock options.

The following assumptions were used in the valuation of stock options granted in ~~2017:~~

the first six months of 2020:


		2020
Expected volatility		~~2017~~23.7%
~~Expected volatility~~		~~32.3%~~
Risk-free interest rate range	~~1.0%~~1.50% to ~~2.5%~~1.75%
Expected life in years		~~7.2~~6.6
Expected dividend yield		—

Based on the assumptions used in the valuation of stock options, the grant date weighted average fair value of stock options granted in ~~2017~~the first six months of 2020 was ~~$48.45~~$106.26 per share.

Stock option transactions for the ~~third~~second quarter and ~~nine~~first six months ~~ended October 1, 2017~~of 2020 are summarized as follows:


	2020
	Second Quarter				Six Months
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Beginning balance	2,135,096	$	160.32	1,988,576	$	130.66
Granted	—	$	—	246,453	$	383.18
Exercised	(196,766)	$	91.48	(288,173)	$	97.97
Canceled	(11,254)	$	279.44	(19,780)	$	246.79
Ending balance	1,927,076	$	166.66	1,927,076	$	166.66
Options exercisable at end of period	1,336,293	$	116.16	1,336,293	$	116.16

2017
Third Quarter Nine Months
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Beginning balance 2,515,100
$ 82.26
2,175,442
$ 70.44
Granted —
$ —
543,880
$ 123.40
Exercised (104,496 ) $ 66.49
(289,178 ) $ 64.84
Canceled (13,147 ) $ 104.92
(32,687 ) $ 92.52
Ending balance 2,397,457
$ 82.83
2,397,457
$ 82.83
Options exercisable at end of period 1,545,815
$ 69.77
1,545,815
$ 69.77

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Performance Share Plan and Restricted Stock Award Program

Under the 2015 to 2017 Performance Share Plan, the Company issued 7,673 shares of Teledyne common stock in the first quarter of 2020, 8,586 shares in the first quarter of 2019 and 6,481 shares in the first quarter of 2018.

In the first quarter of ~~2017,~~2018, the ~~Company~~performance cycle for the three-year period ending December 31, 2020, was set. Subject to the terms of the plan, the maximum number of shares that could be issued ~~876 shares of Teledyne common stock as the third~~in three equal installments in 2021, 2022 and ~~final payout under the 2012 to 2014 Performance Share Plan.~~2023 is 61,194.

The following table shows the restricted stock activity for the first ~~nine~~six months of ~~2017:~~

2020:

Restricted stock: Shares Weighted average fair value per share
Balance, January 1, 2017 95,304
$ 83.87
Granted 23,002
$ 114.42
Vested (30,704 ) $ 87.98
Forfeited/Canceled (1,068 ) $ 87.59
Balance, October 1, 2017 86,534
$ 90.49


	Shares	Weighted average fair value per share
Balance, December 29, 2019	56,412	$	158.62
Granted	10,080	$	360.33
Vested	(23,087)	$	114.74

Balance, June 28, 2020	43,405	$	228.80

Note 7. Inventories

Inventories are stated at current cost, net of reserves for excess, slow moving and obsolete ~~inventory, less progress payments.~~inventory. Inventories are valued under the FIFO method, LIFO method ~~and~~or average cost method. Inventories at cost determined on the average cost or the FIFO methods were ~~$372.2~~$363.4 million at ~~October 1, 2017~~June 28, 2020 and ~~$268.4~~$361.2 million at ~~January 1, 2017.~~December 29, 2019. The remainder of the inventories using the LIFO method ~~were~~ ~~$80.1~~is $36.3 million at ~~October 1, 2017~~June 28, 2020 and ~~$68.4~~$40.0 million at ~~January 1, 2017.~~December 29, 2019. Interim LIFO calculations are based on the Company’s estimates of expected year-end inventory levels and costs since an actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Because these estimates are subject to many factors beyond the Company’s control, interim results are

subject to the final year-end LIFO inventory valuation.


	Balance at							Balance at
Inventories (in millions):	October 1, 2017			January 1, 2017			Inventories (in millions):	June 28, 2020		December 29, 2019
Raw materials and supplies	$	201.2		$	146.0		Raw materials and supplies	$	251.9	$	231.2
Work in process	193.4			147.8			Work in process	84.0		108.3
Finished goods	57.7			43.0			Finished goods	63.8		61.7
	452.3			336.8				399.7		401.2
Progress payments	(8.4		)	(9.1		)

Reduction to LIFO cost basis	(12.0		)	(13.5		)	Reduction to LIFO cost basis	(7.4)		(7.8)
Total inventories, net	$	431.9		$	314.2		Total inventories, net	$	392.3	$	393.4

Note 8. Customer Contracts

Estimate at Completion Process

For over time contracts using the cost-to-cost method, we have an Estimate at Completion (“EAC”) process in which management reviews the progress and execution of our performance obligations. This EAC process requires management judgment relative to assessing risks, estimating contract revenue and cost, and making assumptions for schedule and technical issues. Since certain contracts extend over multiple reporting periods, the impact of revisions in cost and revenue estimates during the progress of work may adjust the current period earnings through a cumulative catch-up basis. This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters. Additionally, if the current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract cost and revenue estimates for significant contracts are reviewed and reassessed quarterly. The majority of revenue recognized over time uses an EAC process. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first six months of 2020 was approximately $10.2 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging operating segment. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first six months of 2019 was approximately $12.6 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue, and, to a lesser degree, cost of sales within the Digital Imaging operating segment. None of the effects of changes in estimates on any individual contract were material to the condensed consolidated statements of income for any period presented.

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Contract Liabilities

We recognize a liability for interim and advance payments in excess of revenue recognized and present it as a contract liability which is included within accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheet, which represented $123.2 million and $15.2 million as of June 28, 2020, and $126.8 million and $17.9 million as of December 29, 2019, respectively.

The Company recognized revenue of $51.9 million during the six months ended June 28, 2020 from contract liabilities that existed at the beginning of year. The Company recognizes the incremental costs of obtaining or fulfilling a contract as expense when incurred if the amortization period of the asset is one year or less. Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity). As of June 28, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,806.2 million. The Company expects approximately 74% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 26% recognized thereafter.

Product Warranty ~~Reserve~~Costs

Some of the Company’s products are subject to specified warranties, and the Company provides for the estimated cost of product warranties. The adequacy of the warranty reserve is assessed regularly, and the reserve is adjusted as necessary based on a review of historic warranty experience with respect to the applicable business or products, as well as the length and actual terms of the warranties. The warranty reserve is included in current and long-term accrued liabilities on the ~~balance sheet.~~Condensed Consolidated Balance Sheet.


	Six Months
Warranty Reserve (in millions):	2020		2019
Balance at beginning of year	$	24.8	$	21.0
Accruals for product warranties charged to expense and other	0.7		5.1
Cost of product warranty claims	(5.3)		(4.6)
Acquisition	0.1		0.3
Balance at end of period	$	20.3	$	21.8

Accounts Receivable, Net

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities, which are included in accrued liabilities and other long-term liabilities) on the Condensed Consolidated Balance Sheet. Under the typical payment terms of our over time contracts, the customer pays us either performance-based payments or progress payments. Amounts billed and due from our customers are classified as receivables on the Condensed Consolidated Balance Sheet. Accounts receivable is presented net of an allowance for doubtful accounts of $12.0 million at June 28, 2020, and $10.2 million at December 29, 2019.

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


	Six Months
Allowance for doubtful accounts (in millions):	2020
Balance at beginning of period	$	10.2
Accruals for credit loss charged to expense	2.8
Other deductions	(1.0)

Balance at end of period	$	12.0

Nine Months
Warranty Reserve (in millions): 2017 2016
Balance at beginning of year $ 18.4
$ 17.1
Accruals for product warranties charged to expense 4.8
7.0
Cost of product warranty claims (5.3 ) (4.7 )
Acquisitions 3.1
0.3
Balance at end of period $ 21.0
$ 19.7

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Note 9. Income Taxes

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

The Company’s effective income tax rate for the ~~third~~second quarter and first ~~nine~~six months of ~~2017~~2020 was ~~15.6%~~13.2% and ~~19.7%~~15.8%, respectively. The ~~Company’s~~Company's effective income tax rate for the ~~third~~second quarter and first ~~nine~~six months of ~~2016~~2019 was ~~16.7%~~18.2% and ~~23.9%~~18.5%, respectively. The ~~third~~second quarter and first ~~nine~~six months of ~~2017 includes~~2020 include net discrete income tax benefits of ~~$9.9~~$10.4 million and ~~$15.9~~$14.6 million, respectively. ~~Excluding~~The second quarter and first six months of 2020 net discrete income tax ~~items~~benefits include $9.8 million and $14.5 million, respectively, related to share-based accounting. The second quarter and first six months of 2019 include net discrete income tax benefits of $4.3 million and $7.4 million, respectively. The 2019 second quarter and first six months net discrete tax benefits includes $4.8 million and $7.7 million, respectively, related to share-based accounting. Excluding the net discrete income tax benefits in both ~~2017~~ periods, the effective tax rates would have been ~~27.7%~~22.8% for both the ~~third~~second quarter and first ~~nine~~six months of ~~2017. The 2017 first nine months net discrete tax benefits includes a $7.7 million income tax benefit as a result of~~2020. Excluding the remeasurement of uncertain tax positions due to expiration of statute of limitation, of which $7.4 million was recorded in the third quarter of 2017. The first nine months of 2017 also includes an $8.5 million income tax benefit related to the release of valuation allowance for which the deferred tax assets are now determined more-likely-than-not to be realizable, of which $0.4 million was recorded in the third quarter. The first nine months of 2017 includes a $4.6 million income tax expense related to adjustments for uncertain tax positions. The 2017 third quarter and first nine months net discrete tax benefits also includes $2.3 million and $5.1 million, respectively, related to share-based accounting. The third quarter and first nine months of 2016 included net discrete income tax benefits of $6.6 million and $1.5 million, respectively. The first nine months of 2016 reflected $6.7 million in income tax expense related to the $17.9 million gain on the sale of a former operating facility. The 2016 third quarter and first nine months also included $4.0 million and $5.8 million, respectively, in net discrete tax benefits related to share-based accounting. Excluding net discrete income tax items in both ~~2016~~ periods, ~~and the gain and related taxes on the facility sale in 2016,~~ the effective tax rates would have been ~~27.2%~~21.6% for the ~~third~~second quarter of 2019 and ~~27.4%~~21.9% for the first ~~nine~~six months of ~~2016.~~2019.

Note 10. Long-Term Debt ~~Capital Lease~~ and Letters of Credit

Balance at
Long-Term Debt (in millions): October 1, 2017 January 1, 2017
$750.0 million credit facility due December 2020, weighted average rate of 2.41% at October 1, 2017 $ 285.0
$ —
Term loans due through January 2022, weighted average rate of 2.61% at October 1, 2017 and 1.90% at January 1, 2017 182.5
182.5
4.74% Fixed Rate Senior Notes due and repaid September 2017 —
100.0
Term loan due October 2019, variable rate of 2.49% swapped to a Euro fixed rate of 0.7055% at October 1, 2017 100.0
—
2.61% Fixed Rate Senior Notes due December 2019 30.0
30.0
5.30% Fixed Rate Senior Notes due September 2020 75.0
75.0
2.81% Fixed Rate Senior Notes due November 2020 25.0
25.0
3.09% Fixed Rate Senior Notes due December 2021 95.0
95.0
3.28% Fixed Rate Senior Notes due November 2022 100.0
100.0
0.70% €50 Million Fixed Rate Senior Notes due April 2022
59.0
—
0.92% €100 Million Fixed Rate Senior Notes due April 2023
118.2
—
1.09% €100 Million Fixed Rate Senior Notes due April 2024
118.2
—
Other debt at various rates due through 2018 3.0
4.2
Total debt 1,190.9
611.7
Less: current portion of long-term debt and debt issuance costs (a) (3.4 ) (102.0 )
Total long-term debt $ 1,187.5
$ 509.7

~~(a) Includes debt issue costs associated with the term loans and senior notes of $2.2 million at October 1, 2017 and $1.4 million at January 1, 2017.~~


	Balance at
Long-Term Debt (in millions):	June 28, 2020		December 29, 2019
$750 million credit facility due March 2024, weighted average rate of 1.10% at June 28, 2020 and 2.80% at December 29, 2019	$	125.0	$	125.0


Term loan due October 2024, variable rate of 2.60% at June 28, 2020 and 2.702% at December 29, 2019, swapped to a Euro fixed rate of 0.6120%	150.0		150.0

5.30% Fixed Rate Senior Notes due September 2020	75.0		75.0
2.81% Fixed Rate Senior Notes due November 2020	25.0		25.0
3.09% Fixed Rate Senior Notes due December 2021	95.0		95.0
3.28% Fixed Rate Senior Notes due November 2022	100.0		100.0
0.70% €50 Million Fixed Rate Senior Notes due April 2022	56.1		56.0
0.92% €100 Million Fixed Rate Senior Notes due April 2023	112.2		111.9
1.09% €100 Million Fixed Rate Senior Notes due April 2024	112.2		111.9
Other debt	1.8		2.0
Debt issuance costs	(0.9)		(1.2)
Total debt	851.4		850.6
Less: current portion of long-term debt and debt issuance costs	(100.6)		(100.6)
Total long-term debt	$	750.8	$	750.0

Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and certain outstanding letters of credit, was ~~$447.5~~$614.5 million at ~~October 1, 2017.~~June 28, 2020. The credit agreements require the Company to comply with various financial and operating covenants and at ~~October 1, 2017,~~June 28, 2020, the Company was in compliance with these covenants. ~~In March 2017,~~At June 28, 2020, Teledyne ~~entered into a $100.0~~had $25.8 million ~~term loan with a maturity date~~in outstanding letters of October 30, 2019. Subsequently, in March 2017, Teledyne entered into a cross currency swap to effectively convert the $100.0 million term loan to a €93.0 million denominated instrument with a fixed euro interest rate of 0.7055%. The proceeds from the term loan were used in connection with the acquisition of e2v.

On April 18, 2017, Teledyne entered into a note purchase agreement for a private placement of €250.0 million of senior unsecured notes due through April 2024. Teledyne used the proceeds of the private placement, among other things, to repay indebtedness and for general corporate purposes.credit.

Teledyne estimates the fair value of its long-term debt based on debt of similar type, rating and maturity and at comparable interest rates. The Company’s long-term debt is considered a level 2 fair value hierarchy and is valued based on observable market data. The estimated fair value of Teledyne’s long-term debt at ~~October 1, 2017~~June 28, 2020 and ~~January 1, 2017,~~December 29, 2019, approximated the carrying value.

Note 11. Lease Commitments

At ~~October 1, 2017, the Company had $7.0~~June 28, 2020, Teledyne has right-of-use assets of $120.4 million ~~in capital~~and a total lease liability for operating leases of $131.1 million of which ~~$1.3~~$111.7 million is ~~current. At January 1, 2017,~~included in long-term lease liabilities and $19.4 million is included in current accrued liabilities. Operating lease expense was $6.0 million and $12.1 million for the ~~Company had $7.4~~second quarter and first six months of 2020, respectively. Operating lease expense was $5.8 million ~~in capital leases,~~and $11.6 million for the second quarter and first six months of ~~which $1.3 million was current. At October 1, 2017, Teledyne had $20.9 million in outstanding letters~~2019, respectively.

Table of ~~credit.~~Contents

Note ~~11.~~12. Lawsuits, Claims, Commitments, Contingencies and Related Matters

For a further description of the Company’s commitments and contingencies, reference is made to Note 14 of the Company’s financial statements as of and for the fiscal year ended ~~January 1, 2017,~~December 29, 2019, included in the ~~2016~~2019 Form 10-K.

At ~~October 1, 2017,~~June 28, 2020, the Company’s reserves for environmental remediation obligations totaled ~~$5.5~~$6.6 million, of which ~~$1.7~~$1.5 million is included in current accrued liabilities. At ~~January 1, 2017,~~December 29, 2019, the Company’s reserves for environmental remediation obligations totaled ~~$7.0~~$6.0 million. The Company ~~periodically~~ evaluates whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years and will complete remediation of all sites with which it has been identified in up to 30 years.

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

A number of other lawsuits, claims and proceedings have been or may be asserted against the Company, including those pertaining to product liability, acquisitions, patent infringement, contracts, environmental, employment and employee benefits matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial statements.

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

Effective January 1, 2020, Teledyne restructured its domestic qualified defined benefit pension plan. The restructuring involved dividing our domestic qualified defined pension plan into 2 separate plans, 1 comprised primarily of inactive participants (the “inactive plan”) and the other comprised primarily of active participants (the “active plan”). The reorganization was made to efficiently facilitate a targeted investment strategy and to provide additional flexibility in evaluating opportunities to reduce risk and volatility. As a result of the restructuring, the Company re-measured the assets and liabilities of the 2 plans, based on assumptions and market conditions on the January 1, 2020 effective date. Actuarial gains and losses associated with the active plan will continue to be amortized over the average remaining service period of the active participants, while the actuarial gains and losses associated with the inactive plan will be amortized over the average remaining life expectancy of the inactive participants which is currently approximately 17.7 years.

For the domestic qualified pension ~~plan,~~plans, the weighted-average discount rate decreased to ~~4.54%~~3.41% in ~~2017~~2020 compared with a ~~4.91%~~4.59% discount rate used in 2016. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards (“CAS”) was $3.5 million and $10.4 million for the third quarter and first nine months of both 2017 and 2016, respectively. Pension expense determined under CAS can generally be recovered through the pricing of products and services sold to the U.S. Government.2019. Teledyne ~~did~~has not ~~make~~made any cash pension contributions to its domestic qualified pension plan ~~in 2017 or 2016. No~~since 2013. NaN cash pension contributions are planned for ~~2017~~2020 for the domestic qualified pension ~~plan.~~

plans.


														Second Quarter						Six Months
	Third Quarter						Nine Months							2020		2019		2020		2019
Net periodic pension benefit (income) expense (in millions):	2017			2016			2017			2016
Service cost — benefits earned during the period	$	2.7		$	2.8		$	8.1		$	8.4
Service cost — benefits earned during the period (in millions)													Service cost — benefits earned during the period (in millions)	$	2.6	$	2.3	$	5.2	$	4.7

Pension non-service income (in millions):													Pension non-service income (in millions):
Interest cost on benefit obligation	9.1			10.2			27.4			30.4			Interest cost on benefit obligation	$	6.8	$	8.4	$	13.7	$	16.8
Expected return on plan assets	(18.3		)	(18.8		)	(54.9		)	(56.3		)	Expected return on plan assets	(14.3)		(16.6)		(28.6)		(33.1)
Amortization of prior service cost	(1.5		)	(1.5		)	(4.5		)	(4.5		)	Amortization of prior service cost	(1.5)		(1.5)		(3.0)		(3.0)
Amortization of net actuarial loss	7.3			6.8			21.9			20.4			Amortization of net actuarial loss	5.8		7.8		11.5		15.5
Net periodic pension income	$	(0.7	)	$	(0.5	)	$	(2.0	)	$	(1.6	)
Curtailment/settlements													Curtailment/settlements	—		(0.1)		0.7		(0.4)
Pension non-service income													Pension non-service income	$	(3.2)	$	(2.0)	$	(5.7)	$	(4.2)

Teledyne sponsors several postretirement defined benefit plans that provide health care and life insurance benefits for certain eligible retirees. Postretirement benefits non-service expense is not material.

Third Quarter Nine Months
Net periodic postretirement benefits expense (in millions): 2017 2016 2017 2016
Interest cost on benefit obligation $ 0.1
$ 0.1
$ 0.3
$ 0.4
Amortization of net actuarial gain (0.1 ) (0.1 ) (0.3 ) (0.3 )
Net periodic postretirement expense $ —
$ —
$ —
$ 0.1

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Note ~~13.~~14. Segment Information

Teledyne is a leading provider of sophisticated instrumentation, digital imaging products and software, aerospace and defense electronics, and engineered systems. Our customers include government agencies, aerospace prime contractors, energy exploration and production companies, major industrial companies and airlines. The Company has ~~four~~4 reportable segments: Instrumentation; Digital Imaging; Aerospace and Defense Electronics; and Engineered Systems.

Segment results ~~include~~includes net sales and operating income by segment but excludes non-service retirement benefit income, equity income or loss, unusual non-recurring legal matter settlements, interest income and expense, gains and losses on the disposition of assets, sublease rental income and non-revenue licensing and royalty income, domestic and foreign income taxes and corporate office expenses. Corporate expense includes various administrative expenses relating to the corporate office and certain non-operating expenses, including certain ~~acquisition related~~acquisition-related transaction costs, not allocated to our segments.

As part of a continuing effort to reduce costs and improve operating performance, the Company has taken actions to consolidate and relocate certain facilities and reduce headcount across various businesses, reducing our exposure to weak end markets and high cost locations. Teledyne incurred $2.6 million and $6.1 million in expense related to these efforts for the third quarter and first nine months of 2017, respectively. Teledyne incurred $3.1 million and $15.3 million in expense related to these efforts for the third quarter and first nine months of 2016, respectively. At October 1, 2017, Teledyne had a liability of $0.9 million included in other current liabilities related to these charges.

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


	Third Quarter						%		Nine Months						%			Second Quarter						%		Six Months				%
	2017			2016			Change		2017			2016			Change			2020		2019		Change		2020		2019		Change
Net sales(a):																	Net sales(a):
Instrumentation	$	232.5		$	208.3		11.6	%	$	699.1		$	652.1		7.2	%	Instrumentation	$	263.1	$	264.1	(0.4)	%	$	548.2	$	520.6	5.3	%
Digital Imaging	191.5			98.5			94.4	%	493.8			287.8			71.6	%	Digital Imaging	237.6		248.4		(4.3)	%	484.3		480.8		0.7	%
Aerospace and Defense Electronics	165.1			153.5			7.6	%	489.8			464.1			5.5	%	Aerospace and Defense Electronics	143.1		176.0		(18.7)	%	299.4		342.6		(12.6)	%
Engineered Systems	73.1			66.5			9.9	%	216.7			193.0			12.3	%	Engineered Systems	99.5		93.5		6.4	%	196.0		183.2		7.0	%
Total net sales	$	662.2		$	526.8		25.7	%	$	1,899.4		$	1,597.0		18.9	%	Total net sales	$	743.3	$	782.0	(4.9)	%	$	1,527.9	$	1,527.2	—	%
Operating income(b):
Operating income:																	Operating income:
Instrumentation	$	34.8		$	28.1		23.8	%	$	96.0		$	79.6		20.6	%	Instrumentation	$	48.5	$	49.0	(1.0)	%	$	99.3	$	88.9	11.7	%
Digital Imaging	31.9			11.7			172.6	%	73.6			30.6			140.5	%	Digital Imaging	46.8		51.6		(9.3)	%	90.6		88.2		2.7	%
Aerospace and Defense Electronics	29.4			31.5			(6.7	)%	88.0			83.6			5.3	%	Aerospace and Defense Electronics	17.5		38.6		(54.7)	%	30.9		71.1		(56.5)	%
Engineered Systems	10.0			8.6			16.3	%	28.0			22.2			26.1	%	Engineered Systems	10.8		9.0		20.0	%	22.2		15.4		44.2	%
Corporate expense	(13.2		)	(11.1		)	18.9	%	(48.4		)	(32.7		)	48.0	%	Corporate expense	(13.8)		(16.3)		(15.3)	%	(29.2)		(34.4)		(15.1)	%
Operating income	$	92.9		$	68.8		35.0	%	$	237.2		$	183.3		29.4	%	Operating income	$	109.8	$	131.9	(16.8)	%	$	213.8	$	229.2	(6.7)	%



(a)			Net sales excludes inter-segment sales of ~~$6.4~~$5.5 million and ~~$17.8~~$12.4 million for the ~~third~~second quarter and first ~~nine~~six months of ~~2017,~~2020, respectively, and ~~$4.2~~$4.0 million and ~~$16.2~~$10.4 million for the ~~third~~second quarter and first ~~nine~~six months of ~~2016,~~2019, respectively.
~~(b)~~			The third quarter of 2017 includes pretax charges of $2.9 million related to the acquisition of e2v which was recorded in the Digital Imaging segment. The first nine months of 2017 includes pretax charges of $19.8 million related to the acquisition of e2v, of which $9.1 million was recorded in the Digital Imaging segment, $0.3 million was recorded in the Aerospace and Defense Electronics segment and $10.4 million was recorded in corporate expense.

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


Identifiable assets:	June 28, 2020		December 29, 2019
Instrumentation	$	1,693.0	$	1,680.2
Digital Imaging	1,888.7		1,874.6
Aerospace and Defense Electronics	590.2		618.3
Engineered Systems	154.4		143.4
Corporate	411.9		263.3
Total identifiable assets	$	4,738.2	$	4,579.8

Identifiable assets: October 1, 2017 January 1, 2017
Instrumentation $ 1,428.1
$ 1,361.0
Digital Imaging 1,501.6
671.1
Aerospace and Defense Electronics 619.6
449.4
Engineered Systems 104.6
93.9
Corporate 193.6
199.0
Total identifiable assets $ 3,847.5
$ 2,774.4

Product Lines

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

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


	Second Quarter						Six Months
Instrumentation	2020		2019		2020		2019
Marine Instrumentation	109.9		$	111.4	$	219.2	$	216.6
Environmental Instrumentation	94.3		87.4		203.6		173.8
Test and Measurement Instrumentation	58.9		65.3		125.4		130.2
Total	$	263.1	$	264.1	$	548.2	$	520.6

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Third Quarter Nine Months
Instrumentation 2017 2016 2017 2016
Marine Instrumentation $ 101.8
$ 97.6
$ 318.3
$ 314.3
Environmental Instrumentation 77.7
63.8
230.2
200.4
Test and Measurement Instrumentation 53.0
46.9
150.6
137.4
Total $ 232.5
$ 208.3
$ 699.1
$ 652.1
We also disaggregate our revenue from contracts with customers by customer type, contract-type and geographic region for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.


	Second Quarter Ended June 28, 2020										Six Months Ended June 28, 2020
	Customer Type								Customer Type
(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total
Net Sales:
Instrumentation	$	21.4	$	241.7	$	263.1	$	35.5	$	512.7	$	548.2
Digital Imaging	30.1		207.5		237.6		59.4		424.9		484.3
Aerospace and Defense Electronics	57.8		85.3		143.1		111.6		187.8		299.4
Engineered Systems	96.5		3.0		99.5		184.8		11.2		196.0
	$	205.8	$	537.5	$	743.3	$	391.3	$	1,136.6	$	1,527.9

a) Includes sales as a prime contractor or subcontractor.


	Second Quarter Ended June 28, 2020										Six Months Ended June 28, 2020
	Contract Type								Contract Type
(in millions)	Fixed Price		Cost Type		Total		Fixed Price		Cost Type		Total
Net Sales:
Instrumentation	$	261.8	$	1.3	$	263.1	$	544.0	$	4.2	$	548.2
Digital Imaging	214.4		23.2		237.6		435.8		48.5		484.3
Aerospace and Defense Electronics	143.1		—		143.1		299.2		0.2		299.4
Engineered Systems	52.7		46.8		99.5		103.0		93.0		196.0
	$	672.0	$	71.3	$	743.3	$	1,382.0	$	145.9	$	1,527.9


	Second Quarter Ended June 28, 2020														Six Months Ended June 28, 2020
	Geographic Region (a)												Geographic Region (a)
(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total
Net sales:
Instrumentation	$	211.3	$	43.1	$	8.7	$	263.1	$	429.1	$	98.0	$	21.1	$	548.2
Digital Imaging	78.0		61.8		97.8		237.6		155.6		130.6		198.1		484.3
Aerospace and Defense Electronics	125.1		17.8		0.2		143.1		257.0		42.0		0.4		299.4
Engineered Systems	99.5		—		—		99.5		196.0		—		—		196.0
	$	513.9	$	122.7	$	106.7	$	743.3	$	1,037.7	$	270.6	$	219.6	$	1,527.9

a) Net sales by geographic region of origin.

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	Second Quarter Ended June 30, 2019										Six Months Ended June 30, 2019
	Customer Type								Customer Type
(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total
Net Sales:
Instrumentation	$	18.6	$	245.5	$	264.1	$	32.8	$	487.8	$	520.6
Digital Imaging	26.2		222.2		248.4		52.4		428.4		480.8
Aerospace and Defense Electronics	58.5		117.5		176.0		108.0		234.6		342.6
Engineered Systems	83.8		9.7		93.5		163.8		19.4		183.2
	$	187.1	$	594.9	$	782.0	$	357.0	$	1,170.2	$	1,527.2

a) Includes sales as a prime contractor or subcontractor.


	Second Quarter Ended June 30, 2019										Six Months Ended June 30, 2019
	Contract Type								Contract Type
(in millions)	Fixed Price		Cost Type		Total		Fixed Price		Cost Type		Total
Net Sales:
Instrumentation	$	253.7	$	10.4	$	264.1	$	504.7	$	15.9	$	520.6
Digital Imaging	232.9		15.5		248.4		432.1		48.7		480.8
Aerospace and Defense Electronics	172.6		3.4		176.0		336.0		6.6		342.6
Engineered Systems	39.7		53.8		93.5		74.6		108.6		183.2
	$	698.9	$	83.1	$	782.0	$	1,347.4	$	179.8	$	1,527.2


	Second Quarter Ended June 30, 2019														Six Months Ended June 30, 2019
	Geographic Region (a)												Geographic Region (a)
(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total
Net sales:
Instrumentation	$	225.1	$	30.8	$	8.2	$	264.1	$	436.2	$	64.4	$	20.0	$	520.6
Digital Imaging	80.3		74.4		93.7		248.4		152.7		141.8		$	186.3	$	480.8
Aerospace and Defense Electronics	151.6		24.0		0.4		176.0		298.2		43.8		$	0.6	$	342.6
Engineered Systems	93.5		—		—		93.5		183.2		—		—		183.2
	$	550.5	$	129.2	$	102.3	$	782.0	$	1,070.3	$	250.0	$	206.9	$	1,527.2

a) Net sales by geographic region of origin.

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

Teledyne Technologies Incorporated provides enabling technologies for industrial growth ~~markets. We have evolved from a company that was primarily focused on aerospace and defense to one that serves multiple~~ markets that require advanced technology and high reliability. These markets include aerospace and defense, factory automation, air and water quality environmental monitoring, electronics design and development, oceanographic research, deepwater oil and gas exploration and production, ~~oceanographic research, air~~medical imaging and ~~water quality environmental monitoring, factory automation and medical imaging.~~pharmaceutical research. Our products include digital imaging sensors, cameras and systems within the visible, infrared and X-ray spectra, monitoring and control instrumentation for marine and environmental applications, harsh environment interconnects, electronic test and measurement equipment, ~~digital imaging sensors and cameras,~~ aircraft information management systems, and defense electronics and satellite communication subsystems. We also supply engineered systems for defense, space, environmental and energy applications. We differentiate ourselves from many of our direct competitors by having a customer and ~~company sponsored~~company-sponsored applied research center that augments our product development expertise.

Strategy/Overview

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

~~On March 28, 2017,~~COVID-19 and other matters

With regard to the COVID-19 pandemic, our first priority remains the health and safety of our employees and their families. Up to 30% of our total personnel are working from home. Our manufacturing sites remain operational, and we ~~completed our largest acquisition~~are practicing social distancing, enhanced cleaning protocols, usage of personal protective equipment and other preventative measures.

While no company is immune to ~~date. We purchased all~~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 ~~common stock of e2v technologies plc (“e2v”) for $770.7 million, including stock options~~defense industrial base, water and ~~assumed debt, net of $24.4~~wastewater, and healthcare and public health. Teledyne’s balance sheet is strong, with $382.8 million of cash ~~acquired. Most~~and cash equivalents and $614.5 million available under our credit facility maturing in 2024. However, given the continuing dynamic nature of ~~e2v's~~this situation, the Company may not fully estimate the impacts of COVID-19 on its financial condition, results of operations or cash flows.

We are ~~included in~~currently monitoring an exposure of approximately $40.0 million related to certain receivables, inventories and additional AOS-related expenses as a result of the ~~Digital Imaging~~March 27, 2020 bankruptcy of OneWeb Global Limited and ~~Aerospace~~its subsidiaries (“OneWeb”). Teledyne’s customer, Airbus OneWeb Satellites, LLC (“AOS”), a joint venture of OneWeb and Airbus Defense ~~Electronics segments. The Instrumentation segment includes~~and Space, has not declared bankruptcy. Although it is reasonably possible that we may recognize a ~~small portion~~loss, given the uncertainty of ~~e2v’s operations. See~~ the ~~Recent Acquisitions section for more information~~situation at this time, a loss, if any, will depend on the ~~acquisition.~~outcome of future events that could impact AOS.

~~In the third quarter of 2016, Teledyne completed the disposition of the net assets of its Printed Circuit Technology (“PCT”) business for $9.3 million in cash.~~

~~Our~~ Recent Acquisitions

Acquisition of ~~e2v~~the OakGate Technology, Inc.

~~e2v, with principal locations in Chelmsford, United Kingdom and Grenoble, France, which was~~On January 5, 2020, we acquired ~~on March 28, 2017, had sales of approximately £236 million~~OakGate Technology, Inc. (“OakGate”) for ~~its fiscal year ended March 31, 2016. Teledyne funded the acquisition of e2v with borrowings under its credit facility and cash on hand as well as $100.0~~$28.5 million in ~~newly issued term loans. In connection with the acquisition~~cash, net of ~~e2v, Teledyne incurred $2.9 million~~cash acquired. Based in Loomis, California, OakGate provides software and ~~$28.1 million in acquisition related costs during the third quarter~~hardware designed to test electronic data storage devices from development through manufacturing and ~~first nine months of 2017, respectively.~~

e2v provides high performance image sensors and custom camera solutions and application specific standard products for the machine vision market. In addition, e2v provides high performance space qualified imaging sensors and arrays for space science and astronomy. e2v also produces components and subsystems that deliver high reliability radio frequency power generation for healthcare, industrial and defenseend-use applications. ~~Finally, the company provides high reliability semiconductors and board-level solutions for use in aerospace, space and communications applications.~~

~~Other Acquisitions~~

On July 20, 2017 a subsidiary of Teledyne, completed the acquisition of assets of Scientific Systems, Inc. (“SSI”) for $31.0 million in cash. Headquartered in State College, Pa., SSI manufactures precision components and specialized subassemblies used primarily in analytical and diagnostic instrumentation, such as High Performance Liquid Chromatography (HPLC) systems and specific medical devices andThe acquired business is part of the Test and Measurement product line within the Instrumentation segment. ~~SSI is a world leader in the design and manufacture~~

Acquisition of ~~high pressure positive-displacement piston pumps~~Micralyne, Inc.

On August 30, 2019, we acquired Micralyne Inc. for ~~a wide variety of analytical, clinical, sample prep and fluid-metering applications.~~

Teledyne spent $93.4 million on acquisitions and other investments in fiscal year 2016. On December 6, 2016, Teledyne Instruments, Inc. acquired Hanson Research Corporation (“Hanson Research”) which specializes in analytical instrumentation for the pharmaceutical industry, for $25.0$26.2 million in cash. On November 2, 2016, Teledyne Instruments, Inc. acquired assets of IN USA, Inc. (“IN USA”) which manufactures a range of ozone generators, ozone analyzers and other gas monitoring instruments utilizing ultraviolet and infrared based technologies, for $10.2 million in cash. On May 3, 2016, Teledyne DALSA, Inc., a Canada-based subsidiary, acquired the assets and business of CARIS, Inc. (“CARIS”) a leading developer of geospatial software designed for the hydrographic and marine community, for a cash, ~~payment of $26.2 million,~~ net of cash ~~acquired. On April 15, 2016, Teledyne~~

~~LeCroy, Inc.,~~acquired and including a ~~U.S.-based subsidiary, acquired assets of Quantum Data, Inc. (“Quantum Data”) which provides electronic test and measurement instrumentation and~~$0.5 million purchase price adjustment paid in January 2020. Based in Edmonton, Alberta, Canada, Micralyne is a ~~market leader~~privately-owned foundry providing Micro Electro Mechanical Systems or MEMS devices. In particular, Micralyne possesses unique microfluidic technology for biotech applications, as well as capabilities in ~~video protocol analysis test tools~~non-silicon-based MEMS (e.g. gold, polymers) often required for ~~$17.3 million in cash. On April 6, 2016, Teledyne LeCroy, Inc. also~~human body compatibility. The acquired Frontline Test Equipment, Inc. (“Frontline”) which provides electronic test and measurement instrumentation and is a market leader in wireless protocol analysis test tools, for $13.7 million in cash. Each of the 2016 acquisitions are part of the Instrumentation segment except for CARIS whichbusiness is part of the Digital Imaging segment.

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

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mining and waste water treatment. Principally located in France, the United Kingdom and the United States, the acquired business is part of the Environmental product line within of the Instrumentation segment.

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

On February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for $224.8 million in cash, net of cash acquired and including a purchase price adjustment. Principally located in the United States and Canada, the acquired businesses are part of the Digital Imaging segment. The acquired businesses include Princeton Instruments, Photometrics and Lumenera. The acquired businesses provide a range of imaging solutions, primarily for life sciences, academic research and customized OEM industrial imaging solutions. Princeton Instruments and Photometrics manufacture state-of-the-art cameras, spectrographs and optics for advanced research in physical sciences, life sciences research and spectroscopy imaging. Applications and markets include materials analysis, quantum technology and cell biology imaging using fluorescence and chemiluminescence. Lumenera primarily provides rugged USB-based customized cameras for markets such as traffic management, as well as life sciences applications.

Teledyne funded the ~~SSI acquisition and the 2016~~ acquisitions ~~from~~with borrowings under its credit facility and cash on hand. The results of ~~the acquisitions~~each acquisition have been included in Teledyne’s results since the ~~dates~~date of each respective acquisition.

For a further description of the Company’s acquisition activity for the fiscal year 2016, please refer to Note 3 of the Notes to Consolidated Financial Statements included in our 2016 Annual Report on Form 10-K (“2016 Form 10-K”).

Results of Operations


	Third Quarter						Nine Months							Second Quarter						Six Months
(in millions)	2017			2016			2017			2016			(in millions)	2020		2019		2020		2019
Net sales	$	662.2		$	526.8		$	1,899.4		$	1,597.0		Net sales	$	743.3	$	782.0	$	1,527.9	$	1,527.2
Costs and expenses													Costs and expenses
Cost of sales	405.8			317.0			1,178.3			978.0			Cost of sales	460.6		463.6		953.2		927.5
Selling, general and administrative expenses	163.5			141.0			483.9			435.7			Selling, general and administrative expenses	172.9		186.5		360.9		370.5
Total costs and expenses	569.3			458.0			1,662.2			1,413.7			Total costs and expenses	633.5		650.1		1,314.1		1,298.0
Operating income	92.9			68.8			237.2			183.3			Operating income	109.8		131.9		213.8		229.2
Interest expense, net	(8.2		)	(5.6		)	(25.5		)	(17.2		)	Interest expense, net	(3.7)		(5.4)		(7.8)		(10.8)
Other income/(expense), net	(3.0		)	(0.8		)	(13.0		)	15.1
Non-service retirement benefit income													Non-service retirement benefit income	3.2		2.0		5.7		4.2
Other expense, net													Other expense, net	(1.4)		(0.6)		(2.8)		(1.8)
Income before income taxes	81.7			62.4			198.7			181.2			Income before income taxes	107.9		127.9		208.9		220.8
Provision for income taxes	12.7			10.4			39.1			43.3			Provision for income taxes	14.2		23.3		33.0		40.9

Net income	$	69.0		$	52.0		$	159.6		$	137.9		Net income	$	93.7	$	104.6	$	175.9	$	179.9


	Second Quarter						%		Six Months				%
(dollars in millions)	2020		2019		Change		2020		2019		Change
Net sales(a):
Instrumentation	$	263.1	$	264.1	(0.4)	%	$	548.2	$	520.6	5.3	%
Digital Imaging	237.6		248.4		(4.3)	%	484.3		480.8		0.7	%
Aerospace and Defense Electronics	143.1		176.0		(18.7)	%	299.4		342.6		(12.6)	%
Engineered Systems	99.5		93.5		6.4	%	196.0		183.2		7.0	%
Total net sales	$	743.3	$	782.0	(4.9)	%	$	1,527.9	$	1,527.2	—	%
Operating income:
Instrumentation	$	48.5	$	49.0	(1.0)	%	$	99.3	$	88.9	11.7	%
Digital Imaging	46.8		51.6		(9.3)	%	90.6		88.2		2.7	%
Aerospace and Defense Electronics	17.5		38.6		(54.7)	%	30.9		71.1		(56.5)	%
Engineered Systems	10.8		9.0		20.0	%	22.2		15.4		44.2	%
Corporate expense	(13.8)		(16.3)		(15.3)	%	(29.2)		(34.4)		(15.1)	%
Total operating income	$	109.8	$	131.9	(16.8)	%	$	213.8	$	229.2	(6.7)	%

Third Quarter % Nine Months %
(dollars in millions) 2017 2016 Change 2017 2016 Change
Net sales(a):
Instrumentation $ 232.5
$ 208.3
11.6 % $ 699.1
$ 652.1
7.2 %
Digital Imaging 191.5
98.5
94.4 % 493.8
287.8
71.6 %
Aerospace and Defense Electronics 165.1
153.5
7.6 % 489.8
464.1
5.5 %
Engineered Systems 73.1
66.5
9.9 % 216.7
193.0
12.3 %
Total net sales $ 662.2
$ 526.8
25.7 % $ 1,899.4
$ 1,597.0
18.9 %
Operating income:
Instrumentation $ 34.8
$ 28.1
23.8 % $ 96.0
$ 79.6
20.6 %
Digital Imaging 31.9
11.7
172.6 % 73.6
30.6
140.5 %
Aerospace and Defense Electronics 29.4
31.5
(6.7 )% 88.0
83.6
5.3 %
Engineered Systems 10.0
8.6
16.3 % 28.0
22.2
26.1 %
Corporate expense (13.2 ) (11.1 ) 18.9 % (48.4 ) (32.7 ) 48.0 %
Total operating income $ 92.9
$ 68.8
35.0 % $ 237.2
$ 183.3
29.4 %


(a)			Net sales excludes inter-segment sales of ~~$6.4~~$5.5 million and ~~$17.8~~$12.4 million for the ~~third~~second quarter and first ~~nine~~six months of ~~2017,~~2020 respectively, and ~~$4.2~~$4.0 million and ~~$16.2~~$10.4 million for the ~~third~~second quarter and first ~~nine~~six months of ~~2016, respectively.~~2019.

Table of Contents

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


	Third Quarter						Nine Months							Second Quarter									Six Months
(dollars in millions)	2017			2016			2017			2016			(dollars in millions)	2020			2019			2020			2019
Instrumentation													Instrumentation
Net sales	$	232.5		$	208.3		$	699.1		$	652.1		Net sales	$	263.1		$	264.1		$	548.2		$	520.6
Cost of sales	$	129.3		$	116.1		$	398.1		$	364.3		Cost of sales	$	147.5		$	146.6		$	305.3		$	293.6
Cost of sales as a % of net sales	55.6		%	55.7		%	57.0		%	55.9		%	Cost of sales as a % of net sales	56.1		%	55.5		%	55.7		%	56.4		%
Digital Imaging													Digital Imaging
Net sales	$	191.5		$	98.5		$	493.8		$	287.8		Net sales	$	237.6		$	248.4		$	484.3		$	480.8
Cost of sales	$	116.8		$	57.5		$	308.6		$	174.0		Cost of sales	$	135.8		$	137.0		$	281.3		$	276.6
Cost of sales as a % of net sales	61.0		%	58.4		%	62.5		%	60.5		%	Cost of sales as a % of net sales	57.2		%	55.2		%	58.1		%	57.6		%
Aerospace and Defense Electronics													Aerospace and Defense Electronics
Net sales	$	165.1		$	153.5		$	489.8		$	464.1		Net sales	$	143.1		$	176.0		$	299.4		$	342.6
Cost of sales	$	103.0		$	90.6		$	299.6		$	284.2		Cost of sales	$	96.4		$	102.8		$	207.2		$	203.4
Cost of sales as a % of net sales	62.4		%	59.0		%	61.2		%	61.2		%	Cost of sales as a % of net sales	67.4		%	58.4		%	69.2		%	59.4		%
Engineered Systems													Engineered Systems
Net sales	$	73.1		$	66.5		$	216.7		$	193.0		Net sales	$	99.5		$	93.5		$	196.0		$	183.2
Costs of sales	$	56.7		$	52.8		$	172.0		$	155.5		Costs of sales	$	80.9		$	77.2		$	159.4		$	153.9
Cost of sales as a % of net sales	77.6		%	79.4		%	79.4		%	80.6		%	Cost of sales as a % of net sales	81.3		%	82.6		%	81.3		%	84.0		%
Total Company													Total Company
Net sales	$	662.2		$	526.8		$	1,899.4		$	1,597.0		Net sales	$	743.3		$	782.0		$	1,527.9		$	1,527.2
Costs of sales	$	405.8		$	317.0		$	1,178.3		$	978.0		Costs of sales	$	460.6		$	463.6		$	953.2		$	927.5
Cost of sales as a % of net sales	61.3		%	60.2		%	62.0		%	61.2		%	Cost of sales as a % of net sales	62.0		%	59.3		%	62.4		%	60.7		%

~~Third~~

Second Quarter and First Six Months Results

The following is a discussion of our 2020 second quarter ~~of 2017~~and first six months results compared with the ~~third~~2019 second quarter and first six months results. Comparisons are with the corresponding reporting period of 2019, unless noted otherwise. In the first quarter of ~~2016~~2020, we acquired OakGate Technology, Inc.

Second quarter of 2020 compared with the second quarter of 2019

Our ~~third~~second quarter of ~~2017~~2020 net sales ~~were $662.2 million, compared with net sales of $526.8 million~~decreased 4.9%. Net income for the ~~third~~second quarter of 2016, an increase of 25.7%. The increase in net sales, resulted from organic growth and from acquisitions, primarily e2v. Net income was $69.0 million for the third quarter of 2017, compared with $52.0 million for the third quarter of 2016, an increase of 32.7%2020 decreased 10.4%. Net income per diluted share was ~~$1.90~~$2.48 for the ~~third~~second quarter of ~~2017,~~2020, compared with net income per diluted share of ~~$1.46~~$2.80. The second quarter of 2020 included $8.6 million in severance, facility consolidation and acquisition costs compared with $1.3 million in severance, facility consolidation and acquisition costs for the ~~third~~second quarter of ~~2016.~~2019. The ~~third~~second quarter of ~~2017 includes pretax charges~~2020 included net discrete income tax benefits of ~~$2.9~~$10.4 million ~~related to~~compared with $4.3 million for the ~~acquisition~~second quarter of ~~e2v.~~2019.

Net ~~sales~~Sales

The ~~third~~second quarter of ~~2017~~2020 net sales, compared with the ~~third~~second quarter of ~~2016~~2019 net sales, reflected ~~higher~~lower net sales in each segment except the Engineered Systems segment. The ~~third~~second quarter of ~~2017~~2020 sales included ~~organic growth of $45.3 million and $90.1~~$29.5 million in incremental net sales from recent ~~acquisitions, primarily e2v.~~acquisitions.

Cost of Sales

Cost of sales ~~increased $88.8~~decreased $3.0 million in the ~~third~~second quarter of ~~2017, compared with the third quarter of 2016, which primarily~~2020 and reflected the impact of lower sales, partially offset by higher ~~sales.~~severance and facility costs. Cost of sales as a percentage of net sales increased for the ~~third~~second quarter of ~~2017 increased~~2020 to ~~61.3%~~62.0%, ~~compared with 60.2% for the third quarter of 2016, which reflects~~from 59.3% and reflected the impact of ~~the e2v acquisition which carries a~~ higher ~~cost of sales percentage than the overall Teledyne cost of sales percentage.~~

~~Certain contracts are accounted for under the percentage of completion (“POC”) method~~severance and related contract cost and revenue estimates for significant contracts are reviewed and reassessed quarterly. The net aggregate effects of these changes in estimates on contracts accounted for under the POC accounting method, in the third quarters of 2017 and 2016, were $2.7 million and $0.9 million of unfavorable operating income, respectively. None of the effects of changes in estimates on any individual contract were material to the condensed consolidated statements of income for any period presented.facility consolidation costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development ~~and bid and proposal~~ expense, ~~increased $22.5~~decreased $13.6 million in the ~~third~~second quarter of ~~2017, compared with the third quarter of 2016, which~~2020 and primarily reflected the impact of ~~higher~~lower sales. Selling, general and administrative expenses for the ~~third~~second quarter of ~~2017,~~2020, as a percentage of net sales decreased to ~~24.7% compared with 26.7% for the third quarter of 2016~~23.2% from 23.8% and reflected the impact of ~~the e2v acquisition which carries a~~ lower ~~selling, general and administrative expense percentage than the overall Teledyne selling, general and administrative~~

~~expense percentage.~~corporate expense. Corporate expense, which is included in selling, general and administrative expenses, was ~~$13.2~~$13.8 million for the ~~third~~second quarter of ~~2017,~~2020, compared with ~~$11.1~~$16.3 million ~~for the third quarter of 2016~~ and reflected ~~higher compensation~~lower consulting and travel expense. In the ~~third~~second quarter of ~~2017~~2020 and ~~2016,~~2019, we recorded a total of ~~$3.2~~$5.7 million and ~~$2.5~~$5.8 million, respectively, in stock option compensation expense.

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Pension ~~Income/~~Service Expense

Pension ~~income or~~service expense is included in both cost of sales and selling general and administrative expense. ~~The third~~For the second quarter of ~~2017 included~~2020 pension ~~income of $0.7~~service expense was $2.6 million compared with ~~pension income of $0.5 million for~~$2.3 million. For 2020, the ~~third quarter of 2016. For 2017, the~~weighted-average discount rate used to determine the benefit obligation for the domestic ~~plan~~qualified pension plans was ~~4.54 percent~~3.41% compared with ~~4.91 percent~~4.59% in 2016. Pension expense allocated to contracts pursuant to U.S. Government Cost Accounting Standards (“CAS”) was $3.5 million for both the third quarter of 2017 and the third quarter of 2016. Pension expense determined allowable under CAS can generally be recovered through the pricing of products and services sold to the U.S. Government.2019.

Operating Income

Operating income ~~was $92.9 million~~ for the ~~third~~second quarter of ~~2017, compared with $68.8 million for the third~~2020 decreased 16.8%. The second quarter of ~~2016, an increase of 35.0%. The third quarter of 2017,~~2020, compared with the ~~third~~second quarter of ~~2016,~~2019, reflected ~~higher~~lower operating income in each segment except the ~~Aerospace~~Engineered Systems segment. The second quarter of 2020 included $8.6 million in severance, facility consolidation and ~~Defense Electronics segment.~~acquisition costs, compared with $1.3 million in severance, facility consolidation and acquisition costs for the second quarter of 2019. The incremental operating income included in the results for the ~~third~~second quarter of ~~2017~~2020 from recent acquisitions was ~~$11.1 million which included $3.9 million in additional intangible asset amortization expense.~~$1.9 million.

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

Interest expense, net of interest income, was ~~$8.2~~$3.7 million for the ~~third~~second quarter of ~~2017,~~2020, compared with ~~$5.6~~$5.4 million, ~~for the third quarter of 2016~~ and reflected the impact of ~~higher debt levels, primarily to fund~~lower average interest rates. Non-service retirement benefit income was $3.2 million for the ~~acquisition~~second quarter of ~~e2v.~~2020, compared with $2.0 million. Other income and expense was expense of ~~$3.0~~$1.4 million for the ~~third~~second quarter of ~~2017,~~2020, compared with expense of ~~$0.8 million for the third quarter of 2016.~~$0.6 million.

Income Taxes

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

The Company’s effective income tax rate for the ~~third~~second quarter of ~~2017~~2020 was ~~15.6%~~13.2%, compared with ~~16.7%~~18.2%. The second quarter of 2020 reflected net discrete income tax benefits of $10.4 million, which included a $9.8 million income tax benefit related to share-based accounting. The second quarter of 2019 included net discrete tax benefits of $4.3 million, which included a $4.8 million income tax benefit related to share-based accounting. Excluding the net discrete income tax benefits in both periods, the effective tax rates would have been 22.8% for the ~~third~~second quarter of ~~2016.~~2020 and 21.6% for the second quarter of 2019. The Company’s annual effective tax rate for fiscal year 2020 is expected to be 22.8% before discrete tax items. In addition, we currently expect significantly less discrete tax items in 2020 compared with 2019.

First six months of 2020 compared with the first six months of 2019

Our first six months of 2020 net sales increased slightly. Net income for the first six months of 2020 decreased 2.2%. Net income per diluted share was $4.65 for the first six months of 2020 compared with net income per diluted share of $4.82. The first six months of 2020 included net discrete income tax benefits of $14.6 million compared with $7.4 million. The first six months of 2020 included $19.0 million in severance, facility consolidation, acquisition and certain changes in contract cost estimates, compared with $3.7 million in severance and facility consolidation costs for the first six months of 2019.

Net Sales

The ~~third quarter~~first six months of ~~2017~~2020 net sales, compared with the first six months of 2019 net sales, reflected ~~$9.9~~higher net sales in each segment except the Aerospace and Defense segment. The first six months of 2020 included $60.2 million in incremental net sales from recent acquisitions.

Cost of Sales

Cost of sales increased $25.7 million in the first six months of 2020 and primarily reflected the impact of severance, facility consolidation, acquisition and certain changes in contract cost estimates. Cost of sales as a percentage of net sales for the six months of 2020 increased to 62.4%, compared with 60.7% and reflected the impact of severance, facility consolidation, acquisition and certain changes in contract cost estimates.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development, decreased by $9.6 million in the first six months of 2020 and reflected lower research and development expense and lower corporate expense. Selling, general and administrative expenses for the first six months of 2020, as a percentage of net sales, decreased slightly to 23.6% compared with 24.3%. In the first six months of 2020 and 2019, we recorded a total of $13.1 million and $14.7 million, respectively, in stock option compensation expense.

Pension Service Expense

Pension service expense for the first six months of 2020 was $5.2 million compared with $4.7 million.

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Operating Income

Operating income for the first six months of 2020 decreased 6.7%. The first six months of 2020 compared with the first six months of 2019, reflected higher operating income in each segment except the Aerospace and Defense segment. Corporate expense of $29.2 million in the first six months of 2020 compared with $34.4 million and reflected lower compensation and consulting expense. The incremental operating income included in the results for the first six months of 2020 from recent acquisitions was $3.0 million.

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

Interest expense, net of interest income, was $7.8 million for the first six months of 2020, compared with $10.8 million and primarily reflected lower average interest rates in 2020. Other income and expense was expense of $2.8 million for the first six months of 2020, compared with expense of $1.8 million.

Income Taxes

The Company’s effective income tax rate for the first six months of 2020 was 15.8% compared with 18.5%. The first six months of 2020 reflected $14.6 million in net discrete income tax benefits, which included a ~~$7.4 million income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitation and a $2.3~~$14.5 million income tax benefit related to share-based accounting. The ~~third quarter~~first six months of ~~2016 included~~2019 reflected $7.4 million in net discrete income tax benefits, ~~of $6.6~~which included a $7.7 million ~~of which $4.0 million~~income tax benefit related to share-based accounting. Excluding the net discrete income tax items in 2017, the effective tax rate would have been 27.7% for the third quarter of 2017. Excluding net discrete income tax items in 2016, the effective tax rate would have been 27.2% for the third quarter of 2016. The Company’s effective tax rate for fiscal year 2017 is expected to be 27.7%, based on the projected mix of earnings before tax by jurisdiction, excluding the impact of any matters that would be treated as discrete.

~~First nine months of 2017 compared with the first nine months of 2016~~

Our first nine months of 2017 net sales were $1,899.4 million, compared with net sales of $1,597.0 million for the first nine months of 2016, an increase of 18.9%. The increase in net sales resulted from organic growth and from acquisitions, primarily e2v. Net income was $159.6 million for the first nine months of 2017, compared with $137.9 million for the first nine months of 2016, an increase of 15.7%. Net income per diluted share was $4.41 for the first nine months of 2017, compared with net income per diluted share of $3.90 for the first nine months of 2016. The first nine months of 2017 includes pretax charges of $28.1 million related to the acquisition of e2v, of which, $6.8 million was recorded to cost of sales, $13.0 million was recorded to selling, general and administrative expenses, $2.3 million was recorded to interest expense and $6.0 million was recorded as other expense. The amount recorded to cost of sales related to the inventory fair value step-up amortization expense. The amount recorded to selling, general and administrative expenses related to transaction costs, including stamp duty, advisory, legal and other consulting fees and other costs. The amount recorded to interest expense related to funds-certain bank bridge facility commitment expense for the £625.0 million bridge credit facility entered into in December 2016 to fund the acquisition and related transaction costs in order to meet the requirement under the U.K. City Code on Takeovers and Mergers that we have sufficient and certain resources available to fund the consideration for the acquisition. The amount recorded to other expense related to a foreign currency option contract expense to hedge the e2v purchase price.

~~Net sales~~

The first nine months of 2017 net sales, compared with the first nine months of 2016 net sales, reflected higher net sales in each segment. The first nine months of 2017 included organic growth of $96.6 million and $205.8 million in incremental net sales from recent acquisitions, primarily e2v.

~~Cost of Sales~~

Cost of sales increased $200.3 million in the first nine months of 2017, compared with the first nine months of 2016, which primarily reflected the impact of higher sales. Cost of sales as a percentage of net sales for the nine months of 2017 increased to 62.0%, compared with 61.2% for the first nine months of 2016. The net aggregate effects of changes in estimates on contracts accounted for under the POC accounting method in the first nine months of 2017 and 2016 were $9.2 million and $1.7 million of unfavorable operating income, respectively.

~~Selling, general and administrative expenses~~

~~Selling, general and administrative expenses, including research and development and bid and proposal expense, increased by~~

$48.2 million in the first nine months of 2017, compared with the first nine months of 2016, and primarily reflected the impact of higher sales and $13.0 million in acquisition transaction expense related to the e2v acquisition. Selling, general and administrative expenses for the first nine months of 2017, as a percentage of net sales, decreased to 25.5% compared with 27.3% for the first nine months of 2016 despite the impact of $13.0 million in expense related to the e2v acquisition. Corporate expense, which is included in selling, general and administrative expenses, was $48.4 million for the first nine months of 2017, compared with $32.7 million for the first nine months of 2016 and reflected $10.4 million in expense related to the e2v acquisition. In the first nine months of 2017 and 2016, we recorded a total of $11.0 million and $8.8 million, respectively, in stock option compensation expense.

~~Pension Income/Expense~~

The first nine months of 2017 included pension income of $2.0 million, compared with pension income of $1.6 million in the first nine months of 2016. Pension expense allocated to contracts pursuant to CAS was $10.4 million in both the first nine months of 2017 and 2016.

~~Operating Income~~

Operating income was $237.2 million for the first nine months of 2017, compared with $183.3 million for the first nine months of 2016, an increase of 29.4%. The first nine months of 2017, compared with the first nine months of 2016, reflected higher operating income in each segment, partially offset by higher corporate expense. The incremental operating income included in the results for the first nine months of 2017 from recent acquisitions was $21.1 million which included $9.0 million in additional intangible asset amortization expense.

~~Interest Expense and Other Income/Expense~~

Interest expense, net of interest income, was $25.5 million for the first nine months of 2017, compared with $17.2 million for the first nine months of 2016 and reflected the impact of higher debt levels, as well as $2.3 million in fees related to the terminated bridge facility in connection with the acquisition of e2v. Other income and expense was expense of $13.0 million for the first nine months of 2017, compared with income of $15.1 million for the first nine months of 2016. Other expense in the first nine months of 2017 reflected $6.0 million of expense for a foreign currency option contract related to the e2v acquisition as well as higher foreign currency expense. Other income for the nine months of 2016 included a gain of $17.9 million on the sale of a former operating facility.

~~Income Taxes~~

The Company’s effective income tax rate for the first nine months of 2017 was 19.7% compared with 23.9% for the first nine months of 2016. The first nine months of 2017 reflected $15.9 million in net discrete income tax benefits, which included an $8.5 million income tax benefit related to the release of valuation allowance for which the deferred tax assets are now determined more-likely-than-not to be realizable and a $7.7 million income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitation, partially offset by $4.6 million related to adjustments for uncertain tax positions. The first nine months of 2017 also includes $5.1 in net discrete tax benefits related to share-based accounting. The first nine months of 2016 net discrete tax benefits of $1.5 million, which includes $5.8 in net discrete tax benefits related to share-based accounting and $6.7 million in income tax expense related to the $17.9 million gain on the sale of the operating facility. Excluding the net discrete income tax items in both periods, ~~and the gain and related taxes on the facility sale in 2016,~~ the effective tax rates would have been ~~27.7%~~22.8% for the first ~~nine~~six months of ~~2017~~2020 and ~~27.4%~~21.9% for the first ~~nine~~six months of ~~2016.~~2019.

Segment Results

Segment results ~~include~~includes net sales and operating income by segment but excludes non-service retirement benefit income, equity income or loss, unusual non-recurring legal matter settlements, interest income and expense, gains and losses on the disposition of assets, sublease rental income and non-revenue licensing and royalty income, domestic and foreign income taxes and corporate office expenses. Corporate expense includes various administrative expenses relating to the corporate office and certain nonoperating expenses, including certain acquisition related transaction costs, not allocated to our segments. See Note 1314 to these condensed consolidated financial statements for additional segment information.

Instrumentation


	Third Quarter						Nine Months							Second Quarter									Six Months
(dollars in millions)	2017			2016			2017			2016			(dollars in millions)	2020			2019			2020			2019
Net sales	$	232.5		$	208.3		$	699.1		$	652.1		Net sales	$	263.1		$	264.1		$	548.2		$	520.6
Cost of sales	$	129.3		$	116.1		$	398.1		$	364.3		Cost of sales	$	147.5		$	146.6		$	305.3		$	293.6
Selling, general and administrative expenses	$	68.4		$	64.1		$	205.0		$	208.2		Selling, general and administrative expenses	$	67.1		$	68.5		$	143.6		$	138.1
Operating income	$	34.8		$	28.1		$	96.0		$	79.6		Operating income	$	48.5		$	49.0		$	99.3		$	88.9
Cost of sales as a % of net sales	55.6		%	55.7		%	57.0		%	55.9		%	Cost of sales as a % of net sales	56.1		%	55.5		%	55.7		%	56.4		%
Selling, general and administrative expenses % of sales	29.4		%	30.8		%	29.3		%	31.9		%
Selling, general and administrative expenses % of net sales													Selling, general and administrative expenses % of net sales	25.5		%	25.9		%	26.2		%	26.5		%
Operating income as a % of net sales	15.0		%	13.5		%	13.7		%	12.2		%	Operating income as a % of net sales	18.4		%	18.6		%	18.1		%	17.1		%

~~Third~~Second quarter of ~~2017~~2020 compared with the ~~third~~second quarter of ~~2016~~2019

The Instrumentation segment’s ~~third~~second quarter of ~~2017~~2020 net sales ~~were $232.5 million, compared with $208.3 million in the third quarter of 2016, an increase of 11.6%~~decreased 0.4%. Operating income for the ~~third~~second quarter of ~~2017~~2020 decreased 1.0%.

The second quarter of 2020 net sales decrease resulted from lower sales of marine instrumentation and test and measurement instrumentation, mostly offset by higher sales of environmental instrumentation. Sales of environmental instrumentation increased $6.9 million, sales of test and measurement instrumentation decreased $6.4 million and sales of marine instrumentation decreased $1.5 million. Environmental instrumentation included $21.7 million in sales from the 2019 acquisition of the gas and flame detection businesses. Test and measurement instrumentation included $4.8 million in sales from the 2020 acquisition of OakGate. Operating income second quarter of 2020 included $2.8 million in higher severance and facility consolidation costs, partially offset by improved product line margins. The operating profit included in the results for the second quarter of 2020 from recent acquisitions was ~~$34.8 million,~~$1.8 million.

The second quarter of 2020 cost of sales increased $0.9 million. Cost of sales as a percentage of net sales for the second quarter of 2020 increased slightly to 56.1% from 55.5%. Second quarter 2020 selling, general and administrative expenses decreased $1.4 million. The selling, general and administrative expense percentage decreased slightly to 25.5% in the second quarter of 2020 from 25.9%.

Table of Contents

First six months of 2020 compared with ~~operating~~the first six months of 2019

The Instrumentation segment’s first six months 2020 net sales increased 5.3%. Operating income for the first six months of ~~$28.1 million in the third quarter~~2020 increased of ~~2016, an increase of 23.8%~~11.7%.

The ~~third quarter~~first six months of ~~2017~~2020 net sales increase resulted from higher sales of environmental ~~instrumentation,~~and marine instrumentation, ~~and test and measurement instrumentation, as well as the contribution from recent acquisitions. Sales of environmental instrumentation increased $13.9 million and primarily reflected higher~~partially offset by lower sales of air monitoring instruments and $6.9 million in incremental sales from recent acquisitions, including SSI. Sales of marine instrumentation increased $4.2 million and primarily reflected higher sales of interconnect systems. Sales of test and measurement instrumentation increased $6.1 million and included $1.4 million in incremental sales from recent acquisitions. The increase in operating income reflected the impact of greater sales and the $2.6 million collection of a previously reserved receivable.

The third quarter of 2017 cost of sales increased $13.2 million, compared with the third quarter of 2016, and reflected the impact of higher sales. The cost of sales percentage for the third quarter of 2017 decreased slightly to 55.6% compared with 55.7% for the third quarter of 2016. Third quarter 2017 selling, general and administrative expenses, including research and development expense, increased $4.3 million, compared with the third quarter of 2016 and reflected the impact of higher sales. The selling, general and administrative expense percentage decreased to 29.4% in the third quarter of 2017 from 30.8% in the third quarter of 2016 and reflected the $2.6 million collection of a previously reserved receivable.

~~First nine months of 2017 compared with the first nine months of 2016~~

The Instrumentation segment’s first nine months of 2017 net sales were $699.1 million, compared with $652.1 million in the first nine months of 2016, an increase of 7.2%. Operating income for the first nine months of 2017 was $96.0 million, compared with operating income of $79.6 million in the first nine months of 2016, an increase of 20.6%.

The first nine months of 2017 net sales increase resulted from higher sales of environmental instrumentation, marine instrumentation and test and measurement instrumentation, as well as the contribution from recent acquisitions.instrumentation. Sales of environmental instrumentation increased $29.8 million and ~~primarily reflected higher~~ sales of ~~air monitoring instruments and $15.9 million in incremental sales from recent acquisitions.~~marine instrumentation increased $2.6 million. Sales of test and measurement instrumentation ~~increased $13.2 million and~~decreased $4.8 million. Environmental instrumentation included ~~$6.0~~$47.6 million in ~~incremental~~ sales from ~~recent acquisitions. Sales~~the 2019 acquisition of ~~marine~~the gas and flame detection businesses. Test and measurement instrumentation ~~increased by $4.0 million.~~included $6.9 million in sales from the 2020 acquisition of OakGate. The increase in operating income was primarily due to greater sales and improved margins for environmental and test and measurement instrumentation and lower severance, facility consolidation and asset impairment expenses with marine instrumentation. Thethe first ~~nine~~six months of ~~2016 included $7.9 million in higher severance, facility consolidation and asset impairment costs.~~

~~The first nine months of 2017 cost of sales increased by $33.8 million, compared with the first nine months of 2016, and primarily~~2020 reflected the impact of higher sales ~~partially offset by lower severance~~ and ~~facility consolidation expenses. The cost of sales percentage increased to 57.0% from 55.9%.~~ improved product line margins.

The first ~~nine~~six months of ~~2017 selling, general and administrative~~

expenses, including research and development expense, decreased by $3.2 million, compared with the first nine months of 2016 and reflected the impact of lower research and development expense and lower severance and facility consolidation costs and asset impairment expenses, partially offset the impact of higher sales. The selling, general and administrative expense percentage decreased to 29.3% in the first nine months of 2017 from 31.9% in the first nine months of 2016 and reflected the impact of lower severance and facility consolidation expenses and asset impairment expense.

~~Digital Imaging~~

Third Quarter Nine Months
(dollars in millions) 2017 2016 2017 2016
Net sales $ 191.5
$ 98.5
$ 493.8
$ 287.8
Cost of sales $ 116.8
$ 57.5
$ 308.6
$ 174.0
Selling, general and administrative expenses $ 42.8
$ 29.3
$ 111.6
$ 83.2
Operating income $ 31.9
$ 11.7
$ 73.6
$ 30.6
Cost of sales as a % of net sales 61.0 % 58.4 % 62.5 % 60.5 %
Selling, general and administrative expenses % of sales 22.3 % 29.7 % 22.6 % 28.9 %
Operating income as a % of net sales 16.7 % 11.9 % 14.9 % 10.6 %

~~Third quarter of 2017 compared with the third quarter of 2016~~

The Digital Imaging segment’s third quarter of 2017 net sales were $191.5 million, compared with $98.5 million in the third quarter of 2016, an increase of 94.4%. Operating income was $31.9 million for the third quarter of 2017, compared with operating income of $11.7 million in the third quarter of 2016, an increase of 172.6%.

The third quarter of 2017 net sales included $70.1 million in incremental sales from the acquisition of e2v. The third quarter 2017 sales also reflected higher sales of machine vision cameras for industrial applications and X-ray detectors for life sciences applications. The increase in operating income in the third quarter of 2017 reflected the impact of higher sales, favorable product mix and incremental operating profit from e2v, partially offset by acquisition-related charges of $2.9 million. The incremental operating profit included in the results for the third quarter of 2017 from recent acquisitions was $10.2 million, which included $2.9 million in additional intangible asset amortization expense.

~~The third quarter of 2017~~2020 cost of sales increased ~~$59.3~~by $11.7 million ~~compared with the third quarter of 2016~~ and primarily reflected the impact of higher sales. The cost of sales percentage ~~for the third quarter~~decreased slightly to 55.7% from 56.4%. The first six months of 2017 increased to 61.0%, compared with 58.4% for the third quarter of 2016, and reflects the impact of the e2v acquisition which carries a higher cost of sales percentage than the other digital imaging businesses. Selling,2020 selling, general and administrative expenses ~~including research~~increased by $5.5 million and ~~development~~primarily reflected the impact higher sales. The selling, general and ~~bid~~administrative expense percentage decreased slightly to 26.2% in the first six months of 2020 from 26.5%.

Digital Imaging


	Second Quarter									Six Months
(dollars in millions)	2020			2019			2020			2019
Net sales	$	237.6		$	248.4		$	484.3		$	480.8
Cost of sales	$	135.8		$	137.0		$	281.3		$	276.6
Selling, general and administrative expenses	$	55.0		$	59.8		$	112.4		$	116.0
Operating income	$	46.8		$	51.6		$	90.6		$	88.2
Cost of sales as a % of net sales	57.2		%	55.2		%	58.1		%	57.6		%
Selling, general and administrative expenses % of net sales	23.1		%	24.0		%	23.2		%	24.1		%
Operating income as a % of net sales	19.7		%	20.8		%	18.7		%	18.3		%

Second quarter of 2020 compared with the second quarter of 2019

The Digital Imaging segment’s second quarter of 2020 net sales decreased 4.3%. Operating income for the second quarter of 2020 decreased 9.3%.

The second quarter of 2020 net sales primarily reflected lower sales of X-ray products for dental and ~~proposal expense, increased~~medical applications, due in part to ~~$42.8~~deferred patient treatments, and geospatial imaging products, partially offset by greater sales of infrared detectors for defense applications and $3.0 million in incremental sales from a 2019 acquisition. The decrease in operating income in the ~~third~~second quarter of ~~2017, from $29.3 million in 2016 and~~2020 primarily reflected the impact of ~~higher~~lower sales.

The second quarter of 2020 cost of sales decreased $1.2 million and primarily reflected the impact of lower sales. Cost of sales as a percentage of net sales for the second quarter of 2020 increased to 57.2% from 55.2%. Second quarter 2020 selling, general and ~~certain acquisition-related costs related to~~administrative expenses decreased $4.8 million reflecting the ~~e2v acquisition.~~impact of lower sales and lower research and development expense. The selling, general and administrative expense percentage decreased to ~~22.3%~~23.1% in the ~~third~~second quarter of ~~2017~~2020 from ~~29.7% in the third quarter of 2016~~24.0% and reflected the impact ~~of the e2v acquisition which carries a~~ lower ~~selling, general~~research and ~~administrative expense percentage than the other digital imaging businesses.~~development expense.

First ~~nine~~six months of ~~2017~~2020 compared with the first ~~nine~~six months of ~~2016~~2019

The Digital Imaging segment’s first ~~nine~~six months of ~~2017~~2020 net sales ~~were $493.8 million, compared with $287.8 million in the first nine months of 2016, an increase of 71.6%~~increased 0.7%. Operating income ~~was $73.6 million~~ for the first ~~nine~~six months of ~~2017, compared with operating income of $30.6 million in the first nine months of 2016, an increase of 140.5%~~2020 increased 2.7%.

The first ~~nine~~six months of ~~2017~~2020 net sales ~~included $152.7 million in incremental sales from recent acquisitions,~~ primarily ~~e2v. The first nine months sales also~~ reflected higher sales of ~~machine vision cameras for industrial applications, micro electro-mechanical systems (“MEMS”), geospatial hardware and software and X-ray~~infrared detectors for ~~life sciences applications.~~defense applications and MEMS products, partially offset by lower sales of X-ray products for dental and medical applications, due in part to deferred patient treatments, as well as geospatial imaging products. The first six months of 2020 also included $5.7 million in sales from recent acquisitions. The increase in operating income in the first ~~nine~~six months of ~~2017~~2020 primarily reflected the impact of higher sales ~~favorable product mix~~ and incremental operating profit from e2v, partially offset by acquisition-related charges of $9.1 million. The incremental operating profit included in the results for the first nine months of 2017 from recent acquisitions was $16.6 million, which included $6.4 million in additional intangible asset amortizationlower research and development expense.

The first ~~nine~~six months of ~~2017~~2020 cost of sales increased ~~to $308.6~~$4.7 million ~~from $174.0 million for the first nine months of 2016~~ and reflected the impact of higher sales. The cost of sales percentage in ~~2017~~2020 increased slightly to ~~62.5%~~58.1% compared with ~~60.5% in the first nine months of 2016 and reflected the impact of the e2v acquisition which carries a higher cost of sales percentage than the other digital imaging businesses.~~57.6%. Selling, general and administrative expenses, including research and development ~~and bid and proposal~~ expense, increased to ~~$73.6~~$90.6 million ~~for~~in the first ~~nine~~six months of ~~2017,~~2020, from ~~$30.6~~$88.2 million ~~in first nine months of 2016~~ and reflected the impact of higher net sales, partially offset by lower research and ~~certain acquisition-related costs related to the e2v acquisition.~~development expense. The selling, general and administrative expense percentage decreased to ~~22.6%~~23.2% in the first ~~nine~~six months of ~~2017~~2020 from ~~28.9% in the first nine months of 2016~~24.1% and reflected the impact of ~~the e2v acquisition which carries a~~ lower ~~selling, general~~research and ~~administrative expense percentage than the other digital imaging businesses.~~development expense.

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Aerospace and Defense Electronics


	Third Quarter						Nine Months							Second Quarter									Six Months
(dollars in millions)	2017			2016			2017			2016			(dollars in millions)	2020			2019			2020			2019
Net sales	$	165.1		$	153.5		$	489.8		$	464.1		Net sales	$	143.1		$	176.0		$	299.4		$	342.6
Cost of sales	$	103.0		$	90.6		$	299.6		$	284.2		Cost of sales	$	96.4		$	102.8		$	207.2		$	203.4
Selling, general and administrative expenses	$	32.7		$	31.4		$	102.2		$	96.3		Selling, general and administrative expenses	$	29.2		$	34.6		$	61.3		$	68.1
Operating income	$	29.4		$	31.5		$	88.0		$	83.6		Operating income	$	17.5		$	38.6		$	30.9		$	71.1
Cost of sales as a % of net sales	62.4		%	59.0		%	61.2		%	61.2		%	Cost of sales as a % of net sales	67.4		%	58.4		%	69.2		%	59.4		%
Selling, general and administrative expenses % of sales	19.8		%	20.5		%	20.8		%	20.8		%
Selling, general and administrative expenses % of net sales													Selling, general and administrative expenses % of net sales	20.4		%	19.7		%	20.5		%	19.8		%
Operating income as a % of net sales	17.8		%	20.5		%	18.0		%	18.0		%	Operating income as a % of net sales	12.2		%	21.9		%	10.3		%	20.8		%

~~Third~~Second quarter of ~~2017~~2020 compared with the ~~third~~second quarter of ~~2016~~2019

The Aerospace and Defense Electronics segment’s ~~third~~second quarter of ~~2017~~2020 net sales ~~were $165.1 million, compared with $153.5 million in the third quarter of 2016, an increase of 7.6%~~decreased 18.7%. Operating income ~~was $29.4 million~~ for the ~~third~~second quarter of ~~2017, compared with operating income of $31.5 million in the third quarter of 2016, a decrease of 6.7%~~2020 decreased 54.7%.

The ~~third~~second quarter of ~~2017~~2020 net sales reflected ~~$11.5 million of higher sales of microwave and interconnect systems and higher sales of $1.9 million for electronic manufacturing services products, partially offset by $1.8~~$26.9 million of lower sales for aerospace electronics and lower sales of ~~avionics~~$6.0 million for defense and space electronics. The continued weakness in the commercial aerospace industry, due to COVID-19, has negatively affected sales of aerospace electronics. Reduced sales of defense and space electronics resulted from the OneWeb program. The decrease in operating income the second quarter of 2020 reflected impact of lower sales and $4.9 million in higher severance and facility consolidation costs.

The second quarter of 2020 cost of sales decreased $6.4 million and reflected the impact of lower sales, partially offset by higher severance and facility consolidation costs. Cost of sales as a percentage of net sales for the second quarter of 2020 increased to 67.4% from 58.4% and reflected impact of higher severance and facility consolidation costs. Selling, general and administrative expenses, including research and development expense, decreased to $29.2 million in the second quarter of 2020 from $34.6 million and primarily reflected the impact of lower sales. The selling, general and administrative expense percentage increased slightly to 20.4% in the second quarter of 2020 from 19.7%.

First six months of 2020 compared with the first six months of 2019

The Aerospace and Defense Electronics segment’s first six months of 2020 net sales decreased 12.6%. Operating income for the first six months of 2020 decreased 56.5%.

The first six months of 2020 net sales reflected $47.0 million of lower sales for aerospace electronics, partially offset by higher sales of $3.8 million for defense and space electronics. The continued weakness in the commercial aerospace industry, due to COVID-19, has negatively affected sales of aerospace electronics. The decrease in operating income in the first six months of 2020 primarily reflected the impact of lower sales and $12.9 million of higher severance, facility consolidation and certain changes in contract cost estimates.

The first six months of 2020 cost of sales increased by $3.8 million and reflected the impact of higher severance and facility consolidation costs, partially offset by lower sales. Cost of sales as a percentage of sales for the first six months of 2020 increased to 69.2% from 59.4% in the first six months of 2019 and reflected impact of higher severance and facility consolidation costs. Selling, general and administrative expenses, including research and development expense, decreased to $61.3 million in the first six months of 2020, compared with $68.1 million for the first six months of 2019 and primarily reflected the impact of lower sales. The selling, general and administrative expense percentage increased slightly to 20.5% in the first six months of 2020, compared with 19.8%.

Table of Contents

Engineered Systems


	Second Quarter									Six Months
(dollars in millions)	2020			2019			2020			2019
Net sales	$	99.5		$	93.5		$	196.0		$	183.2
Cost of sales	$	80.9		$	77.2		$	159.4		$	153.9
Selling, general and administrative expenses	$	7.8		$	7.3		$	14.4		$	13.9
Operating income	$	10.8		$	9.0		$	22.2		$	15.4
Cost of sales as a % of net sales	81.3		%	82.6		%	81.3		%	84.0		%
Selling, general and administrative expenses % of net sales	7.8		%	7.8		%	7.4		%	7.6		%
Operating income as a % of net sales	10.9		%	9.6		%	11.3		%	8.4		%

Second quarter of 2020 compared with the second quarter of 2019

The Engineered Systems segment’s second quarter of 2020 net sales increased 6.4%. Operating income increased 20.0%.

The second quarter of 2020 net sales reflected higher sales of $5.8 million of engineered products and ~~electronic relays.~~$1.5 million for turbine engines, partially offset by lower sales of $1.3 million of energy systems. The higher sales of ~~microwave~~engineered products and ~~interconnect systems included $11.7 million in~~services primarily reflected increased sales from ~~e2v.~~marine, nuclear and other manufacturing programs, as well as electronic manufacturing services products. Turbine engine sales reflected greater sales of Harpoon missile engines. Operating income in the ~~third~~second quarter of ~~2017~~2020 reflected the impact of higher sales ~~more than offset by unfavorable product mix.~~ and greater mix of manufacturing programs.

The ~~incremental operating profit included in the results for the third~~second quarter of ~~2017 from e2v was $1.1 million, which included $0.2 million in additional intangible asset amortization expense.~~

~~The third quarter of 2017~~2020 cost of sales increased ~~$12.4~~$3.7 million ~~compared with the third quarter of 2016~~ and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the ~~third~~second quarter of ~~2017 increased~~2020 decreased to ~~62.4%~~81.3% from ~~59.0% in the third quarter of 2016 and reflected favorable product mix.~~82.6%. Selling, general and administrative expenses ~~including research and development and bid and proposal expense increased to $32.7~~was $7.8 million for the second quarter of 2020 compared with $7.3 million in ~~the third quarter of 2017, compared with the $31.4 million in the third quarter of 2016 and reflected the impact of higher sales.~~2019. The selling, general and administrative expense percentage ~~decreased to 19.8% in~~was 7.8% for the ~~third~~both the second quarter of ~~2017, compared with 20.5% in the third quarter of 2016.~~

2020 and 2019.

First ~~nine~~six months of ~~2017~~2020 compared with the first ~~nine~~six months of ~~2016~~2019

The ~~Aerospace and Defense Electronics~~Engineered Systems segment’s first ~~nine~~six months of ~~2017~~2020 net sales ~~were $489.8 million, compared with $464.1 million in the first nine months of 2016, an increase of 5.5%~~increased 7.0%. Operating income ~~was $88.0 million~~ for the first ~~nine~~six months of ~~2017, compared with operating income of $83.6 million in the first nine months of 2016, an increase of 5.3%~~2020 increased 44.2%.

The first ~~nine~~six months of ~~2017~~2020 net sales reflected ~~$29.4 million of~~ higher sales of ~~microwave and interconnect systems and higher sales of $8.2~~$8.6 million of ~~avionics~~engineered products and ~~electronic relays,~~services and $5.2 for turbine engines, partially offset by ~~$11.9~~$1.0 million of lower sales ~~for electronic manufacturing services~~of energy systems products. The higher sales of ~~microwave~~engineered products and ~~interconnect systems included $31.2 million in~~services, primarily reflected increased sales from ~~e2v.~~marine, 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 the first ~~nine~~six months of ~~2017~~2020 reflected the impact of higher sales, overall improved margins and favorable product mix. The incremental operating profit included in the results for the first nine months of 2017 from e2v was $4.3 million, which included $1.0 million in additional intangible asset amortization expense.

sales.

The first ~~nine~~six months of ~~2017~~2020 cost of sales increased by ~~$15.4~~$5.5 million ~~compared with the first nine months of 2016,~~ and primarily reflected the impact of higher sales. Cost of sales as a percentage of sales for the first ~~nine~~six months of ~~2017 remained at 61.2% in the first nine months of 2017, compared with the first nine months of 2016.~~2020 decreased to 81.3% from 84.0%. Selling, general and administrative expenses, including research and development ~~and bid and proposal~~ expense, increased to ~~$102.2 million in the first nine months of 2017, compared with $96.3~~$14.4 million for the first ~~nine~~six months of ~~2016~~2020, compared with $13.9 million for the first six months of 2019 and primarily reflected the impact of higher sales. The selling, general and administrative expense percentage ~~remained at 20.8% in the first nine months of 2017, compared with the first nine months of 2016.~~

~~Engineered Systems~~

Third Quarter Nine Months
(dollars in millions) 2017 2016 2017 2016
Net sales $ 73.1
$ 66.5
$ 216.7
$ 193.0
Cost of sales $ 56.7
$ 52.8
$ 172.0
$ 155.5
Selling, general and administrative expenses $ 6.4
$ 5.1
$ 16.7
$ 15.3
Operating income $ 10.0
$ 8.6
$ 28.0
$ 22.2
Cost of sales as a % of net sales 77.6 % 79.4 % 79.4 % 80.6 %
Selling, general and administrative expenses % of sales 8.7 % 7.7 % 7.7 % 7.9 %
Operating income as a % of net sales 13.7 % 12.9 % 12.9 % 11.5 %

~~Third quarter of 2017 compared with the third quarter of 2016~~

The Engineered Systems segment’s third quarter of 2017 net sales were $73.1 million, compared with $66.5 million in the third quarter of 2016, an increase of 9.9%. Operating income was $10.0 million for the third quarter of 2017, compared with operating income of $8.6 million in the third quarter of 2016, an increase of 16.3%.

The third quarter of 2017 net sales reflected higher sales of $5.3 million of engineered products and services and $4.7 million of turbine engines, partially offset by lower sales of $3.4 million of energy systems products. The higher sales of engineered products and services primarily reflected greater sales from marine manufacturing and missile defense programs. The higher sales of turbine engines reflected greater sales for the Joint Air-to-Surface Standoff Missile (“JASSM”) and Harpoon missile programs.

~~Operating income in the third quarter of 2017, compared~~decreased slightly to the third quarter of 2016 reflected the impact of higher sales and a greater proportion of higher margin manufacturing programs. The third quarter of 2017 cost of sales increased $3.9 million, compared with the third quarter of 2016 and reflected the impact of higher sales and product mix differences. Cost of sales as a percentage of sales for the third quarter of 2017 decreased to 77.6% from 79.4% in the third quarter of 2016 and reflected product mix differences. Selling, general and administrative expenses, including research and development and bid and proposal expense, increased to $6.4 million for the third quarter of 2017, compared with $5.1 million for the third quarter of 2016 and reflected the impact of higher sales. The selling, general and administrative expense percentage was 8.7% for the third quarter of 2017, compared with 7.7% for the third quarter of 2016.

~~First nine months of 2017 compared with the first nine months of 2016~~

The Engineered Systems segment’s first nine months of 2017 net sales were $216.7 million, compared with $193.0 million in the first nine months of 2016, an increase of 12.3%. Operating income was $28.0 million7.4% for the first ~~nine~~six months of ~~2017,~~2020 compared with ~~operating income of $22.2 million in the first nine months of 2016, an increase of 26.1%~~7.6%.

The first nine months of 2017 sales reflected higher sales of $15.9 million of engineered products and services and $10.0 million of turbine engines, partially offset by lower sales of $2.2 million of energy systems products. The higher sales of engineered products and services primarily reflected greater sales from missile defense, space and marine manufacturing programs. The higher sales of turbine engines reflected greater sales for the JASSM missile program. Operating income in the first nine months of 2017, compared to the first nine months of 2016 reflected the impact of higher sales and a greater proportion of higher margin manufacturing programs

The first nine months of 2017 cost of sales increased by $16.5 million, compared with the first nine months of 2016, and reflected the impact of higher sales. Cost of sales as a percentage of sales for the first nine months of 2017 decreased to 79.4% from 80.6% in the first nine months of 2016. Selling, general and administrative expenses, including research and development and bid and proposal expense, increased to $16.7 million for the first nine months of 2017, compared with $15.3 million for the first nine months of 2016. The selling, general and administrative expense percentage decreased slightly to 7.7% for the first nine months of 2017 compared with 7.9% for the first nine months of 2016.

Financial Condition, Liquidity and Capital Resources

Our net cash provided by operating activities was ~~$248.3~~$232.2 million for the first ~~nine~~six months of ~~2017,~~2020, compared with net cash provided by operating activities of ~~$250.7 million for the first nine months of 2016.~~$163.3 million. The ~~lower~~higher cash provided by operating activities in the first ~~nine~~six months of ~~2017~~2020 reflected ~~the impact~~improved accounts receivable collections and $33.4 million of ~~transaction related payments for the e2v acquisition and higher income~~deferred tax payments, ~~partially offset by the impact of higher operating income and~~as well as, cash flow from ~~e2v.~~recent acquisitions.

Our net cash used inby investing activities was ~~$813.2~~$65.7 million for the first ~~nine~~six months of ~~2017,~~2020, compared with net cash used by investing activities of ~~$93.3~~$261.6 million. The 2020 and 2019 first six months included $29.0 million and $222.5 million, respectively, for ~~the first nine months of 2016. The 2017 amount includes $742.4 million~~recent acquisitions. On January 5, 2020, we acquired OakGate for ~~the acquisition of e2v. On July 20, 2017, a subsidiary of Teledyne acquired assets of Scientific Systems, Inc. (“SSI”) for $31.0~~$28.5 million in cash. ~~Headquartered~~In February 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for $224.8 million in State College, PA, SSI manufactures precision components and specialized subassemblies used primarily in analytical and diagnostic instrumentation, such as High Performance Liquid Chromatography systems and specific medical devices and is part of the Instrumentation segment. The 2016 amount includes $58.5 million for acquisitions and other investments. See “Our Recent Acquisitions” section of this Management’s Discussion and Analysis for additional information on the e2v acquisition and acquisitions made in 2017 and in 2016.cash. Capital expenditures for the first ~~nine~~six months of ~~2017~~2020 and ~~2016~~2019 were ~~$40.5~~$36.8 million and ~~$44.9~~$39.4 million, respectively.

Our goodwill was ~~$1,748.9~~$2,061.3 million at ~~October 1, 2017~~June 28, 2020 and ~~$1,193.5~~$2,050.5 million at ~~January 1, 2017. The increase in the balance of goodwill in 2017 included $471.1 million in goodwill~~December 29, 2019. Goodwill resulting from the ~~e2v~~ acquisition ~~as well as the impact~~ of ~~exchange rate changes. Goodwill from the e2v acquisition~~OakGate will not be deductible for tax purposes. Teledyne’s net acquired intangible assets were ~~$408.2~~$409.2 million at ~~October 1, 2017~~June 28, 2020 and ~~$234.6~~$430.8 million at ~~January 1, 2017.~~December 29, 2019. The ~~increase~~decrease in the balance of net acquired intangible assets ~~in 2017~~primarily reflected ~~$173.4 million in~~amortization of acquired intangible ~~assets from the e2v acquisition, partially offset by $29.2 million of amortization.~~assets. The Company is in the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the ~~e2v acquisition. The amounts recorded as of October 1, 2017 are preliminary~~OakGate acquisition and the gas and flame detection business and the Micralyne acquisitions since there was insufficient time between the acquisition date and the end of the period to finalize the analysis. In addition, the Company is still in the process of specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the SSI acquisition made in July 2017 and the IN USA and Hanson Research acquisitions made in the fourth quarter of 2016. The amounts recorded as of October 1, 2017 are preliminary since there was insufficient time between the acquisition datedates and the end of the period to finalize the analysis.

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Financing activities provided cash of ~~$535.6~~$27.8 million for the first ~~nine~~six months of ~~2017,~~2020, compared with cash ~~used~~provided by financing activities of $141.5 million for the first nine months of 2016. Financing activities for the first nine months of 2017 reflected net borrowings from the $750.0 million credit facility of $285.0 million and the proceeds from a $100.0 million term loan and the proceeds from the private placement of €250.0 million of senior unsecured notes. The first nine months of 2016 included net payments on debt of $167.1 million, which included net payments on the credit facility of $150.5$64.6 million. Proceeds from the exercise of stock options were ~~$18.7 million and $26.7~~$28.2 million for the first ~~nine~~six months of ~~2017~~2020 compared with $20.7 million for the first six months of 2019.

Total debt at June 28, 2020 was $851.4 million. At June 28, 2020, $125.0 million was outstanding under the $750.0 million credit facility. At June 28, 2020, Teledyne had $25.8 million in outstanding letters of credit. Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and ~~2016, respectively. In March 2017, Teledyne entered into a $100.0~~certain outstanding letters of credit, was $614.5 million ~~term loan~~at June 28, 2020. The credit agreements require the Company to comply with ~~a maturity date of October 30, 2019. Subsequently,~~various financial and operating covenants and at June 28, 2020, the Company was in ~~March 2017, Teledyne entered into a cross currency swap to effectively convert the $100.0 million term loan to a 93.0 million Euro denominated instrument~~compliance with a fixed euro interest rate of 0.7055%. The proceeds from the term loan were used in connection with the acquisition of e2v. On April 18, 2017, Teledyne entered into a note purchase agreement for a private placement of €250.0 million of senior unsecured notes due through 2024. Teledyne used the proceeds of the private placement to, among other things, repay indebtedness incurred in connection with the acquisition of e2v and for general corporate purposes.these covenants.

Our principal cash and capital requirements are to fund working capital needs, capital expenditures, income tax payments, pension contributions, debt service requirements and the stock repurchase program, as well as acquisitions. It is anticipated that operating cash flow, together with available borrowings under the credit facility described below, will be sufficient to meet these requirements over the next twelve months. We may raise ~~other forms of~~ debt capital, depending on financial, market and economic conditions. We may need to raise additional capital to support acquisitions. We currently expect to spend ~~up to~~approximately $70.0 million for capital expenditures in ~~2017,~~2020, of which ~~$40.5~~$36.8 million has been spent in the first ~~nine~~six months of ~~2017.~~2020. No cash pension contributions have been made ~~in 2017~~since 2013 or are planned for the remainder of ~~2017~~2020 for the domestic qualified pension plan.

Total debt, including capital lease obligations, at October 1, 2017 was $1,195.7 million. At October 1, 2017, $285.0 million was outstanding under the $750.0 million credit facility. At October 1, 2017, Teledyne had $20.9 million in outstanding letters of credit. Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and certain outstanding letters of credit, was $447.5 million at October 1, 2017. The credit agreements require the Company to comply with various financial and operating covenants and at October 1, 2017, the Company was in compliance with these covenants.

As of ~~October 1, 2017,~~June 28, 2020, the Company had an adequate amount of margin between required financial covenant ratios (as required by applicable credit agreements) and our actual ratios. At ~~October 1, 2017,~~June 28, 2020, the required financial ratios and the actual ratios were as follows:

$750.0 million Credit Facility expires ~~December 2020~~March 2024 and ~~$182.5 million term loans due through January 2022 (issued in October 2012) and $100.0~~$150.0 million term loan due October ~~2019~~2024 (issued ~~in March 2017)~~October 2019)

Financial Covenants

Requirement

Actual Measure

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

No more than 3.25 to 1

~~2.6~~1.46 to 1

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

No less than 3.0 to 1

~~10.9~~32.9 to 1

$~~620.4~~575.5 million Private Placement Senior Notes due from ~~2019~~September 2020 to 2024

~~Financial Covenants~~

~~Requirement~~

~~Actual Measure~~

Financial Covenants

Requirement

Actual Measure

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

No more than 3.25 to 1

~~2.6~~1.46 to 1

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

No less than 3.0 to 1

~~10.9~~32.9 to 1


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


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

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

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

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

Critical Accounting Policies

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

For additional discussion of the application of the critical accounting policies and other accounting policies, see Note 1 to these condensed consolidated financial statements and also Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Note 2 of the Notes to Consolidated Financial Statements included in Teledyne’s ~~2016~~2019 Form 10-K.

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Safe Harbor Cautionary Statement Regarding Forward-Looking Information

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

Actual results could differ materially from these forward-looking statements. Many factors could change the anticipated results, including: disruptions in the global ~~economy;~~economy caused by the spread of the COVID-19 pandemic resulting in production, supply, contractual and other disruptions, including facility closures and furloughs and travel restrictions; customer and supplier bankruptcies; changes in demand for products sold to the defense electronics, instrumentation, digital imaging, energy exploration and production, commercial aviation, semiconductor and communications markets; funding, continuation and award of government programs; cuts to defense spending resulting from existing and future deficit reduction ~~measures; risks associated with our acquisition~~measures or changes to U.S. and foreign government spending and budget priorities triggered by the COVID-19 pandemic; the outcome of ~~e2v, including failure to successfully integrate~~ the ~~business;~~OneWeb bankruptcy; impacts from the United Kingdom’s ~~decision to~~ exit from the European Union; uncertainties related to the policies of the ~~new~~ U.S. Presidential ~~Administration;~~Administration and uncertainties related to the 2020 Presidential and Congressional elections; the imposition and expansion of, and responses to, trade sanctions and tariffs; escalating economic and diplomatic tension between China and the United States; and threats to the security of our confidential and proprietary information, including cyber security threats. Lower oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, and new regulations or restrictions relating to energy production, ~~including with respect to hydraulic fracturing,~~ could further negatively affect ~~the Company’s~~our businesses that supply the oil and gas industry. ~~Increasing fuel costs could~~Disruptions from the production delay of Boeing’s 737 Max aircraft and continued weakness in the commercial aerospace industry due to the COVID-19 pandemic will negatively affect ~~the markets of~~ our ~~commercial aviation~~aerospace electronics businesses. In addition, financial market fluctuations affect the value of the ~~Company’s~~company's pension assets.

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

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

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

Readers are urged to read our periodic reports filed with the Securities and Exchange Commission for a more complete description of our Company, its businesses, its strategies and the various risks that we face. Various risks are identified in Teledyne’s ~~2016~~2019 Form 10-K and ~~this~~subsequent Quarterly Reports on Form 10-Q.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Except as set forth below, there were no material changes to the information provided under “Item 7A, Quantitative and Qualitative Disclosure About Market Risk” included in our ~~2016~~2019 Form 10-K.

Market Risk

~~We are exposed to~~Teledyne transacts business in various ~~market risks, including changes~~foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency ~~exchange rates~~risk. The Company’s primary objective is to protect the United States dollar value of future cash flows and ~~interest rates. Foreign~~minimize the volatility of reported earnings. The Company utilizes foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in Canadian dollars for our Canadian companies, and in British pounds for our U.K. companies. These contracts are ~~used primarily~~designated and qualify as cash flow hedges. The Company has converted U.S. dollar denominated, variable rate and fixed rate debt obligations of a European subsidiary, into euro fixed rate obligations using a receive float, pay fixed cross currency swap, and a receive fixed, pay fixed cross currency swap. These cross currency swaps are designated as cash flow hedges. In addition, the Company has converted domestic U.S. variable rate debt to ~~hedge anticipated exposures. We do not enter into derivatives or other financial instruments for trading or speculative purposes.~~fixed rate debt using a receive variable, pay fixed interest rate swap. The interest rate swap is also designated as a cash flow hedge.

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Foreign Currency Exchange Rate Risk

Notwithstanding our efforts to mitigate portions of our foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. A hypothetical 10 percent price change in the U.S. dollar from its value at ~~October 1, 2017~~June 28, 2020 would result in a decrease or increase in the fair value of our foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars by approximately ~~$8.4~~$9.3 million. A hypothetical 10 percent price change in the U.S. dollar from its value at ~~October 1, 2017~~June 28, 2020 would result in a decrease or increase in the fair value of our foreign currency forward contracts designated as a cash flow hedges to buy British Pounds and to sell U.S. dollars by approximately ~~$0.1~~$0.6 million. For additional information, see Derivative Instruments discussed in Note 4 to these condensed consolidated financial statements.

Market Risk Disclosure

We are exposed to market risk through the interest rate on our borrowings under our $750.0 million credit facility and our $150.0 million term loan. As of June 28, 2020, we had $125.0 million in outstanding under our credit facility and $150.0 million outstanding under our term loan for a total $275.0 million. A 100 basis point increase in interest rates would result in an increase in annual interest expense of approximately $2.75 million, assuming the $275.0 million in debt was outstanding for the full year. A hypothetical 10 percent price change in the U.S. dollar from its value at ~~October 1, 2017~~June 28, 2020 would result in a decrease or increase in the fair value of our Euro/U.S. Dollar cross currency swap designated as a cash flow hedge by approximately ~~$10.2~~$28.9 million. ~~For additional information please see Derivative Instruments discussed in Note 4 to these condensed consolidated financial statements.~~

~~Interest Rate Exposure~~

We are exposed to market risk through the interest rate on our borrowings under our $750.0 million credit facility and our $282.5 million in term loans. Borrowings under our credit facility and our term loans are at variable rates which are, at our option, tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered Rate) plus an applicable rate or a base rate as defined in our credit agreements. Eurocurrency rate loans may be denominated in U.S. dollars or an alternative currency as definedA hypothetical 10 percent increase in the credit agreements. Eurocurrency or LIBOR based loans under the credit facility typically have terms of one, two, three or nine months and the interest rate for each such loan is subject to change if the loan is continued or converted following the applicable maturity date. The Company has not drawn any loans with a term longer than three months under the credit facility. Base rate loans haveU.S. interest rates that primarily fluctuate with changes in the prime rate. Interest rates are also subject to change based on our consolidated leverage ratio as defined in the credit agreements. As of October 1, 2017, we had $567.5 million in outstanding indebtedness under our credit facility and term loans. A 100 basis point increase in interest ratesat March 29, 2020 would result in an increase in ~~annual~~the fair value of our U.S. dollar interest ~~expense of~~rate swap designated as a cash flow hedge by approximately ~~$5.7 million, assuming the $567.5 million in debt was outstanding for the full year.~~$3.0 million.



Item 4.			Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our ~~Chairman, President and~~ Chief Executive Officer and our Senior Vice President and Chief Financial Officer, with the participation and assistance of other members of management, have reviewed the effectiveness of our disclosure controls and procedures and have concluded that the disclosure controls and procedures, as of ~~October 1, 2017,~~June 28, 2020, are effective at the reasonable assurance level.

In connection with our evaluation during the quarterly period ended ~~October 1, 2017,~~June 28, 2020, we have made no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II OTHER INFORMATION



Item 1.			Legal Proceedings

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



Item 1A.			Risk Factors

There are no material changes to the risk factors previously disclosed in our ~~2016~~2019 Form 10-K in response to Item 1A to Part 1 of Form 10-K. See also Part I Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding COVID-19 risks and Part I Item 3, Quantitative and Qualitative Disclosures About Market Risk, for updated disclosures about interest rate exposure and exchange rate risks.

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Item 6.			Exhibits


(a)	Exhibits

~~(a)~~	~~Exhibits~~















	Exhibit 31.1	302 Certification – ~~Robert Mehrabian~~Aldo Pichelli

	Exhibit 31.2	302 Certification – Susan L. Main

	Exhibit 32.1	906 Certification – ~~Robert Mehrabian~~Aldo Pichelli

	Exhibit 32.2	906 Certification – Susan L. Main

	Exhibit 101 (INS)	XBRL Instance Document

	Exhibit 101 (SCH)	XBRL Schema Document

	Exhibit 101 (CAL)	XBRL Calculation Linkbase Document

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

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

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

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

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SIGNATURES

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

TELEDYNE TECHNOLOGIES INCORPORATED

~~TELEDYNE TECHNOLOGIES INCORPORATED~~

DATE: July 22, 2020

By:

~~DATE: November 6, 2017~~

~~By:~~

/s/ Susan L. Main

Susan L. Main, Senior Vice President and

Chief Financial Officer

(Principal Financial Officer and Authorized Officer)

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Teledyne Technologies Incorporated

Index to Exhibits


Exhibit Number			Description


~~Exhibit Number~~			~~Description~~












Exhibit 31.1			302 Certification – ~~Robert Mehrabian~~Aldo Pichelli

Exhibit 31.2			302 Certification – Susan L. Main

Exhibit 32.1			906 Certification – ~~Robert Mehrabian~~Aldo Pichelli

Exhibit 32.2			906 Certification – Susan L. Main

Exhibit 101 (INS)			XBRL Instance Document

Exhibit 101 (SCH)			XBRL Schema Document

Exhibit 101 (CAL)			XBRL Calculation Linkbase Document

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

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

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

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



		PAGE
Part I	Financial Information	2

	Item 1. Financial Statements	2

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Statements of Comprehensive Income	2

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Stockholders' Equity	4

	Condensed Consolidated Statements of Cash Flows	45

	Notes to Condensed Consolidated Financial Statements	56

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19	20

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	30	29

	Item 4. Controls and Procedures	31	30

Part II	Other Information	31	30

	Item 1. Legal Proceedings	31	30

	Item 1A. Risk Factors	31	30





	Item 6. Exhibits	32	31

Signatures		33	32



	Third Quarter (a)				Nine Months (a)
(unaudited - in millions, except per share amounts)	2017		2016		2017		2016
Net sales	$	662.2	$	614.6	$	1,992.4	$	1,853.0
Net income	$	69.0	$	55.5	$	142.2	$	126.3
Basic earnings per common share	$	1.95	$	1.60	$	4.04	$	3.66
Diluted earnings per common share	$	1.90	$	1.56	$	3.93	$	3.57



Fair values allocated to the assets acquired and liabilities assumed - e2v (in millions): (a)
Current assets, excluding cash acquired	$	152.3
Property, plant and equipment	104.7
Goodwill	471.1
Acquired intangible assets	173.4
Other long-term assets	8.9
Total assets acquired	910.4
Current liabilities	(78.7		)
Long-term liabilities	(89.3		)
Total liabilities assumed	(168.0		)
Consideration transferred, net of cash acquired (b)	$	742.4




Intangibles subject to amortization:(a)	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	97.5	11.8
Customer list/relationships	26.3		13.0
Backlog	2.8		0.8
Total intangibles subject to amortization	126.6		11.8
Intangibles not subject to amortization:(a)
Trademarks	46.8
Total acquired intangible assets	$	173.4



Restricted stock:	Shares		Weighted average fair value per share
Balance, January 1, 2017	95,304		$	83.87
Granted	23,002		$	114.42
Vested	(30,704	)	$	87.98
Forfeited/Canceled	(1,068	)	$	87.59
Balance, October 1, 2017	86,534		$	90.49



	Third Quarter						Nine Months
Net periodic postretirement benefits expense (in millions):	2017			2016			2017			2016
Interest cost on benefit obligation	$	0.1		$	0.1		$	0.3		$	0.4
Amortization of net actuarial gain	(0.1		)	(0.1		)	(0.3		)	(0.3		)
Net periodic postretirement expense	$	—		$	—		$	—		$	0.1