SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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



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

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

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

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

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

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 ☐

There were ~~36,379,266~~36,470,156 shares of common stock, $.01 par value per share, outstanding as of ~~July 24,~~October 23, 2019.

TELEDYNE TECHNOLOGIES INCORPORATED

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE ~~SECOND~~THIRD QUARTER AND ~~SIX~~NINE MONTHS ENDED ~~JUNE 30,~~SEPTEMBER 29, 2019 AND ~~JULY 1,~~SEPTEMBER 30, 2018

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

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

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE ~~SECOND~~THIRD QUARTER AND ~~SIX~~NINE MONTHS ENDED ~~JUNE 30,~~SEPTEMBER 29, 2019 AND ~~JULY 1,~~SEPTEMBER 30, 2018

(Unaudited - Amounts in millions)

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

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - Amounts in millions, except share amounts)

Property, plant and equipment, net of accumulated depreciation and amortization of $608.9 at September 29, 2019 and $566.0

at December 30, 2018

Property, plant and equipment, net of accumulated depreciation and amortization of $608.9 at September 29, 2019 and $566.0

at December 30, 2018

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

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


	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 and other	—		10.2		—		—		—		10.2
Balance, March 31, 2019	0.4		349.8		(129.9)		2,599.0		(469.8)		2,349.5
Net income	—		—		—		104.6		—		104.6
Other comprehensive income, net of tax	—		—		—		—		1.6		1.6
Treasury stock issued	—		(14.7)		14.7		—		—		—
Stock-based compensation	—		6.8		—		—		—		6.8
Exercise of stock options and other	—		10.5		—		—		—		10.5
Balance, June 30, 2019	0.4		352.4		(115.2)		2,703.6		(468.2)		2,473.0
Net income	—		—		—		106.7		—		106.7
Other comprehensive income, net of tax	—		—		—		—		(23.6)		(23.6)
Treasury stock issued	—		(10.6)		10.6		—		—		—
Stock-based compensation	—		6.4		—		—		—		6.4
Exercise of stock options and other	—		8.5		—		—		—		8.5
Balance, September 29, 2019	$	0.4	$	356.7	$	(104.6)	$	2,810.3	$	(491.8)	$	2,571.0

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 and other —
10.2
—
—
—
10.2
Balance, March 31, 2019 0.4
349.8
(129.9 ) 2,599.0
(469.8 ) 2,349.5
Net income —
—
—
104.6
—
104.6
Other comprehensive income, net of tax —
—
—
—
1.6
1.6
Treasury stock issued —
(14.7 ) 14.7
—
—
—
Stock-based compensation —
6.8
—
—
—
6.8
Exercise of stock options and other —
10.5
—
—
—
10.5
Balance, June 30, 2019 $ 0.4
$ 352.4
$ (115.2 ) $ 2,703.6
$ (468.2 ) $ 2,473.0

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

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE 30,~~SEPTEMBER 29, 2019 AND ~~JULY 1,~~SEPTEMBER 30, 2018

(Unaudited - Amounts in millions)

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

TELEDYNE TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by Teledyne Technologies Incorporated (“Teledyne” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in notes to consolidated financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with accounting principles generally accepted in the United States (“GAAP”) as they apply to interim reporting. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes in Teledyne’s Annual Report on Form 10-K for the fiscal year ended December 30, 2018 (“2018 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 ~~June 30,~~September 29, 2019 and the consolidated results of operations, consolidated comprehensive income for the three and ~~six~~nine months then ended and consolidated cash flows for the ~~six~~nine months then ended. The results of operations and cash flows for the periods ended ~~June 30,~~September 29, 2019 are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year. Certain prior year amounts have been reclassified to conform to the current period presentation.

In the third quarter of 2019, we realigned the segment reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. The realignment had no impact on the Instrumentation Segment or the condensed consolidated statements of income, balance sheet or cash flows. See Note 13 to these condensed consolidated financial statements for additional information on the realignment. Previously reported segment data has been adjusted to reflect these changes.

Recent Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, to address a specific consequence of the Tax Cuts and Jobs Act (“Tax Act”) by allowing a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the Tax Act reduction of the U.S. federal corporate income tax rate. ~~The guidance is effective for all entities for annual periods beginning after December 15, 2018, with early adoption permitted.~~ In the second quarter of 2018, we elected to early adopt this ASU and elected to reclassify, in the period of enactment, stranded tax effects totaling $47.6 million from AOCI to retained earnings in our condensed consolidated balance sheet. The reclassification amount primarily included income tax effects related to our pension and postretirement benefit plans. Income tax effects remaining in AOCI will be released into earnings as the related pretax amounts are reclassified to earnings.

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities.” This guidance better aligns an entity’s risk management activities and financial reporting for hedging relationships and expands and refines hedge accounting for both nonfinancial and financial risk components. This guidance also simplifies and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ~~This guidance is effective for fiscal years beginning after December 15, 2018 and for interim periods therein, with early adoption permitted.~~ We adopted the guidance as of December 31, 2018, the beginning of our 2019 fiscal year using the modified retrospective approach, there was no cumulative adjustment to retained earnings related to hedge ineffectiveness for the year ended December 31, 2018. Additionally, as a result of the adoption, we no longer disclose the ineffective portion of the change in fair value of our derivative financial instruments. The entire change in the fair value of the cash flow hedging instruments aside from components excluded from the assessment of hedge effectiveness will now be recorded in other comprehensive income and subsequently reclassified to earnings in the period the hedged item impacts earnings. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates the computation of the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record a goodwill impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The guidance is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We expect the adoption of this guidance will reduce the complexity surrounding the evaluation of goodwill for impairment. The impact of this guidance for the Company will depend on the outcomes of future goodwill impairment tests.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability, other than leases that meet the definition of a short-term lease. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. We adopted the guidance on December 31, 2018, the beginning of our 2019 fiscal year using the modified retrospective transition method. Prior period comparative information was not adjusted. In addition, we elected the package of practical expedients permitted under the transition guidance, which among other things, allowed us to carry forward the historical lease classification. The adoption of this guidance did not have a material impact related to existing leases and as a result, a cumulative-effect adjustment was not recorded. Also, the adoption of the guidance did not have a material impact on our results of operations or cash flows. Upon adoption, on December 31, 2018, we recognized right-of-use assets of $128.4 million and a total lease liability of $139.8 million for operating leases.

We determine if an arrangement is a lease at inception. Effective December 31, 2018, operating leases are recorded as right-of-use assets, other long-term lease liabilities and current accrued liabilities in our condensed consolidated balance sheets. Finance leases are included in property and equipment, ~~other~~ current accrued liabilities, and other long-term liabilities in our condensed consolidated balance sheets.

Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Since most of our leases do not provide an implicit rate, we use ~~our~~the incremental borrowing rate to determine the present value of lease payments at the commencement date. We use the implicit rate when readily determinable. Our lease ~~terms~~agreements may include options to extend ~~or terminate~~ the lease term. We include those options to extend the lease term in determining the present value of the future lease payments when it is reasonably certain that we will exercise ~~that~~such option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Many lease agreements contain renewal options at either a fixed cost, fixed increase or market value adjustment. For those leases with renewal options, we will include the renewal options that are reasonably certain to be exercised for purposes of calculating the lease liability and corresponding right-of-use asset. ~~Teledyne will~~We evaluate the likelihood of exercising each renewal option based on many factors, including the length of the renewal option and the future new lease cost, if known, or the estimated future new lease cost if it is not a fixed amount.

Teledyne has approximately 120 operating lease agreements, which are primarily for manufacturing facilities and office space. These agreements frequently include one or more renewal options and may require the Company to pay for utilities, taxes, insurance and maintenance expense. No lease agreement imposes a restriction on the Company’s ability to engage in financing transactions or enter into further lease agreements. At ~~June 30,~~September 29, 2019, Teledyne has right-of-use assets of ~~$129.6~~$130.2 million and a total lease liability for operating leases of ~~$139.8~~$141.5 million of which ~~$121.9~~$122.6 million is included in long-term lease liabilities and ~~$17.9~~$18.9 million is included in current accrued liabilities.

At ~~June 30,~~September 29, 2019, future minimum lease payments for operating leases with non-cancelable terms of more than one year were as follows (in millions):

Remainder of 2019 $ 11.5
2020 22.3
2021 20.5
2022 18.2
2023 16.7
Thereafter 84.7
Total minimum lease payments 173.9
Less:
Imputed interest (34.1 )
Current portion (17.9 )
Present value of minimum lease payments, net of current portion $ 121.9



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

The weighted average remaining lease term for operating leases is approximately 10 years and the weighted average discount rate is ~~4.08%~~4.07%. Operating lease expense was ~~$5.8~~$6.0 million and ~~$11.6~~$17.6 million for the ~~second~~third quarter and first ~~six~~nine months of 2019, respectively.

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


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

Our finance leases and subleases are not material.

Note 2. Accumulated Other Comprehensive Loss

The changes in AOCI by component, net of tax, for the ~~second~~third quarter and ~~six~~nine months ended ~~June~~September 29, 2019 and September 30, ~~2019~~ ~~and July 1,~~ 2018 are as follows (in millions):


	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of June 30, 2019	$	(169.1)	$	(1.8)	$	(297.3)	$	(468.2)
Other comprehensive income/(loss) before reclassifications	(27.4)		3.9		—		(23.5)
Amounts reclassified from AOCI	—		(5.0)		4.9		(0.1)
Net other comprehensive income/(loss)	(27.4)		(1.1)		4.9		(23.6)

Balance as of September 29, 2019	$	(196.5)	$	(2.9)	$	(292.4)	$	(491.8)

	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of July 1, 2018	$	(144.1)	$	(4.0)	$	(266.0)	$	(414.1)
Other comprehensive income/(loss) before reclassifications	(0.8)		2.5		—		1.7
Amounts reclassified from AOCI	—		—		4.8		4.8
Net other comprehensive income/(loss)	(0.8)		2.5		4.8		6.5
Reclassification of income tax effects for ASU 2018-02	—		$	—	—		—
Balance as of September 30, 2018	$	(144.9)	$	(1.5)	$	(261.2)	$	(407.6)

Foreign Currency Translation Cash Flow Hedges and Other Pension and Postretirement Benefits Total
Balance as of 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 April 1, 2018 $ (84.8 ) $ (1.1 ) $ (271.1 ) $ (357.0 )
   Other comprehensive income/(loss) before reclassifications (59.3 ) 2.6
—
(56.7 )
   Amounts reclassified from AOCI —
(5.5 ) 5.1
(0.4 )
Net other comprehensive income/(loss) (59.3 ) (2.9 ) 5.1
(57.1 )
Balance as of July 1, 2018 $ (144.1 ) $ (4.0 ) $ (266.0 ) $ (414.1 )


	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of December 30, 2018	$	(181.5)	$	(4.9)	$	(306.8)	$	(493.2)
Other comprehensive income/(loss) before reclassifications	(15.0)		7.7		—		(7.3)
Amounts reclassified from AOCI	—		(5.7)		14.4		8.7
Net other comprehensive income/(loss)	(15.0)		2.0		14.4		1.4

Balance as of September 29, 2019	$	(196.5)	$	(2.9)	$	(292.4)	$	(491.8)

	Foreign Currency Translation		Cash Flow Hedges and Other		Pension and Postretirement Benefits		Total
Balance as of December 31, 2017	(102.0)		0.5		(227.8)		(329.3)
Other comprehensive income/(loss) before reclassifications	(42.9)		2.4		—		(40.5)
Amounts reclassified from AOCI	—		(4.4)		14.2		9.8
Net other comprehensive income/(loss)	(42.9)		(2.0)		14.2		(30.7)
Reclassification of income tax effects for ASU 2018-02	—		—		(47.6)		(47.6)
Balance as of September 30, 2018	(144.9)		(1.5)		(261.2)		(407.6)

The reclassifications out of AOCI to net income for the ~~second~~third quarter and ~~six~~nine months ended ~~June 30,~~September 29, 2019 and ~~July 1,~~September 30, 2018 are as follows (in millions):


	Amount Reclassified from AOCI Nine Months Ended		Amount Reclassified from AOCI Nine Months Ended		Statement of Income
	September 29, 2019		September 30, 2018		Presentation
Gain on cash flow hedges:
Gain recognized in income on derivatives	$	(7.6)	$	(6.2)	See Note 4
Income tax impact	1.9		1.8		Provision for income taxes
Total	$	(5.7)	$	(4.4)

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	23.3		23.2		Costs and expenses
Total before tax	18.8		18.7
Income tax impact	$	(4.4)	$	(4.5)	Provision for income taxes
Total	$	14.4	$	14.2

Amount Reclassified from AOCI Six Months Ended Amount Reclassified from AOCI Six Months Ended Statement of Income
June 30, 2019 July 1, 2018 Presentation
Gain on cash flow hedges:
Gain recognized in income on derivatives $ (0.9 ) $ (6.1 ) See Note 4
Income tax impact 0.3
1.6
Provision for income taxes
Total $ (0.6 ) $ (4.5 )

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 15.5
15.4
Costs and expenses
Total before tax 12.5
12.4

Income tax impact $ (3.0 ) $ (3.0 ) Provision for income taxes
Total $ 9.5
$ 9.4

Note 3. Business Combinations, Goodwill and Acquired Intangible Assets

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

On February 5, 2019, we acquired the scientific imaging businesses of Roper Technologies, Inc. for $225.0 million in cash. 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 acquisition with borrowings under its credit facility and cash on hand. The results~~

Acquisition of the ~~acquisition have been included~~gas and flame detection business of 3M Company

On August 1, 2019, we acquired the gas and flame detection business of 3M Company for $230.0 million in ~~Teledyne’s results since~~cash. The gas and flame detection business includes Oldham, Simtronics, Gas Measurement Instruments (GMI), Detcon and select Scott Safety products. The gas and flame detection business provides a portfolio of fixed and portable industrial gas and flame detection instruments used in a variety of industries including petrochemical, power generation, oil and gas, food and beverage, mining and waste water treatment. Principally located in France, the ~~date~~United Kingdom and the United States, the acquired business is part of the ~~acquisition.~~Environmental Instrumentation product line of the Instrumentation segment.

Acquisition of Micralyne

On August 30, 2019, we acquired Micralyne Inc. for $25.0 million in cash. Based in Edmonton, Alberta, Canada, Micralyne is a privately-owned foundry providing Micro Electro Mechanical Systems or MEMS devices. In particular, Micralyne possesses unique microfluidic technology for biotech applications, as well as capabilities in non-silicon-based MEMS (e.g. gold, polymers) often required for human body compatibility. The acquired business is part of the Digital Imaging segment.

Goodwill and Acquired Intangible Assets

Teledyne’s goodwill was ~~$1,888.0~~$2,007.8 million at ~~June 30,~~September 29, 2019 and $1,735.2 million at December 30, 2018. The increase in the balance of goodwill in 2019 resulted from ~~$145.5~~$292.6 million in goodwill from recent acquisitions. The majority of the goodwill resulting from the acquisition of the scientific imaging businesses of Roper Technologies, Inc. will be deductible for tax purposes. Goodwill resulting from the acquisition of the gas and flame detection business of 3M Company and Micralyne will not be deductible for tax purposes. Teledyne’s net acquired intangible assets were ~~$379.9~~$439.9 million at ~~June 30,~~September 29, 2019 and $344.3 million at December 30, 2018. The increase in the balance of net acquired intangible assets resulted from ~~$52.4~~$129.2 million in acquired intangible assets from ~~the acquisition of the scientific imaging businesses of Roper Technologies, Inc.,~~recent acquisitions, partially offset by amortization of acquired intangible 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 ~~acquisition of the scientific imaging businesses of Roper Technologies, Inc.~~3 2019 acquisitions since there was insufficient time between the acquisition ~~date~~dates and the end of the period to finalize the analysis.

~~Pending Acquisition~~

~~See Note 14 to these condensed consolidated financial statements for information about a pending~~Teledyne funded the acquisitions with borrowings under its credit facility and cash on hand. The results of each acquisition have been included in Teledyne’s results since the date of each respective acquisition.

Note 4. Derivative Instruments

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

Cash Flow Hedging Activities

The effectiveness of the forward contract cash flow ~~hedge,~~hedges, the cross currency swap cash flow hedges, and the ~~cross currency~~interest rate swap cash flow hedge is assessed prospectively and retrospectively on a monthly basis using quantitative and qualitative analysis, as well as using other timing and probability criteria. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges, and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash flow hedge forward contracts’ gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of AOCI in stockholders’ equity until the underlying hedged item is reflected in our consolidated statements of income, at which time the effective amount in AOCI is reclassified to revenue in our consolidated statements of income. For the cross currency swap and interest rate cash flow ~~hedge,~~hedges, effective amounts are recorded in AOCI, and reclassified into interest expense in the consolidated statements of income. In addition, for the cross currency swap an amount is reclassified from AOCI to other income and expense each reporting period, to offset the earnings impact of the remeasurement of the hedged ~~liability.~~liabilities. Net deferred ~~gains~~losses recorded in AOCI, net of tax, for the forward contracts that will mature in the next twelve months total ~~$0.2~~$0.7 million. These losses are expected to be offset by anticipated gains in the value of the forecasted underlying hedged item. Amounts related to the cross currency swaps and interest rate swap expected to be reclassified from AOCI into income in the next twelve months total ~~$0.1~~$3.2 million.

In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges will be reclassified from AOCI to other income and expense. During the current reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other income and expense. As of ~~June 30,~~September 29, 2019, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars totaling ~~$80.1~~$79.7 million. These foreign currency forward contracts have maturities ranging from ~~September~~December 2019 to ~~August~~November 2020. Teledyne had foreign currency forward contracts designated as cash flow hedges to buy British pounds and to sell U.S. dollars totaling ~~$21.2~~$20.0 million. These foreign currency forward contracts have maturities ranging from ~~September~~December 2019 to ~~November 2020.~~February 2021. The cross currency swap ~~has~~have notional amounts of €93.0 million and €113.0 million equivalent to $100.0 million and $125.0 million, and mature in October 2019 and March 2023, respectively. The interest rate swap has a notional amount of $125.0 million and matures in ~~October 2019.~~March 2023.

The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the ~~second~~third quarter and ~~six~~nine months ended ~~June 30,~~September 29, 2019 and ~~July 1,~~September 30, 2018 was as follows (in millions):

a) Effective portion, pre-tax

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

c) Amount excluded from effectiveness testing

Non-Designated Hedging Activities

In addition, the Company utilizes foreign currency forward contracts to mitigate foreign exchange rate risk associated with foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. As of ~~June 30,~~September 29, 2019, Teledyne had non-designated foreign currency contracts, (in excess of approximately $5.0 million) of this type in the following pairs (in millions):

Contracts to Buy Contracts to Sell
Currency Amount Currency Amount
Canadian Dollars C$ 23.2
U.S. Dollars US$ 18.0
Canadian Dollars C$ 15.4
Euros € 10.3
Great Britain Pounds £ 1.2
Australian Dollars A$ 2.1
Great Britain Pounds £ 33.3
U.S. Dollars US$ 42.4
Singapore Dollars S$ 2.3
U.S. Dollars US$ 1.7
Euros € 35.4
U.S. Dollars US$ 40.4
U.S. Dollars US$ 1.9
Japanese Yen ¥ 200.0
Danish Krone DKR 60.2
U.S. Dollars US$ 9.2
Great Britain Pounds £ 4.9
Euros € 5.5
Great Britain Pounds £ 2.5
Hong Kong Dollars HK$ 24.8


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


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


Euros	€	35.8	U.S. Dollars		US$	39.2


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

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 ~~second~~third quarter and ~~six~~nine months ended ~~June 30,~~September 29, 2019 was expense of $0.7 million and income ~~$0.9~~$0.2 million, respectively. The effect of derivative instruments not designated as cash flow hedges in other income and expense for the ~~second~~third quarter and ~~six~~nine months ended ~~July 1,~~September 30, 2018 was income of $3.1 million and expense of ~~$17.0 million and $17.8~~$14.7 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):

Note 5. Earnings Per Share

For the ~~second~~third quarter of 2019, no0 stock options were excluded in the computation of earnings per share. For the first ~~six~~nine months of 2019, ~~3,240~~2,160 stock options were excluded in the computation of diluted earnings per share because they had exercise prices that were greater than the weighted average market price of the Company’s common stock during the period. For the ~~second~~third quarter of 2018, no0 stock options were excluded in the computation of earnings per share. For the first ~~six~~nine months of 2018, ~~185,292~~2,580 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):

Note 6. Stock-Based Compensation Plans

Teledyne has long-term incentive plans pursuant to which it has granted non-qualified stock options, restricted stock and performance shares to certain employees. The Company also has non-employee Board of Director stock compensation plans, pursuant to which common stock, stock options and restricted stock units have been issued to its directors.

Stock Incentive Plan

Stock option compensation expense was ~~$5.8~~$5.7 million for the ~~second~~third quarter of 2019 and was ~~$5.4~~$4.6 million for the ~~second~~third quarter of 2018. Stock option compensation expense was ~~$14.7~~$20.4 million for the first ~~six~~nine months of 2019 and was ~~$10.3~~$14.9 million for the first ~~six~~nine months of 2018. Employee stock option grants are charged to expense evenly over the three year vesting period except for stock options that were granted in January 2019 to Teledyne’s Executive Chairman and Teledyne’s President and Chief Executive Officer ~~and Teledyne’s Executive Chairman~~ which were expensed immediately. For 2019, the Company currently expects approximately ~~$26.5~~$26.2 million in stock option compensation expense based on stock options currently outstanding. This amount can be impacted by employee retirements and terminations or stock options granted during the remainder of the year. The Company issues shares of common stock upon the exercise of stock options.

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


		2019
Expected volatility		~~2019~~26.7%
~~Expected volatility~~		~~26.7%~~
Risk-free interest rate range	2.47% to 2.70%
Expected life in years		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 2019 was $72.00 per share.

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

2019
Second Quarter Six Months
Shares
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Exercise
Price
Beginning balance 2,317,523
$ 124.24
2,064,740
$ 104.66
Granted —
$ —
390,789
$ 217.58
Exercised (139,978 ) $ 77.04
(260,761 ) $ 80.62
Canceled (6,702 ) $ 187.44
(23,925 ) $ 175.95
Ending balance 2,170,843
$ 127.09
2,170,843
$ 127.09
Options exercisable at end of period 1,410,369
$ 79.43
1,410,369
$ 79.43


	2019
	Third Quarter				Nine Months
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Beginning balance	2,170,843	$	127.09	2,064,740	$	104.66
Granted	—	$	—	390,789	$	217.58
Exercised	(92,062)	$	88.26	(352,823)	$	82.61
Canceled	(10,946)	$	197.19	(34,871)	$	182.62
Ending balance	2,067,835	$	128.45	2,067,835	$	128.45
Options exercisable at end of period	1,319,171	$	92.57	1,319,171	$	92.57

Performance Share Plan and Restricted Stock Award Program

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

In the first quarter of 2018, the performance cycle for the ~~three-year~~three-year period ending December 31, 2020, was set. Under the plan, the maximum number of shares that could be issued in three equal installments in 2021, 2022 and 2023, is ~~59,922.~~59,278.

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

Inventories are stated at current cost net of reserves for excess, slow moving and obsolete inventory. Inventories are valued under the FIFO method, LIFO method or average cost method. Inventories at cost determined on the average cost or the FIFO methods were ~~$358.3~~$373.6 million at ~~June 30,~~September 29, 2019 and $331.3 million at December 30, 2018. The remainder of the inventories using the LIFO method is ~~$41.1~~$39.1 million at ~~June 30,~~September 29, 2019 and $42.3 million at December 30, 2018. 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.

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 ~~a longer period of time,~~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 ~~these~~ changes in estimates on contracts accounted for under the cost-to-cost method in the first ~~six~~nine month of 2019 was approximately ~~$12.6~~$17.0 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. The net aggregate effects of ~~these~~ changes in estimates on contracts accounted for under the cost-to-cost method in the first ~~six~~nine months of 2018 was ~~less than $0.1~~approximately $2.0 million of ~~unfavorable~~favorable operating income, ~~respectively,~~ primarily related to ~~unfavorable~~favorable changes in estimates that impacted revenue. None of the effects of changes in estimates on any individual contract were material to the condensed consolidated statements of income for any period presented.

Contract Liabilities

We recognize a liability for interim and advance payments in excess of revenue recognized and present it as a contract liability which is included within accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheet, which represented ~~$114.5~~$110.6 million and ~~$19.9~~$17.4 million as of ~~June 30,~~September 29, 2019, and $111.5 million and $15.3 million as of December 30, 2018, respectively.

The Company recognized revenue of ~~$65.1~~$78.2 million during the ~~six~~nine months ended ~~June 30,~~September 29, 2019 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 30,~~September 29, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was ~~$1,697.3~~$1,755.1 million. The Company expects approximately ~~79%~~74% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining ~~21%~~26% recognized thereafter.

Product Warranty Costs

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

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 ~~second~~third quarter and first ~~six~~nine months of 2019 was ~~18.2%~~13.5% and ~~18.5%~~16.7%, respectively. The Company’s effective income tax rate for the ~~second~~third quarter and first ~~six~~nine months of 2018 was ~~17.7%~~9.9% and ~~18.3%~~15.4%, respectively. The ~~second~~third quarter and first ~~six~~nine months of 2019 include net discrete income tax benefits of ~~$4.3~~$10.4 million and ~~$7.4~~$17.8 million, respectively. The 2019 ~~second~~third quarter and first ~~six~~nine months of net discrete tax benefits includes ~~$4.8~~$3.5 million and ~~$7.7~~$11.2 million, respectively, related to share-based accounting. The ~~second~~first nine months of 2019 also included $8.1 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to the expiration of statute of limitations and a favorable tax settlement, of which $7.8 million was recorded in the third quarter of 2019. The third quarter and first ~~six~~nine months of 2018 includes net discrete income tax benefits of ~~$3.4~~$11.4 million and ~~$5.5~~$16.9 million, respectively. The 2018 ~~second~~third quarter and first ~~six~~nine months net discrete tax benefits includes ~~$4.7~~$5.0 million and ~~$7.7~~$12.7 million, respectively, related to share-based accounting. The third quarter and first ~~six~~nine months of 2018 also ~~includes an increase~~included $4.4 million in income tax benefit as a ~~provisional charge recorded as part~~result of the ~~Tax Cuts and Jobs Act~~remeasurement of ~~2017~~uncertain tax positions due to the expiration of ~~$0.6 million recorded in the first quarter.~~

statute of limitations. Excluding the net discrete income tax benefits in both periods, the effective tax ~~rates~~rate would have been ~~21.6% for the second quarter of 2019 and~~ 21.9% for the both the third quarter and the first ~~six~~nine months of 2019. Excluding the net discrete income tax benefits in both periods, ~~and the increase in the provisional charge,~~ the effective tax ~~rates~~rate would have been ~~21.0% for the second quarter of 2018 and~~ 21.3% for both the third quarter and the first ~~six~~nine months of 2018.

Note 10. Long-Term Debt and Letters of Credit

Balance at
Long-Term Debt (in millions): June 30, 2019 December 30, 2018
$750.0 million credit facility due March 2024, weighted average rate of 4.15% at June 30, 2019 and 5.50% at December 30, 2018 $ 76.5
$ 29.0
Term loan due October 2019, variable rate of 3.53% at June 30, 2019 and 3.63% at December 30, 2018, swapped to a Euro fixed rate of 0.7055% 100.0
100.0
2.61% Fixed Rate Senior Notes due December 2019 30.0
30.0
5.30% Fixed Rate Senior Notes due September 2020 75.0
75.0
2.81% Fixed Rate Senior Notes due November 2020 25.0
25.0
3.09% Fixed Rate Senior Notes due December 2021 95.0
95.0
3.28% Fixed Rate Senior Notes due November 2022 100.0
100.0
0.70% €50 Million Fixed Rate Senior Notes due April 2022
56.9
57.2
0.92% €100 Million Fixed Rate Senior Notes due April 2023
113.7
114.4
1.09% €100 Million Fixed Rate Senior Notes due April 2024
113.7
114.4
Other debt 6.9
8.8
Total debt 792.7
748.8
Less: current portion of long-term debt and debt issuance costs (136.5 ) (138.7 )
Total long-term debt $ 656.2
$ 610.1

On March 15, 2019, Teledyne amended its $750.0 million credit agreement to extend the maturity date from December 2020 to March 2024. While the borrowing capacity remains at $750.0 million, the amendment permits Teledyne to increase the aggregate amount of the borrowing capacity by up to $250.0 million subject to certain conditions.

Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and certain outstanding letters of credit, was ~~$644.8~~$494.7 million at ~~June 30,~~September 29, 2019. The credit agreements require the Company to comply with various financial and operating covenants and at ~~June 30,~~September 29, 2019, the Company was in compliance with these covenants. At ~~June 30,~~September 29, 2019, Teledyne had ~~$33.1~~$30.3 million in outstanding letters of credit.

Teledyne estimates the fair value of its long-term debt based on debt of similar type, rating and maturity and at comparable interest rates. The Company’s long-term debt is considered a level 2 fair value hierarchy and is valued based on observable market data. The estimated fair value of Teledyne’s long-term debt at ~~June 30,~~September 29, 2019 and December 30, 2018, approximated the carrying value.

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

For a further description of the Company’s commitments and contingencies, reference is made to Note 14 of the Company’s financial statements as of and for the fiscal year ended December 30, 2018, included in the 2018 Form 10-K.

At ~~June 30,~~September 29, 2019, the Company’s reserves for environmental remediation obligations totaled ~~$6.2~~$6.0 million, of which $1.5 million is included in current accrued liabilities. At December 30, 2018, the Company’s reserves for environmental remediation obligations totaled $6.0 million. The Company evaluates whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years and will complete remediation of all sites with which it has been identified in up to 30 years.

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. Pension Plans and Postretirement Benefits

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

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

Note 13. 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 includes net sales and operating income by segment but excludes non-service retirement benefit income, equity income or loss, unusual non-recurring legal matter settlements, interest income and expense, gains and losses on the disposition of assets, sublease rental income and non-revenue licensing and royalty income, domestic and foreign income taxes and corporate office expenses. Corporate expense includes various administrative expenses relating to the corporate office and certain non-operating expenses, including certain acquisition-related transaction costs, not allocated to our segments.

In the third quarter of 2019, we realigned the reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. Total net sales for these products were $76.2 million for fiscal year 2018. Other immaterial changes included moving certain United Kingdom (U.K.) microwave product lines (previously within the Digital Imaging segment) and certain U.K. manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment. Total net sales for these U.K. product lines was less than $20.0 million for fiscal year 2018. Previously reported segment data has been adjusted to reflect these changes.

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


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

Second Quarter % Six Months %
2019 2018 Change 2019 2018 Change
Net sales(a):
Instrumentation $ 264.1
$ 262.6
0.6 % $ 520.6
$ 501.6
3.8 %
Digital Imaging 251.3
225.3
11.5 % 486.6
436.3
11.5 %
Aerospace and Defense Electronics 191.0
173.5
10.1 % 371.4
347.1
7.0 %
Engineered Systems 75.6
71.1
6.3 % 148.6
143.1
3.8 %
Total net sales $ 782.0
$ 732.5
6.8 % $ 1,527.2
$ 1,428.1
6.9 %
Operating income:
Instrumentation $ 49.0
$ 40.9
19.8 % $ 88.9
$ 68.7
29.4 %
Digital Imaging 52.5
43.3
21.2 % 89.5
77.9
14.9 %
Aerospace and Defense Electronics 39.4
33.7
16.9 % 73.2
65.4
11.9 %
Engineered Systems 7.3
7.4
(1.4 )% 12.0
14.6
(17.8 )%
Corporate expense (16.3 ) (13.8 ) 18.1 % (34.4 ) (26.7 ) 28.8 %
Operating income $ 131.9
$ 111.5
18.3 % $ 229.2
$ 199.9
14.7 %



(a)			Net sales excludes inter-segment sales of ~~$4.0~~$8.2 million and ~~$10.4~~$22.2 million for the ~~second~~third quarter and first ~~six~~nine months of 2019, respectively, and ~~$5.5~~$8.2 million and ~~$10.7~~$18.8 million for the ~~second~~third quarter and first ~~six~~nine months of 2018.
(b)			The 2018 periods have been adjusted to reflect the realignment of the reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. Other immaterial changes included moving certain United Kingdom (U.K.) microwave product lines (previously within the Digital Imaging segment) and certain U.K. manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment.

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


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

Identifiable assets: June 30, 2019 December 30, 2018
Instrumentation $ 1,410.2
$ 1,392.7
Digital Imaging 1,843.6
1,600.9
Aerospace and Defense Electronics 616.0
521.4
Engineered Systems 123.3
116.6
Corporate 207.1
177.7
Total identifiable assets $ 4,200.2
$ 3,809.3

The Instrumentation segment includes ~~three~~3 product lines: Environmental Instrumentation, Marine 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 2019 2018 2019 2018
Marine Instrumentation $ 111.4
$ 118.7
$ 216.6
$ 222.9
Environmental Instrumentation 87.4
85.7
173.8
166.9
Test and Measurement Instrumentation 65.3
58.2
130.2
111.8
Total $ 264.1
$ 262.6
$ 520.6
$ 501.6


	Third Quarter						Nine Months
Instrumentation	2019		2018		2019		2018
Marine Instrumentation	$	114.4	$	106.2	$	331.0	$	329.1
Environmental Instrumentation	102.6		85.5		276.4		252.4
Test and Measurement Instrumentation	65.9		64.5		196.1		176.3
Total	$	282.9	$	256.2	$	803.5	$	757.8

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

a) Includes sales as a prime contractor or subcontractor.


	Third Quarter Ended September 29, 2019										Nine Months Ended September 29, 2019
	Contract Type								Contract Type
(in millions)	Fixed Price		Cost Type		Total		Fixed Price		Cost Type		Total
Net Sales:
Instrumentation	$	280.8	$	2.1	$	282.9	$	797.5	$	6.0	$	803.5
Digital Imaging	220.4		23.6		244.0		657.7		67.1		724.8
Aerospace and Defense Electronics	175.9		1.2		177.1		517.8		1.9		519.7
Engineered Systems	46.0		52.2		98.2		120.6		160.8		281.4
	$	723.1	$	79.1	$	802.2	$	2,093.6	$	235.8	$	2,329.4

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 229.8
21.5
251.3
443.1
43.5
486.6
Aerospace and Defense Electronics 190.5
0.5
191.0
370.6
0.8
371.4
Engineered Systems 21.8
53.8
75.6
40.0
108.6
148.6
$ 695.8
$ 86.2
$ 782.0
$ 1,358.4
$ 168.8
$ 1,527.2


	Third Quarter Ended September 29, 2019												Nine Months Ended September 29, 2019
	Geographic Region (a)												Geographic Region (a)
(in millions)	United States		Europe		All other		Total		United States		Europe		All other		Total
Net sales:
Instrumentation	$	229.9	$	42.7	$	10.3	$	282.9	$	666.1	$	107.1	$	30.3	$	803.5
Digital Imaging	83.4		71.2		89.4		244.0		236.1		213.0		275.7		724.8
Aerospace and Defense Electronics	149.2		27.7		0.2		177.1		447.4		71.5		0.8		519.7
Engineered Systems	98.2		—		—		98.2		281.4		—		—		281.4
	$	560.7	$	141.6	$	99.9	$	802.2	$	1,631.0	$	391.6	$	306.8	$	2,329.4

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
77.3
93.7
251.3
152.7
147.6
186.3
486.6
Aerospace and Defense Electronics 171.7
18.9
0.4
191.0
336.8
34.0
0.6
371.4
Engineered Systems 73.4
2.2
—
75.6
144.6
4.0
—
148.6
$ 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.

Second Quarter Ended

a) Includes sales as a prime contractor or subcontractor.


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

Second Quarter Ended

Second Quarter Ended
July 1, 2018

Six Months Ended
July 1, 2018

Geographic Region (a) Geographic Region (a)
(in millions) United States Europe All other Total United States Europe All other Total
Net sales:
Instrumentation $ 206.5
$ 45.4
$ 10.7
$ 262.6
$ 397.5
$ 84.8
$ 19.3
$ 501.6
Digital Imaging 59.4
76.0
89.9
225.3
116.2
143.0
177.1
436.3
Aerospace and Defense Electronics 157.0
15.9
0.6
173.5
311.1
34.7
1.3
347.1
Engineered Systems 68.9
2.2
—
71.1
139.1
4.0
—
143.1
$ 491.8
$ 139.5
$ 101.2
$ 732.5
$ 963.9
$ 266.5
$ 197.7
$ 1,428.1

a) Net sales by geographic region of origin.

~~Note 14. Subsequent Events~~

~~Effective June 4, 2019, Teledyne and 3M Company entered into a purchase agreement whereby Teledyne agreed to acquire the gas and flame detection business~~

Table of 3M Company for $230.0 million in cash. The gas and flame detection business includes Oldham, Simtronics, Gas Measurement Instruments (GMI), Detcon and select Scott Safety products. The gas and flame detection business provides a portfolio of fixed and portable industrial gas and flame detection instruments used in a variety of industries including petrochemical, power generation, oil and gas, food and beverage, mining and waste water treatment. Principally located in France, Scotland and the United States, the acquired businesses will become part of the Instrumentation segment.Contents

~~The transaction is anticipated to close in the third quarter of 2019, and is subject to customary closing conditions, including French regulatory approval.~~

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

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

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

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

Strategy/Overview

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

Recent Acquisitions

Acquisition of the scientific imaging businesses of Roper Technologies

Acquisition of the ~~acquisition have been included in Teledyne’s results since the date~~gas and flame detection business of ~~the acquisition.~~

~~Pending Acquisition~~

~~Effective June 4, 2019, Teledyne and~~ 3M Company ~~entered into a purchase agreement whereby Teledyne agreed to acquire~~

On August 1, 2019, we acquired the gas and flame detection business of 3M Company for $230.0 million in cash. The gas and flame detection business includes Oldham, Simtronics, Gas Measurement Instruments (GMI), Detcon and select Scott Safety products. The gas and flame detection business provides a portfolio of fixed and portable industrial gas and flame detection instruments used in a variety of industries including petrochemical, power generation, oil and gas, food and beverage, mining and waste water treatment. Principally located in France, ~~Scotland~~the United Kingdom and the United States, the acquired ~~businesses will become~~business is part of the Instrumentation segment.

Table of Contents

Acquisition of Micralyne

On August 30, 2019, we acquired Micralyne Inc. for $25.0 million in cash. Based in Edmonton, Alberta, Canada, Micralyne is a privately-owned foundry providing Micro Electro Mechanical Systems or MEMS devices. In particular, Micralyne possesses unique microfluidic technology for biotech applications, as well as capabilities in non-silicon-based MEMS (e.g. gold, polymers) often required for human body compatibility. The ~~transaction~~acquired business is ~~anticipated to close~~part of the Digital Imaging segment.

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 ~~second half~~date of each respective acquisition.

Results of Operations


	Third Quarter						Nine Months
(in millions)	2019		2018		2019		2018
Net sales	$	802.2	$	725.3	$	2,329.4	$	2,153.4
Costs and expenses
Cost of sales	487.7		446.2		1,415.2		1,331.4
Selling, general and administrative expenses	185.8		173.6		556.3		516.6
Total costs and expenses	673.5		619.8		1,971.5		1,848.0
Operating income	128.7		105.5		357.9		305.4
Interest expense, net	(5.5)		(6.0)		(16.3)		(19.8)
Non-service retirement benefit income	1.9		3.4		6.1		10.1
Other expense, net	(1.7)		(2.7)		(3.5)		(8.9)
Income before income taxes	123.4		100.2		344.2		286.8
Provision for income taxes	16.7		9.9		57.6		44.1



Net income	$	106.7	$	90.3	$	286.6	$	242.7


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

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

(b) The 2018 periods have been adjusted to ~~customary closing conditions, including French regulatory approval.~~

reflect the realignment of the reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. Other immaterial changes included moving certain United Kingdom (U.K.) microwave product lines (previously within the Digital Imaging segment) and certain U.K. manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment.

~~Results~~

Table of ~~Operations~~Contents

Second Quarter Six Months
(in millions) 2019 2018 2019 2018
Net sales $ 782.0
$ 732.5
$ 1,527.2
$ 1,428.1
Costs and expenses
Cost of sales 463.6
447.0
927.5
885.2
Selling, general and administrative expenses 186.5
174.0
370.5
343.0
Total costs and expenses 650.1
621.0
1,298.0
1,228.2
Operating income 131.9
111.5
229.2
199.9
Interest expense, net (5.4 ) (6.7 ) (10.8 ) (13.8 )
Non-service retirement benefit income 2.0
3.3
4.2
6.7
Other expense, net (0.6 ) (3.7 ) (1.8 ) (6.2 )
Income before income taxes 127.9
104.4
220.8
186.6
Provision for income taxes 23.3
18.5
40.9
34.2
Net income $ 104.6
$ 85.9
$ 179.9
$ 152.4

Second Quarter % Six Months %
(dollars in millions) 2019 2018 Change 2019 2018 Change
Net sales(a):
Instrumentation $ 264.1
$ 262.6
0.6 % $ 520.6
$ 501.6
3.8 %
Digital Imaging 251.3
225.3
11.5 % 486.6
436.3
11.5 %
Aerospace and Defense Electronics 191.0
173.5
10.1 % 371.4
347.1
7.0 %
Engineered Systems 75.6
71.1
6.3 % 148.6
143.1
3.8 %
Total net sales $ 782.0
$ 732.5
6.8 % $ 1,527.2
$ 1,428.1
6.9 %
Operating income:
Instrumentation $ 49.0
$ 40.9
19.8 % $ 88.9
$ 68.7
29.4 %
Digital Imaging 52.5
43.3
21.2 % 89.5
77.9
14.9 %
Aerospace and Defense Electronics 39.4
33.7
16.9 % 73.2
65.4
11.9 %
Engineered Systems 7.3
7.4
(1.4 )% 12.0
14.6
(17.8 )%
Corporate expense (16.3 ) (13.8 ) 18.1 % (34.4 ) (26.7 ) 28.8 %
Total operating income $ 131.9
$ 111.5
18.3 % $ 229.2
$ 199.9
14.7 %


~~(a)~~	Net sales excludes inter-segment sales of $4.0 million and $10.4 million for the second quarter and first six months of 2019, respectively, and $5.5 million and $10.7 million for the second quarter and first six months of 2018.

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


	Second Quarter						Six Months							Third Quarter									Nine Months
(dollars in millions)	2019			2018			2019			2018			(dollars in millions)	2019			2018			2019			2018
Instrumentation													Instrumentation
Net sales	$	264.1		$	262.6		$	520.6		$	501.6		Net sales	$	282.9		$	256.2		$	803.5		$	757.8
Cost of sales	$	146.6		$	145.4		$	293.6		$	284.7		Cost of sales	$	156.6		$	146.0		$	450.2		$	430.7
Cost of sales as a % of net sales	55.5		%	55.3		%	56.4		%	56.8		%	Cost of sales as a % of net sales	55.4		%	57.0		%	56.0		%	56.8		%
Digital Imaging													Digital Imaging
Net sales	$	251.3		$	225.3		$	486.6		$	436.3		Net sales	$	244.0		$	220.7		$	724.8		$	652.0
Cost of sales	$	138.3		$	133.7		$	280.1		$	261.8		Cost of sales	$	144.7		$	132.2		$	421.3		$	390.8
Cost of sales as a % of net sales	55.0		%	59.4		%	57.6		%	60.0		%	Cost of sales as a % of net sales	59.3		%	59.9		%	58.1		%	59.9		%
Aerospace and Defense Electronics													Aerospace and Defense Electronics
Net sales	$	191.0		$	173.5		$	371.4		$	347.1		Net sales	$	177.1		$	160.3		$	519.7		$	474.2
Cost of sales	$	117.1		$	110.0		$	230.0		$	222.1		Cost of sales	$	105.2		$	96.0		$	308.6		$	287.8
Cost of sales as a % of net sales	61.3		%	63.4		%	61.9		%	64.0		%	Cost of sales as a % of net sales	59.4		%	59.9		%	59.4		%	60.7		%
Engineered Systems													Engineered Systems
Net sales	$	75.6		$	71.1		$	148.6		$	143.1		Net sales	$	98.2		$	88.1		$	281.4		$	269.4
Costs of sales	$	61.6		$	57.9		$	123.8		$	116.6		Costs of sales	$	81.2		$	72.0		$	235.1		$	222.1
Cost of sales as a % of net sales	81.5		%	81.4		%	83.3		%	81.5		%	Cost of sales as a % of net sales	82.7		%	81.7		%	83.5		%	82.4		%
Total Company													Total Company
Net sales	$	782.0		$	732.5		$	1,527.2		$	1,428.1		Net sales	$	802.2		$	725.3		$	2,329.4		$	2,153.4
Costs of sales	$	463.6		$	447.0		$	927.5		$	885.2		Costs of sales	$	487.7		$	446.2		$	1,415.2		$	1,331.4
Cost of sales as a % of net sales	59.3		%	61.0		%	60.7		%	62.0		%	Cost of sales as a % of net sales	60.8		%	61.5		%	60.8		%	61.8		%

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

The following is a discussion of our 2019 ~~second~~third quarter and first ~~six~~nine months results compared with the 2018 ~~second~~third quarter and first ~~six~~nine months results. Comparisons are with the corresponding reporting period of 2018, unless noted otherwise. In the third quarter of 2019, we realigned the reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. Other immaterial changes included moving certain United Kingdom (U.K.) microwave product lines (previously within the Digital Imaging segment) and certain U.K. manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment.

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

Our ~~second~~third quarter of 2019 net sales increased ~~6.8%~~10.6%. Net income for the ~~second~~third quarter of 2019 increased ~~21.8%~~18.2%. Net income per diluted share was ~~$2.80~~$2.84 for the ~~second~~third quarter of 2019, compared with net income per diluted share of ~~$2.32.~~$2.43. The ~~second~~third quarter of 2019 included net discrete income tax benefits of ~~$4.3~~$10.4 million compared with ~~$3.4~~$11.4 million. The third quarter of 2019 included $0.3 million in severance and facility consolidation costs compared with $4.1 million in severance and facility consolidation costs for the third quarter of 2018.

Net Sales

The ~~second~~third quarter of 2019 net sales, compared with the ~~second~~third quarter of 2018 net sales, reflected higher net sales in each segment. The ~~second~~third quarter of 2019 sales increased $76.9 million and included organic growth of ~~$26.2~~$36.1 million and ~~$23.3~~$40.8 million in incremental net sales from a recent ~~acquisition.~~acquisitions.

Cost of Sales

Cost of sales increased ~~$16.6~~$41.5 million in the ~~second~~third quarter of 2019 and reflected the impact of higher sales. Cost of sales as a percentage of net sales decreased for the ~~second~~third quarter of 2019 to ~~59.3%~~60.8%, from ~~61.0%~~61.5%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development and bid and proposal expense, increased ~~$12.5~~$12.2 million in the ~~second~~third quarter of 2019 and primarily reflected the impact of higher ~~sales and higher research and development spending.~~sales. Selling, general and administrative expenses for the ~~second~~third quarter of 2019, as a percentage of net sales ~~remained at 23.8%~~decreased slightly to 23.2% from 23.9%. Corporate expense, which is included in selling, general and administrative expenses, was ~~$16.3~~$14.6 million for the ~~second~~third quarter of 2019, compared

Table of Contents

with ~~$13.8 million and primarily reflected higher professional fees expense.~~$15.1 million. In the ~~second~~third quarter of 2019 and 2018, we recorded a total of ~~$5.8~~$5.7 million and ~~$5.4~~$4.6 million, respectively, in stock option compensation expense.

Pension Service Expense

Pension service expense is included in both cost of sales and selling general and administrative expense. For the ~~second~~third quarter of 2019 pension service expense was ~~$2.3~~$2.4 million compared with $2.7 million. For 2019, the discount rate used to determine the benefit obligation for the domestic plan was 4.59% compared with 4.02% in 2018.

Operating Income

Operating income for the ~~second~~third quarter of 2019 increased ~~18.3%~~22.0%. The ~~second~~third quarter of 2019, compared with the ~~second~~third quarter of 2018, reflected higher operating income in each segment except the ~~Engineered Systems~~Digital Imaging segment. The third quarter of 2019 included $0.3 million in severance and facility consolidation costs compared with $4.1 million in severance and facility consolidation costs for the third quarter of 2018. The incremental operating income included in the results for the third quarter of 2019 from recent acquisitions was $5.5 million.

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

Interest expense, net of interest income, was ~~$5.4~~$5.5 million for the ~~second~~third quarter of 2019, compared with ~~$6.7 million and primarily reflected lower average debt levels in 2019.~~$6.0 million. Non-service retirement benefit income was ~~$2.0~~$1.9 million for the ~~second~~third quarter of 2019 compared with ~~$3.3~~$3.4 million. Other income and expense was expense of ~~$0.6~~$1.7 million for the ~~second~~third quarter of 2019, compared with expense of ~~$3.7~~$2.7 million. The higher amount in 2018 primarily reflected higher foreign currency expense.

Income Taxes

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

The Company’s effective income tax rate for the ~~second~~third quarter of 2019 was ~~18.2%~~13.5%, compared with ~~17.7%~~9.9%. The ~~second~~third quarter of 2019 reflected net discrete income tax benefits of ~~$4.3~~$10.4 million. This amount primarily included $7.8 million ~~which included~~in income tax benefit as a ~~$4.8~~result of the remeasurement of uncertain tax positions due to the expiration of statute of limitations and a favorable tax settlement, as well as, a $3.5 million income tax benefit related to share-based accounting. The ~~second~~third quarter of 2018 included net discrete tax benefits of ~~$3.4~~$11.4 million. This amount primarily included $4.4 million ~~which included~~in income tax benefit as a ~~$4.7~~result of the remeasurement of uncertain tax positions due to the expiration of statute of limitations and a $5.0 million income tax benefit related to share-based accounting. Excluding the net discrete income tax benefits in both periods, the effective tax rates would have been ~~21.6%~~21.9% for the ~~second~~third quarter of 2019 and ~~21.0%~~21.3% for the ~~second~~third quarter of 2018. The Company’s annual effective tax rate for fiscal year 2019 is expected to be 21.9%, based on the projected mix of earnings before tax by jurisdiction, excluding the impact of any matters that would be treated as discrete.

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

Our first ~~six~~nine months of 2019 net sales increased ~~6.9%~~8.2%. Net income for the first ~~six~~nine months of 2019 increased ~~18.0%~~18.1%. Net income per diluted share was ~~$4.82~~$7.66 for the first ~~six~~nine months of 2019, compared with net income per diluted share of ~~$4.13.~~$6.56. The first ~~six~~nine months of 2019 included net discrete income tax benefits of ~~$7.4~~$17.8 million compared with ~~$5.5~~$16.9 million. The first nine months of 2019 included $1.1 million in severance and facility consolidation costs compared with $5.3 million in severance and facility consolidation costs for the first nine months of 2018.

Net Sales

The first ~~six~~nine months of 2019 net sales, compared with the first ~~six~~nine months of 2018 net sales, reflected higher net sales in each segment. The first ~~six~~nine months of 2019 sales increased $176.0 million and included organic growth of ~~$61.7~~$97.8 million and ~~$37.4~~$78.2 million in incremental net sales from a recent ~~acquisition.~~acquisitions.

Cost of Sales

Cost of sales increased ~~$42.3~~$83.8 million in the first ~~six~~nine months of 2019 and primarily reflected the impact of higher sales. Cost of sales as a percentage of net sales for the ~~six~~nine months of 2019 decreased to ~~60.7%~~60.8%, compared with ~~62.0%~~61.8%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, including research and development and bid and proposal expense, increased by$~~27.5~~39.7 million in the first ~~six~~nine months of 2019 and primarily reflected the impact of higher sales. The first ~~six~~nine months of 2019 reflected the impact of ~~$2.2~~$2.3 million in acquisition transaction expense related to ~~the acquisition of the scientific imaging businesses of Roper Technologies, Inc., as well as the pending acquisition of the gas and flame detection business of 3M Company.~~recent acquisitions. Selling, general and administrative expenses for the first ~~six~~nine months of 2019, as a percentage of net sales, ~~increased~~decreased slightly to ~~24.3%~~23.9% compared with 24.0%. In the first ~~six~~nine months of 2019 and 2018, we recorded a total of ~~$14.7~~$20.4 million and ~~$10.3~~$14.9 million, respectively, in stock option compensation expense. The higher amount in 2019 reflect the expense related to certain stock options that were

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

Pension Service Expense

Pension service expense for the first ~~six~~nine months of 2019 was ~~$4.7~~$7.1 million compared with ~~$5.4~~$8.1 million.

Operating Income

Operating income for the first ~~six~~nine months of 2019 increased ~~14.7%~~17.2%. The first ~~six~~nine months of 2019, compared with the first ~~six~~nine months of 2018, reflected higher operating income in each segment except the Engineered Systems segment. The first nine months of 2019 included $1.1 million in severance and facility consolidation costs compared with $5.3 million in severance and facility consolidation costs for the first nine months of 2018. Corporate expense ~~$34.4~~of $49.0 million in the first ~~six~~nine months of 2019 compared with ~~$26.7~~$41.8 million and reflected higher stock option expense. Operating income in the first ~~six~~nine months of 2019 included pretax acquisition costs of ~~$2.2~~$2.3 million related to the ~~acquisition of the scientific imaging businesses of Roper Technologies, Inc as well as the pending acquisition of the gas and flame detection business of 3M Company.~~recent acquisitions. The incremental operating income included in the results for the first ~~six~~nine months of 2019 from ~~the acquisition of the scientific imaging businesses of Roper Technologies, Inc.~~recent acquisitions was ~~$5.0~~$10.5 million.

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

Interest expense, net of interest income, was ~~$10.8~~$16.3 million for the first ~~six~~nine months of 2019, compared with ~~$13.8~~$19.8 million and primarily reflected lower average debt levels in 2019. Other income and expense was expense of ~~$1.8~~$3.5 million for the first ~~six~~nine months of 2019, compared with expense of ~~$6.2~~$8.9 million. The higher amount in 2018 primarily reflected higher foreign currency expense.

Income Taxes

The Company’s effective income tax rate for the first ~~six~~nine months of 2019 was ~~18.5%~~16.7% compared with ~~18.3%~~15.4%. The first ~~six~~nine months of 2019 reflected ~~$7.4~~$17.8 million in net discrete income tax benefits, which included a ~~$7.7~~$11.2 million income tax benefit related to share-based accounting. The first ~~six~~nine months of 2019 also included $8.1 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitations and a result a favorable tax settlement. The first nine months of 2018 reflected ~~$5.5~~$16.9 million in net discrete income tax benefits, which included a ~~$7.7~~$12.7 million income tax benefit related to share-based accounting. The first nine months of 2018 also included $4.4 million in income tax benefit as a result of the remeasurement of uncertain tax positions due to expiration of statute of limitations. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 21.9% for the first ~~six~~nine months of 2019 and 21.3% for the first ~~six~~nine months of 2018.

Segment Results

Segment results includes net sales and operating income by segment but exclude non-service retirement benefit income, equity income or loss, unusual non-recurring legal matter settlements, interest income and expense, gains and losses on the disposition of assets, sublease rental income and non-revenue licensing and royalty income, domestic and foreign income taxes and corporate office expenses. Corporate expense includes various administrative expenses relating to the corporate office and certain nonoperating expenses, including certain acquisition related transaction costs, not allocated to our segments. See Note 13 to these condensed consolidated financial statements for additional segment information.

Instrumentation


	Third Quarter									Nine Months
(dollars in millions)	2019			2018			2019			2018
Net sales	$	282.9		$	256.2		$	803.5		$	757.8
Cost of sales	$	156.6		$	146.0		$	450.2		$	430.7
Selling, general and administrative expenses	$	74.3		$	74.5		$	212.4		$	222.7
Operating income	$	52.0		$	35.7		$	140.9		$	104.4
Cost of sales as a % of net sales	55.4		%	57.0		%	56.0		%	56.8		%
Selling, general and administrative expenses % of net sales	26.2		%	29.1		%	26.5		%	29.4		%
Operating income as a % of net sales	18.4		%	13.9		%	17.5		%	13.8		%

~~Instrumentation~~

Second Quarter Six Months
(dollars in millions) 2019 2018 2019 2018
Net sales $ 264.1
$ 262.6
$ 520.6
$ 501.6
Cost of sales $ 146.6
$ 145.4
$ 293.6
$ 284.7
Selling, general and administrative expenses $ 68.5
$ 76.3
$ 138.1
$ 148.2
Operating income $ 49.0
$ 40.9
$ 88.9
$ 68.7
Cost of sales as a % of net sales 55.5 % 55.3 % 56.4 % 56.8 %
Selling, general and administrative expenses % of sales 25.9 % 29.1 % 26.5 % 29.5 %
Operating income as a % of net sales 18.6 % 15.6 % 17.1 % 13.7 %

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

The Instrumentation segment’s ~~second~~third quarter of 2019 net sales increased ~~0.6%~~10.4%. Operating income for the ~~second~~third quarter of 2019 increased ~~19.8%~~45.7%.

The ~~second~~third quarter of 2019 net sales increase resulted from higher sales of environmental instrumentation and marine instrumentation and test and measurement ~~instrumentation,~~instrumentation. Sales of environmental instrumentation ~~partially offset by lower~~increased $17.1 million, sales of marine instrumentation ~~sales. Sales~~increased $8.2 and sales of test and measurement instrumentation increased ~~$7.1 million while sales~~$1.4 million. The

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increase in environmental instrumentation ~~increased $1.7~~included $17.3 million in sales from the acquisition of the gas and ~~sales~~flame detection business of ~~marine instrumentation decreased $7.3 million.~~3M. The increase in operating income the ~~second~~third quarter of 2019 reflected the impact of higher sales and higher margins across most product lines. The operating income included in the results for the third quarter of 2019 from the gas and flame detection business of 3M was $2.1 million. The third quarter of 2019 included $0.1 million in severance and facility consolidation costs compared with $3.2 million in severance and facility consolidation costs for the third quarter of 2018.

The ~~second~~third quarter of 2019 cost of sales increased ~~$1.2~~$10.6 million and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the ~~second~~third quarter of 2019 ~~increased slightly~~decreased to ~~55.5%~~55.4% from ~~55.3%~~57.0%. ~~Second~~Third quarter 2019 selling, general and administrative expenses, decreased ~~$7.8~~$0.2 million and reflected the impact of cost control ~~efforts.~~efforts as well as lower severance and facility consolidation costs. The selling, general and administrative expense percentage decreased to ~~25.9%~~26.2% in the ~~second~~third quarter of 2019 from 29.1% and reflected the impact of cost control ~~efforts.~~

efforts as well as lower severance and facility consolidation costs.

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

The Instrumentation segment’s first ~~six~~nine months 2019 net sales increased ~~3.8%~~6.0%. Operating income for the first ~~six~~nine months of 2019 increased ~~of 29.4%~~35.0%.

The first ~~six~~nine months of 2019 net sales increase resulted from higher sales of environmental instrumentation and test and measurement instrumentation and marine instrumentation. Sales of environmental instrumentation ~~partially offset by lower marine instrumentation sales. Sales~~increased $24.0 million, sales of test and measurement instrumentation increased ~~$18.4 million while sales of environmental instrumentation increased $6.9~~$19.8 million and sales of marine instrumentation ~~decreased $6.3~~increased $1.9 million. The increase in environmental instrumentation included $17.3 million in sales from the acquisition of the gas and flame detection business of 3M. The increase in operating income the first ~~six~~nine months of 2019 reflected the impact of higher sales and higher margins across most product lines. The operating income included in the results for the first nine months of 2019 from the gas and flame detection business of 3M was $2.1 million. The first nine months of 2019 included $0.2 million in severance and facility consolidation costs compared with $4.1 million in severance and facility consolidation costs for the first nine months of 2018.

The first ~~six~~nine months of 2019 cost of sales increased by ~~$8.9~~$19.5 million and primarily reflected the impact of higher sales. The cost of sales percentage decreased ~~slightly~~ to ~~56.4%~~56.0% from 56.8%. The first ~~six~~nine months of 2019 selling, general and administrative expenses, including research and development expense, decreased by ~~$10.1~~$10.3 million and reflected the impact of cost control ~~efforts.~~efforts as well as lower severance and facility consolidation costs.. The selling, general and administrative expense percentage decreased to 26.5% in the first ~~six~~nine months of 2019 from ~~29.5%~~29.4% and reflected the impact of cost control ~~efforts.~~efforts as well as lower severance and facility consolidation costs..

Digital Imaging


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

~~Digital Imaging~~

Second Quarter Six Months
(dollars in millions) 2019 2018 2019 2018
Net sales $ 251.3
$ 225.3
$ 486.6
$ 436.3
Cost of sales $ 138.3
$ 133.7
$ 280.1
$ 261.8
Selling, general and administrative expenses $ 60.5
$ 48.3
$ 117.0
$ 96.6
Operating income $ 52.5
$ 43.3
$ 89.5
$ 77.9
Cost of sales as a % of net sales 55.0 % 59.4 % 57.6 % 60.0 %
Selling, general and administrative expenses % of sales 24.1 % 21.4 % 24.0 % 22.1 %
Operating income as a % of net sales 20.9 % 19.2 % 18.4 % 17.9 %

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

The Digital Imaging segment’s ~~second~~third quarter of 2019 net sales increased ~~11.5%~~10.6%. Operating income for the ~~second~~third quarter of 2019 ~~increased 21.2%~~decreased 2.6%.

The ~~second~~third quarter of 2019 net sales primarily reflected higher sales of X-ray detectors for life sciences applications and aerospace, defense and MEMS products as well as ~~$23.3~~$23.5 million in sales from ~~the acquisition of~~recent acquisitions, primarily the scientific imaging businesses of Roper Technologies, Inc., partially offset by lower sales of industrial machine vision products. The ~~increase~~decrease in operating income in the ~~second~~third quarter of 2019 primarily reflected the impact of ~~higher sales and favorable~~ product mix ~~partially offset by higher research and development expense.~~differences. The ~~incremental~~ operating profit included in the results for the ~~second~~third quarter of 2019 from ~~the scientific imaging businesses of Roper Technologies, Inc. acquisition~~recent acquisitions was ~~$4.0~~$3.4 million.

The ~~second~~third quarter of 2019 cost of sales increased ~~$4.6~~$12.5 million and primarily reflected the impact of higher sales. Cost of sales as a percentage of net sales for the ~~second~~third quarter of 2019 decreased slightly to ~~55.0%~~59.3% from ~~59.4% primarily due to product mix. Second~~59.9%. Third quarter 2019 selling,

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general and administrative expenses, including research and development and bid and proposal expense increased ~~$12.2~~$11.9 million driven by the impact of higher net sales. The selling, general and administrative expense percentage increased to ~~24.1%~~23.8% in the ~~second~~third quarter of 2019 from ~~21.4%~~20.9% and ~~reflected higher research and development expense and also~~ reflected the impact of the acquisition of the scientific imaging businesses of Roper Technologies, Inc. which carries a higher selling, general and administrative expense percentage compared with the other digital imaging businesses.

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

The Digital Imaging segment’s first ~~six~~nine months of 2019 net sales increased ~~11.5%~~11.2%. Operating income for the first ~~six~~nine months of 2019 increased ~~14.9%~~8.6%.

The first ~~six~~nine months of 2019 net sales primarily reflected higher sales of X-ray detectors for life sciences applications and aerospace, defense and MEMS products, as well as ~~$37.4~~$60.9 million in sales from ~~the acquisition~~recent acquisitions, partially offset by lower sales of ~~the scientific imaging businesses of Roper Technologies, Inc.~~industrial machine vision products. The increase in operating income in the first ~~six~~nine months of 2019 reflected the impact of higher sales and product mix, partially offset by higher research and development expense and acquisition-related costs. Operating income in the first ~~six~~nine months of 2019 included ~~$0.7~~$0.9 million in acquisition-related costs related to ~~the scientific imaging businesses of Roper Technologies, Inc.~~recent acquisitions. The ~~incremental~~ operating profit included in the results for the first ~~six~~nine months of 2019 from ~~the scientific imaging businesses of Roper Technologies, Inc. acquisition~~recent acquisitions was ~~$5.0~~$8.4 million.

The first ~~six~~nine months of 2019 cost of sales increased ~~$18.3~~$30.5 million and reflected the impact of higher sales. The cost of sales percentage in 2019 decreased to ~~57.6%~~58.1% compared with ~~60.0%~~59.9% primarily due to product mix. Selling, general and administrative expenses, including research and development and bid and proposal expense, increased to ~~$117.0~~$174.1 million in the first ~~six~~nine months of 2019, from ~~$96.6~~$142.0 million and reflected the impact of higher net sales. The selling, general and administrative expense percentage increased to 24.0% in the first ~~six~~nine months of 2019 from ~~22.1%~~21.8% and reflected higher research and development expense and acquisition-related costs and also reflected the impact of the acquisition of the scientific imaging businesses of Roper Technologies, Inc. which carries a higher selling, general and administrative expense percentage compared with the other digital imaging businesses.

Aerospace and Defense Electronics


	Second Quarter						Six Months							Third Quarter									Nine Months
(dollars in millions)	2019			2018			2019			2018			(dollars in millions)	2019			2018 (a)			2019			2018 (a)
Net sales	$	191.0		$	173.5		$	371.4		$	347.1		Net sales	$	177.1		$	160.3		$	519.7		$	474.2
Cost of sales	$	117.1		$	110.0		$	230.0		$	222.1		Cost of sales	$	105.2		$	96.0		$	308.6		$	287.8
Selling, general and administrative expenses	$	34.5		$	29.8		$	68.2		$	59.6		Selling, general and administrative expenses	$	32.4		$	31.3		$	100.5		$	90.0
Operating income	$	39.4		$	33.7		$	73.2		$	65.4		Operating income	$	39.5		$	33.0		$	110.6		$	96.4
Cost of sales as a % of net sales	61.3		%	63.4		%	61.9		%	64.0		%	Cost of sales as a % of net sales	59.4		%	59.9		%	59.4		%	60.7		%
Selling, general and administrative expenses % of sales	18.1		%	17.2		%	18.4		%	17.2		%
Selling, general and administrative expenses % of net sales													Selling, general and administrative expenses % of net sales	18.3		%	19.5		%	19.3		%	19.0		%
Operating income as a % of net sales	20.6		%	19.4		%	19.7		%	18.8		%	Operating income as a % of net sales	22.3		%	20.6		%	21.3		%	20.3		%

~~Second~~(a) The 2018 periods have been adjusted to reflect the realignment of the reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and Defense Electronics segment to the Engineered Systems segment. Other changes included moving certain United Kingdom manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and Defense Electronics segment.

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

The Aerospace and Defense Electronics segment’s ~~second~~third quarter of 2019 net sales increased ~~10.1%~~10.5%. Operating income for the ~~second~~third quarter of 2019 increased ~~16.9%~~19.7%.

The ~~second~~third quarter of 2019 net sales reflected ~~$17.8~~$20.8 million of higher sales of defense electronics, ~~and $0.3 million of~~partially offset by lower sales of $4.0 million for aerospace electronics. ~~The higher sales of defense electronics reflected greater sales in most product categories.~~ The increase in operating income the ~~second~~third quarter of 2019 reflected the impact of higher sales and improved margins.

The ~~second~~third quarter of 2019 cost of sales increased ~~$7.1~~$9.2 million and reflected the impact of higher net sales, partially offset by product mix differences. Cost of sales as a percentage of net sales for the ~~second~~third quarter of 2019 decreased slightly to ~~61.3%~~59.4% from ~~63.4% and reflected product mix differences.~~59.9%. Selling, general and administrative expenses, including research and development and bid and proposal expense increased to ~~$34.5~~$32.4 million in the ~~second~~third quarter of 2019 from ~~$29.8~~$31.3 million and reflected the impact of higher sales. The selling, general and administrative expense percentage ~~increased~~decreased to ~~18.1%~~18.3% in the ~~second~~third quarter of 2019 from ~~17.2%~~19.5%.

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

The Aerospace and Defense Electronics segment’s first ~~six~~nine months of 2019 net sales increased ~~7.0%~~9.6%. Operating income for the first ~~six~~nine months of 2019 increased ~~11.9%~~14.7%.

The first ~~six~~nine months of 2019 net sales reflected ~~$23.5~~$48.7 million of higher sales of defense electronics and ~~$0.8~~$3.2 million of ~~higher~~lower sales of aerospace electronics. The higher sales of defense electronics reflected greater sales in most product categories. The increase in operating income in the first ~~six~~nine months of 2019 primarily reflected the impact of higher sales and improved margins.

The first ~~six~~nine months of 2019 cost of sales increased by ~~$7.9~~$20.8 million and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the first ~~six~~nine months of 2019 decreased to ~~61.9%~~59.4% from ~~64.0%~~60.7% in the first ~~six~~nine months of 2018 due to product mix differences. Selling, general and administrative expenses, including research and development and bid and proposal expense, increased to ~~$68.2~~$100.5 million in the first ~~six~~nine months of 2019, compared with ~~$59.6~~$90.0 million for the first ~~six~~nine months of 2018 and reflected the impact of higher ~~sales and higher research and development and bid and proposal expense.~~sales. The selling, general and administrative expense percentage increased slightly to ~~18.4%~~19.3% in the first ~~six~~nine months of 2019, compared with ~~17.2%~~19.0%.


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

(a) The 2018 periods have been adjusted to reflect the realignment of the reporting structure for certain business units, primarily related to certain refinements of our management reporting structure. This change primarily related to moving certain electronic manufacturing services products from the Aerospace and ~~reflected~~Defense Electronics segment to the ~~impact of higher research~~Engineered Systems segment. Other changes included moving certain United Kingdom manufactured composite parts (previously within the Engineered Systems segment) into the Aerospace and ~~development and bid and proposal expense.~~Defense Electronics segment.

~~Engineered Systems~~

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

The Engineered Systems segment’s ~~second~~third quarter of 2019 net sales increased ~~6.3%~~11.5%. Operating income ~~decreased 1.4%~~increased 10.4%.

The ~~second~~third quarter of 2019 net sales reflected higher sales of ~~$5.2~~$9.3 million of engineered products and services and higher sales of $1.6 million for turbine engines, partially offset by lower sales of ~~$0.7~~$0.8 million of ~~turbine engines.~~energy systems. The higher sales of engineered products and services, primarily reflected increased sales for ~~nuclear~~marine manufacturing, missile defense and space ~~programs.~~programs, as well as electronic manufacturing services products. Operating income in the ~~second~~third quarter of 2019 ~~decreased~~increased primarily due to ~~product mix.~~higher sales.

The ~~second~~third quarter of 2019 cost of sales increased ~~$3.7~~$9.2 million and reflected the impact of higher sales. Cost of sales as a percentage of net sales for the ~~second~~third quarter of 2019 increased ~~slightly~~ to ~~81.5%~~82.7% from ~~81.4%~~81.7%. Selling, general and administrative expenses, including research and development and bid and proposal expense, was ~~$6.7~~$6.4 million for the ~~second~~third quarter of 2019, compared with ~~$5.8~~$6.5 million. The selling, general and administrative expense percentage was ~~8.8%~~6.5% for the ~~second~~third quarter of 2019, compared with ~~8.2%~~7.4%.

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

The Engineered Systems segment’s first ~~six~~nine months of 2019 net sales increased ~~3.8%~~4.5%. Operating income for the first ~~six~~nine months of 2019 decreased ~~17.8%~~4.4%.

The first ~~six~~nine months of 2019 net sales reflected higher sales of ~~$11.7~~$17.4 million of engineered products and services, partially offset by lower sales of ~~$5.5~~$3.9 million of turbine engines, and lower sales of ~~$0.7~~$1.5 million of energy systems products. The higher sales of engineered products and services, primarily reflected increased sales for nuclear manufacturing and space programs, as well as increased sales related to missile ~~defense.~~defense programs. Operating income in the first ~~six~~nine months of 2019 decreased primarily due to lower sales of turbine engines.



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


					PAGE
Part I			Financial Information		2

				~~PAGE~~
~~Part I~~	~~Financial Information~~			2

	Item 1. Financial Statements	2

			Condensed Consolidated Statements of Income		2

			Condensed Consolidated Statements of Comprehensive Income		2

			Condensed Consolidated Balance Sheets		3

			Condensed Consolidated Statements of Stockholders' Equity		4

			Condensed Consolidated Statements of Cash Flows		5

			Notes to Condensed Consolidated Financial Statements		6

			Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		21

			Item 3. Quantitative and Qualitative Disclosures About Market Risk		3031

			Item 4. Controls and Procedures		3032

Part II			Other Information		3132

			Item 1. Legal Proceedings		3132

			Item 1A. Risk Factors		3132





			Item 6. Exhibits		3132

Signatures					3233


	June 30, 2019			December 30, 2018				September 29, 2019		December 30, 2018
Assets							Assets
Current Assets							Current Assets
Cash	$	108.1		$	142.5		Cash	$	128.5	$	142.5

Accounts receivable, net	432.3			416.5			Accounts receivable, net	448.4		416.5
Unbilled receivables, net	176.5			145.3			Unbilled receivables, net	195.3		145.3
Inventories, net	390.4			364.3			Inventories, net	404.4		364.3

Prepaid expenses and other current assets	53.7			45.8			Prepaid expenses and other current assets	61.5		45.8

Total current assets	1,161.0			1,114.4			Total current assets	1,238.1		1,114.4
Property, plant and equipment, net of accumulated depreciation and amortization of $595.4 at June 30, 2019 and $566.0 at December 30, 2018	450.9			442.6
Property, plant and equipment, net of accumulated depreciation and amortization of $608.9 at September 29, 2019 and $566.0 at December 30, 2018							Property, plant and equipment, net of accumulated depreciation and amortization of $608.9 at September 29, 2019 and $566.0 at December 30, 2018	468.2		442.6
Goodwill	1,888.0			1,735.2			Goodwill	2,007.8		1,735.2
Acquired intangibles, net	379.9			344.3			Acquired intangibles, net	439.9		344.3
Prepaid pension assets	101.4			88.2			Prepaid pension assets	108.0		88.2
Operating lease right-of-use assets	129.6			—			Operating lease right-of-use assets	130.2		—
Other assets, net	89.4			84.6			Other assets, net	87.4		84.6
Total Assets	$	4,200.2		$	3,809.3		Total Assets	$	4,479.6	$	3,809.3
Liabilities and Stockholders’ Equity							Liabilities and Stockholders’ Equity
Current Liabilities							Current Liabilities
Accounts payable	$	221.7		$	227.8		Accounts payable	$	244.9	$	227.8
Accrued liabilities	353.8			355.6			Accrued liabilities	384.5		355.6
Current portion of long-term debt and other debt	135.5			137.4			Current portion of long-term debt and other debt	206.1		137.4

Total current liabilities	711.0			720.8			Total current liabilities	835.5		720.8
Long-term debt	656.2			610.1			Long-term debt	719.3		610.1
Long-term operating lease liabilities	121.9			—			Long-term operating lease liabilities	122.6		—

Other long-term liabilities	238.1			248.7			Other long-term liabilities	231.2		248.7
Total Liabilities	1,727.2			1,579.6			Total Liabilities	1,908.6		1,579.6
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 June 30, 2019 and December 30, 2018; outstanding shares: 36,376,376 at June 30, 2019 and 36,087,297 at December 30, 2018	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 September 29, 2019 and December 30, 2018; outstanding shares: 36,468,438 at September 29, 2019 and 36,087,297 at December 30, 2018							Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 37,697,865 at September 29, 2019 and December 30, 2018; outstanding shares: 36,468,438 at September 29, 2019 and 36,087,297 at December 30, 2018	0.4		0.4
Additional paid-in capital	352.4			343.7			Additional paid-in capital	356.7		343.7
Retained earnings	2,703.6			2,523.7			Retained earnings	2,810.3		2,523.7
Treasury stock, 1,321,489 shares at June 30, 2019 and 1,610,568 shares at December 30, 2018	(115.2		)	(144.9		)
Treasury stock, 1,229,427 shares at September 29, 2019 and 1,610,568 shares at December 30, 2018							Treasury stock, 1,229,427 shares at September 29, 2019 and 1,610,568 shares at December 30, 2018	(104.6)		(144.9)
Accumulated other comprehensive loss	(468.2		)	(493.2		)	Accumulated other comprehensive loss	(491.8)		(493.2)

Total Stockholders’ Equity	2,473.0			2,229.7			Total Stockholders’ Equity	2,571.0		2,229.7
Total Liabilities and Stockholders’ Equity	$	4,200.2		$	3,809.3		Total Liabilities and Stockholders’ Equity	$	4,479.6	$	3,809.3


	Six Months							Nine Months
	2019			2018				2019		2018
Operating Activities							Operating Activities
Net income	$	179.9		$	152.4		Net income	$	286.6	$	242.7

Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	54.7			56.4			Depreciation and amortization	82.6		83.7

Stock-based compensation	17.7			13.1			Stock-based compensation	24.1		18.8

Changes in operating assets and liabilities excluding the effect of business acquired:							Changes in operating assets and liabilities excluding the effect of business acquired:
Accounts receivable	(36.6		)	(38.5		)	Accounts receivable	(49.1)		(52.4)
Inventories	(10.1		)	(12.2		)	Inventories	(2.7)		(10.1)
Prepaid expenses and other assets	(4.3		)	(1.3		)	Prepaid expenses and other assets	(6.8)		3.7
Accounts payable	(7.8		)	25.9			Accounts payable	7.3		18.3
Accrued liabilities	(22.8		)	(15.7		)	Accrued liabilities	(0.8)		26.1
Deferred and income taxes receivable/payable, net	(4.5		)	(1.0		)	Deferred and income taxes receivable/payable, net	(18.7)		(6.1)
Long-term assets	(11.7		)	(8.3		)	Long-term assets	(11.2)		(0.4)
Other long-term liabilities	8.1			(1.6		)	Other long-term liabilities	8.8		2.6

Other operating, net	0.7			10.3			Other operating, net	(5.9)		(5.5)

Net cash provided by operating activities	163.3			179.5			Net cash provided by operating activities	314.2		321.4
Investing Activities							Investing Activities
Purchases of property, plant and equipment	(39.4		)	(47.2		)	Purchases of property, plant and equipment	(64.5)		(68.1)
Purchase of businesses, net of cash acquired	(222.5		)	—			Purchase of businesses, net of cash acquired	(483.7)		—
Other investing, net	0.3			0.7			Other investing, net	0.4		1.2

Net cash used in investing activities	(261.6		)	(46.5		)	Net cash used in investing activities	(547.8)		(66.9)
Financing Activities							Financing Activities
Net proceeds from (payments on) credit facility	47.5			(115.0		)	Net proceeds from (payments on) credit facility	196.0		(165.0)

Net proceeds from (payments on) other debt	(2.2		)	2.3			Net proceeds from (payments on) other debt	(7.1)		(59.6)

Proceeds from exercise of stock options	20.7			23.8			Proceeds from exercise of stock options	29.2		36.1

Other financing, net	(1.4		)	(2.0		)	Other financing, net	(1.4)		(2.0)
Net cash provided by (used in) financing activities	64.6			(90.9		)	Net cash provided by (used in) financing activities	216.7		(190.5)
Effect of exchange rate changes on cash	(0.7		)	(11.6		)	Effect of exchange rate changes on cash	2.9		(8.8)
Change in cash	(34.4		)	30.5			Change in cash	(14.0)		55.2
Cash—beginning of period	142.5			70.9			Cash—beginning of period	142.5		70.9
Cash—end of period	$	108.1		$	101.4		Cash—end of period	$	128.5	$	126.1


Asset/(Liability) Derivatives	Balance sheet location	June 30, 2019			December 30, 2018			Asset/(Liability) Derivatives	Balance sheet location	September 29, 2019		December 30, 2018
Derivatives designated as hedging instruments:								Derivatives designated as hedging instruments:
Cash flow forward contracts	Other assets	$	0.8		$	—		Cash flow forward contracts	Other assets	$	0.3	$	—

Cross currency swap								Cross currency swap	Other current assets	0.1		—
Cross currency swap								Cross currency swap	Other assets	2.7		—
Interest rate contracts								Interest rate contracts	Other current assets	0.3		—
Cash flow cross currency swap	Accrued liabilities	(5.8		)	(6.3		)	Cash flow cross currency swap	Accrued liabilities	(1.7)		(6.3)
Cash flow forward contracts	Accrued liabilities	(0.9		)	(4.2		)	Cash flow forward contracts	Accrued liabilities	(1.4)		(4.2)
Cross currency swap								Cross currency swap	Other current liabilities	(1.1)		—
Interest rate contracts								Interest rate contracts	Other non-current liabilities	(0.2)		—

Total derivatives designated as hedging instruments		(5.9		)	(10.5		)	Total derivatives designated as hedging instruments		(1.0)		(10.5)
Derivatives not designated as hedging instruments:								Derivatives not designated as hedging instruments:
Non-designated forward contracts	Other current assets	0.1			—			Non-designated forward contracts	Other current assets	0.1		—
Non-designated forward contracts	Accrued liabilities	(0.4		)	(0.6		)	Non-designated forward contracts	Accrued liabilities	(0.5)		(0.6)
Total derivatives not designated as hedging instruments		(0.3		)	(0.6		)	Total derivatives not designated as hedging instruments		(0.4)		(0.6)
Total liability derivatives, net		$	(6.2	)	$	(11.1	)	Total liability derivatives, net		$	(1.4)	$	(11.1)


Large accelerated filer		☒			Accelerated filer		☐

~~Large accelerated filer~~		☒	~~Accelerated filer~~	☐

Non-accelerated filer	☐		Smaller reporting company			☐

Emerging growth company		☐


	Amount Reclassified from AOCI for the Three Months Ended			Amount Reclassified from AOCI for the Three Months Ended			Statement of Income		Amount Reclassified from AOCI for the Three Months Ended		Amount Reclassified from AOCI for the Three Months Ended		Statement of Income
	June 30, 2019			July 1, 2018			Presentation		September 29, 2019		September 30, 2018		Presentation
(Gain) loss on cash flow hedges:								(Gain) loss on cash flow hedges:
(Gain) loss recognized in income on derivatives	$	1.1		$	(7.4	)	See Note 4	(Gain) loss recognized in income on derivatives	$	(6.8)	$	—	See Note 4
Income tax impact	(0.3		)	1.9			Provision for income taxes	Income tax impact	1.8		—		Provision for income taxes
Total	$	0.8		$	(5.5	)		Total	$	(5.0)	$	—

Amortization of defined benefit pension and postretirement plan items:								Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost	$	(1.5	)	$	(1.5	)	Costs and expenses	Amortization of prior service cost	$	(1.5)	$	(1.5)	Costs and expenses
Amortization of net actuarial loss	7.9			8.1			Costs and expenses	Amortization of net actuarial loss	8.0		7.8		Costs and expenses
Total before tax	6.4			6.6				Total before tax	6.5		6.3
Income tax impact	(1.5		)	(1.5		)	Provision for income taxes	Income tax impact	(1.6)		(1.5)		Provision for income taxes
Total	$	4.9		$	5.1			Total	$	4.9	$	4.8


	Shares		Weighted average fair value per share			Shares	Weighted average fair value per share
Balance, December 30, 2018	74,220		$	108.05	Balance, December 30, 2018	74,220	$	108.05
Granted	17,522		$	200.00	Granted	17,522	$	200.00
Vested	(35,330	)	$	72.91	Vested	(35,330)	$	72.91
Balance, June 30, 2019	56,412		$	158.62

Balance, September 29, 2019					Balance, September 29, 2019	56,412	$	158.62


	Balance at							Balance at
Inventories (in millions):	June 30, 2019			December 30, 2018			Inventories (in millions):	September 29, 2019		December 30, 2018
Raw materials and supplies	$	221.5		$	205.6		Raw materials and supplies	$	235.1	$	205.6
Work in process	124.6			117.5			Work in process	120.9		117.5
Finished goods	53.3			50.5			Finished goods	56.7		50.5
	399.4			373.6				412.7		373.6

Reduction to LIFO cost basis	(9.0		)	(9.3		)	Reduction to LIFO cost basis	(8.3)		(9.3)
Total inventories, net	$	390.4		$	364.3		Total inventories, net	$	404.4	$	364.3


	Six Months							Nine Months
Warranty Reserve (in millions):	2019			2018			Warranty Reserve (in millions):	2019		2018
Balance at beginning of year	$	21.0		$	21.1		Balance at beginning of year	$	21.0	$	21.1
Accruals for product warranties charged to expense	5.1			4.4			Accruals for product warranties charged to expense	7.2		7.6
Cost of product warranty claims	(4.6		)	(3.9		)	Cost of product warranty claims	(7.6)		(6.8)
Acquisition	0.3			—			Acquisition	3.0		—
Balance at end of period	$	21.8		$	21.6		Balance at end of period	$	23.6	$	21.9



	Balance at
Long-Term Debt (in millions):	June 30, 2019			December 30, 2018
$750.0 million credit facility due March 2024, weighted average rate of 4.15% at June 30, 2019 and 5.50% at December 30, 2018	$	76.5		$	29.0
Term loan due October 2019, variable rate of 3.53% at June 30, 2019 and 3.63% at December 30, 2018, swapped to a Euro fixed rate of 0.7055%	100.0			100.0
2.61% Fixed Rate Senior Notes due December 2019	30.0			30.0
5.30% Fixed Rate Senior Notes due September 2020	75.0			75.0
2.81% Fixed Rate Senior Notes due November 2020	25.0			25.0
3.09% Fixed Rate Senior Notes due December 2021	95.0			95.0
3.28% Fixed Rate Senior Notes due November 2022	100.0			100.0
0.70% €50 Million Fixed Rate Senior Notes due April 2022	56.9			57.2
0.92% €100 Million Fixed Rate Senior Notes due April 2023	113.7			114.4
1.09% €100 Million Fixed Rate Senior Notes due April 2024	113.7			114.4
Other debt	6.9			8.8
Total debt	792.7			748.8
Less: current portion of long-term debt and debt issuance costs	(136.5		)	(138.7		)
Total long-term debt	$	656.2		$	610.1


	Second Quarter Ended June 30, 2019						Six Months Ended June 30, 2019							Third Quarter Ended September 29, 2019										Nine Months Ended September 29, 2019
	Customer Type						Customer Type							Customer Type								Customer Type
(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total		(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total
Net Sales:													Net Sales:
Instrumentation	$	18.6	$	245.5	$	264.1	$	32.8	$	487.8	$	520.6	Instrumentation	$	20.1	$	262.8	$	282.9	$	52.9	$	750.6	$	803.5
Digital Imaging	26.2		225.1		251.3		52.4		434.2		486.6		Digital Imaging	29.1		214.9		244.0		81.5		643.3		724.8
Aerospace and Defense Electronics	78.5		112.5		191.0		146.5		224.9		371.4		Aerospace and Defense Electronics	58.6		118.5		177.1		166.6		353.1		519.7
Engineered Systems	63.7		11.9		75.6		125.2		23.4		148.6		Engineered Systems	90.5		7.7		98.2		254.3		27.1		281.4
	$	187.0	$	595.0	$	782.0	$	356.9	$	1,170.3	$	1,527.2		$	198.3	$	603.9	$	802.2	$	555.3	$	1,774.1	$	2,329.4


	Second Quarter Ended July 1, 2018						Six Months Ended July 1, 2018							Third Quarter Ended September 30, 2018										Nine Months Ended September 30, 2018
	Customer Type						Customer Type							Customer Type								Customer Type
(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total		(in millions)	United States Government (a)		Other, Primarily Commercial		Total		United States Government (a)		Other, Primarily Commercial		Total
Net Sales:													Net Sales:
Instrumentation	$	15.8	$	246.8	$	262.6	$	28.6	$	473.0	$	501.6	Instrumentation	$	15.4	$	240.8	$	256.2	$	44.0	$	713.8	$	757.8
Digital Imaging	22.5		202.8		225.3		44.9		391.4		436.3		Digital Imaging	23.9		196.8		220.7		68.9		583.1		652.0
Aerospace and Defense Electronics	66.5		107.0		173.5		131.8		215.3		347.1		Aerospace and Defense Electronics	41.8		118.5		160.3		131.6		342.6		474.2
Engineered Systems	57.2		13.9		71.1		116.2		26.9		143.1		Engineered Systems	78.0		10.1		88.1		236.1		33.3		269.4
	$	162.0	$	570.5	$	732.5	$	321.5	$	1,106.6	$	1,428.1		$	159.1	$	566.2	$	725.3	$	480.6	$	1,672.8	$	2,153.4


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)	Exhibits

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















	Exhibit 31.1	302 Certification – Aldo Pichelli

	Exhibit 31.2	302 Certification – Susan L. Main

	Exhibit 32.1	906 Certification – Aldo Pichelli

	Exhibit 32.2	906 Certification – Susan L. Main

	Exhibit 101 (INS)	XBRL Instance Document

	Exhibit 101 (SCH)	XBRL Schema Document

	Exhibit 101 (CAL)	XBRL Calculation Linkbase Document

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

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

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

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


Exhibit Number			Description


~~Exhibit Number~~			~~Description~~












Exhibit 31.1			302 Certification – Aldo Pichelli

Exhibit 31.2			302 Certification – Susan L. Main

Exhibit 32.1			906 Certification – Aldo Pichelli

Exhibit 32.2			906 Certification – Susan L. Main

Exhibit 101 (INS)			XBRL Instance Document

Exhibit 101 (SCH)			XBRL Schema Document

Exhibit 101 (CAL)			XBRL Calculation Linkbase Document

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

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

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

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