$5.75
$5.44
$5.37(b)
$4.87
$4.33
$3.81
Teledyne Technologies Annual Report 2016
GAAP EPS
$ per share
(a)
$6.00
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
$3.25
$3.17
$3.05
$2.72
$2.26
$1.85
$1.24
$0.91
$0.77
$0.21
1
0
0
2
2
0
0
2
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
(a) Represents total earnings per diluted share for 2002 through 2008 and 2013
through 2016, and earnings per diluted share from continuing operations for
2001 and 2009 through 2012
(b) Includes pretax charges of $7.9 million ($0.16 per share) related to the pending
acquisition of e2v technologies plc
e
l
t
i
T
t
r
a
h
C
4
3
2
1
41%
12%
18%
2016 SALES
BY SEGMENT
29%
Instrumentation
Test and measurement, monitoring and
control instrumentation, and power and
communications connectivity devices for
marine, environmental, electronics and
other applications
Digital Imaging
High performance sensors, cameras and
systems within the visible, infrared and
X-ray spectra, used in industrial,
government and medical applications
Aerospace and Defense Electronics
Sophisticated electronic components,
subsystems and communications
products, including defense electronics,
commercial avionics, and harsh
environment interconnects
Engineered Systems
Innovative systems engineering,
manufacturing and specialized products
for government, space, energy, and
industrial customers
Cumulative Total Stockholder Return
The graph set forth to the right shows
the cumulative total stockholder return
(i.e. price change plus reinvestment of
dividends) on our common stock for the
five fiscal years ending January 1, 2017,
as compared to the Standard & Poor’s
500 Composite Index, the Russell 2000
Index and the Standard & Poor’s 1500
Industrials Index.
The graph assumes $100 was invested
on December 30, 2011.
In accordance with the rules of the SEC,
this presentation is not incorporated by
reference into any of our registration
statements under the Securities Act
of 1933.
225
200
175
150
125
100
75
01/01/12
12/30/12
12/29/13
12/28/14
01/03/16
01/01/17
01/01/12
12/30/12
12/29/13
12/28/14
01/03/16
01/01/17
Teledyne Technologies
Russell 2000
S&P 1500 Industrials
S&P 500 Composite
100
100
100
100
116
114
114
114
169
161
164
153
191
171
181
177
162
162
174
177
224
196
209
198
Teledyne Technologies Annual Report 2016
FINANCIAL
HIGHLIGHTS
Selected Consolidated Financial Data
(In millions, except per share data)
SUMMARY FINANCIAL INFORMATION
Sales
$2,149.9
$2,298.1
$2,394.0
$2,338.6
$2,127.3
2016
2015
2014
2013
2012
Net income from
continuing operations
Net income (loss) from
discontinued
operations
Net income attributable
to Teledyne
Diluted earnings per
common share
Continuing operations
Discontinued
operations
Diluted earnings per
common share
Weighted average
common shares
outstanding
190.9
195.8
217.7
185.0
—
—
—
—
161.8
2.3
190.9
195.8
217.7
185.0
164.1
5.37
—
5.37
5.44
—
5.44
5.75
—
5.75
4.87
—
4.87
35.5
36.0
37.9
38.0
4.33
0.06
4.39
37.4
SUMMARY BALANCE SHEET DATA
Cash and cash
equivalents
Total assets
Long-term debt and
capital lease
obligations
2016
$98.6
2,774.4
515.8
2015
$85.1
2,717.1
761.5
2014
$141.4
2,862.2
618.9
2013
$66.0
2,751.1
549.0
2012
$45.8
2,406.4
556.2
Total equity
1,554.4
1,344.1
1,468.5
1,518.7
1,203.4
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Notes to Consolidated Financial
Statements” in the 2016 Form 10-K for additional information regarding Teledyne Technologies Incorporated’s financial data.
Teledyne Technologies Annual Report 2016
LETTER TO
STOCKHOLDERS
Compared to any time in our history, I am the most excited about our current business portfolio
and the overall outlook for our end markets. Seventeen years ago, Teledyne was largely comprised
of low-margin service businesses, whose technology was often owned by our customers. Today,
we are a leading manufacturer of proprietary high technology products for demanding markets
and critical applications.
Teledyne instruments are used to continuously monitor air quality across the globe. We provide
a broad spectrum of imaging sensors and cameras for applications ranging from commercial
machine vision to space-based sensors in search of the origin of the universe. Certain products
are so well-engineered that they can last for years on the ocean floor or autonomously travel
for months at sea. Others systems have operated for decades in deep space, up to seven billion
miles from earth.
Over the last several years we have endured cuts to defense spending followed by a severe
decline in offshore energy markets. While I am exceptionally pleased with our execution and our
responses to such challenges, I am also excited by the feeling that the majority of such turmoil
is behind us. For the first time in years, there is no obvious storm on the horizon for Teledyne or
our largest end markets.
Despite the recent headwinds, we achieved record operating margin in the third quarter of 2016,
we generated record full-year cash flow, and we were largely able to maintain GAAP earnings,
even including acquisition-related charges. Furthermore, our year-end backlog was over $110
million greater than last year.
Looking forward, most of our commercial businesses are growing, marine instrumentation
comparisons will ease significantly in 2017, and our government businesses are recovering.
In addition, our largest acquisition to date is currently pending and should be completed shortly.
Finally, while we have reduced our manufacturing footprint and headcount when necessary
over the last few years, I firmly believe that the quality and depth of Teledyne management has
never been higher.
In 2016 our business portfolio continued
to evolve and improve. For example,
we enhanced our software capabilities
with the acquisition of CARIS, the
leading developer of geospatial software
designed for the hydrographic and marine
mapping community.
Teledyne LeCroy was already the market
leader in serial data protocol analyzers,
Above and below water survey of Sydney harbor using Teledyne
RESON sonar and Teledyne Optech LIDAR. The Port Authority of New
South Wales processes such data with Teledyne CARIS software.
Teledyne Technologies Annual Report 2016
which are used by engineers to troubleshoot data communication
systems and test interoperability. Through the acquisitions of
Quantum Data and Frontline Test Equipment, we added protocol
analyzers for High-Definition Multimedia Interface (or HDMI) and
Bluetooth, respectively, to our wide array of other analyzers for
standards such as Universal Serial Bus (or USB) and Peripheral
Component Interconnect Express (or PCI Express).
In November, we acquired additional ozone analyzers and other
gas monitoring sensors to expand Teledyne Advanced Pollution
Instrumentation. Teledyne API, our very first acquisition, has been
one of our strongest performing companies and is a leader in air
quality monitoring instrumentation.
Quantum Data and Frontline Test
Equipment add to Teledyne LeCroy’s
leadership in protocol analyzers,
which enable developers to test
communications standards including
USB, PCI Express, HDMI, and Bluetooth.
Finally, we increased our products for life sciences and
pharmaceutical applications with the acquisition of Hanson
Research, whose instruments help determine the release rate of
an active pharmaceutical ingredient in tablet or capsule form as it dissolves into solution.
It is worth noting that we have not sold any businesses which we
have acquired. However, we will exit those businesses which become
commoditized or which we no longer find attractive. In July 2016,
we sold Teledyne Printed Circuit Technology. While part of Teledyne
for over 50 years, the divestiture was consistent with our focus on
high-technology, higher-margin, proprietary engineered products.
In December, we were delighted to announce the acquisition of
e2v technologies. Even though e2v will be our largest acquisition,
every one of its businesses is complementary to Teledyne. Both
Teledyne and e2v are leaders in
space and astronomy imaging, but
Teledyne largely provides infrared
detectors and e2v provides
visible light sensors. While we
both provide microwave devices,
Hanson Research’s automated
dissolution testers are critical to
pharmaceutical development
and quality control.
e2v’s largest market is subsystems for cancer radiotherapy.
Historically, Teledyne has primarily served the defense
markets such as electronic warfare and radar. In machine
vision applications, e2v’s advanced capabilities in proprietary
complementary metal-oxide semiconductor (CMOS) sensor
design add to Teledyne’s strengths in cameras and vision
systems.
Acquisitions have indeed contributed to Teledyne’s growth,
but we do not view, or manage, Teledyne as simply a growth-
through-acquisition company.
All around the world, Teledyne DALSA’s
low-dose X-ray detectors are used in
surgery, mammography and dental
radiography; e2v is a major supplier of
magnetrons for cancer radiotherapy.
Teledyne Technologies Annual Report 2016
1,600
1,400
1,200
1,000
800
600
400
200
Teledyne Stock Relative Performance
Teledyne
Russell 2000
0
9
9
-
v
o
N
0
0
-
c
e
D
2
0
-
n
a
J
3
0
-
b
e
F
4
0
-
r
a
M
5
0
-
r
p
A
6
0
-
y
a
M
7
0
-
n
u
J
8
0
-
l
u
J
9
0
-
g
u
A
0
1
-
p
e
S
1
1
-
t
c
O
2
1
-
v
o
N
3
1
-
c
e
D
5
1
-
n
a
J
6
1
-
b
e
F
6
1
-
c
e
D
*
*As of 30 December 2016
$5.73
Despite substantial cost cutting in 2016, our emphasis on new product development increased.
Specifically, internally funded research and development was a record at approximately $170
million or eight percent of sales, and with relevant customer funded R&D the value was closer
to twelve percent. We also differentiate ourselves from most companies our size by having a
$5.51
centralized applied research laboratory that bolsters our product development capabilities.
Selected new products and honors included Teledyne LeCroy’s HDO9000 Oscilloscope, which
was named an Electronics Products’ 2016 Product of the Year. In both February 2016 and
January 2017, Teledyne Optech received the annual Grand Award for Technology from MAPPS, a
national association of firms in the surveying, spatial data and geographic information systems
markets. We continue to possess one of the broadest portfolios of unmanned marine vehicles,
and in December 2016, a Teledyne-built autonomous underwater vehicle made headlines when
the drone was seized in international waters.
$4.33
$5.43
4.50
4.00
3.50
In conclusion, we are a much leaner company today, and our current market outlook is the
most favorable in years. While there will always be some turbulence, I nevertheless believe we
are entering a more stable period of multi-year growth in revenue and earnings.
3.00
Best regards,
2.50
2.00
1.50
Robert Mehrabian
Chairman, President and Chief Executive Officer
March 2, 2017
1.00
0.50
0.00
2012
2013
2014
2015
2016
Teledyne Technologies Annual Report 2016
BOARD OF
DIRECTORS
Left to Right:
CHARLES CROCKER (2)(3)(4)
Chairman and CEO,
Crocker Capital
Retired Chairman and CEO,
BEI Technologies, Inc.
ROBERT A. MALONE (1)(3)
Executive Chairman, President and CEO
First Sonora Bancshares, Inc.
Retired Chairman of the Board and President,
BP America Inc.
JANE C. SHERBURNE (1)(3)
Principal of Sherburne PLLC
Former Senior Executive Vice President,
General Counsel and Corporate Secretary,
The Bank of New York Mellon Corporation
KENNETH C. DAHLBERG (1)(3)
Retired Chairman and CEO
Science Applications International
Corporation (SAIC)
MICHAEL T. SMITH (1)(2)
Retired Chairman and CEO,
Hughes Electronics Corporation
(1) Audit Committee
(2) Nominating and Governance Committee
(3) Personnel and Compensation Committee
(4) Lead Director
ROBERT MEHRABIAN
Chairman, President and
CEO, Teledyne Technologies Incorporated
PAUL D. MILLER (1)(2)
Retired Chairman and CEO,
Alliant Techsystems, Inc.
Commander-in-Chief, U.S. Atlantic Command
and NATO Supreme Allied Commander - Atlantic
(Retired)
ROXANNE S. AUSTIN (2)(3)
President, Austin Investment Advisors
Former President and Chief Operating
Officer of DIRECTV, Inc.
SIMON M. LORNE (1)(2)
Vice Chairman and Chief Legal Officer,
Millennium Management LLC
Former General Counsel, U.S. Securities
and Exchange Commission
WESLEY W. VON SCHACK (2)(3)
Chairman,
AEGIS Insurance Services
Former Chairman, President and CEO
Energy East Corporation
Teledyne Technologies Annual Report 2016
EXECUTIVE
MANAGEMENT
STOCKHOLDER
INFORMATION
CORPORATE OFFICES
Teledyne Technologies Incorporated
1049 Camino Dos Rios
Thousand Oaks, CA 91360
Telephone: (805) 373-4545
Fax: (805) 373-4775
www.teledyne.com
TRANSFER AGENT AND REGISTRAR
Computershare
P.O. BOX 30170
College Station, TX 77842
Customer Service: 1-888-540-9867
www.computershare.com
STOCKHOLDER PUBLICATIONS -
FORM 10-K
Information on how to access Annual
Reports (including Form 10-K) and proxy
statements is mailed to all stockholders
of record. Copies of our SEC periodic
reports, corporate governance guidelines,
code of ethics and committee charters
are also available on our website at
www.teledyne.com. For additional
information, contact Investor Relations.
STOCK EXCHANGE LISTING
The common stock of Teledyne
Technologies Incorporated is traded
on the New York Stock Exchange
(symbol TDY).
ANNUAL MEETING
The Annual Meeting of Stockholders will
be held on Wednesday, April 26, 2017, at
9:00 a.m. PDT, at Teledyne Technologies
Incorporated, 1049 Camino Dos Rios,
Thousand Oaks, CA 91360.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Los Angeles, California
CURRENT NEWS AND
GENERAL INFORMATION
Information about Teledyne is
available at www.teledyne.com.
CARL ADAMS
Vice President, Business Risk
Assurance
CYNTHIA Y. BELAK*
Vice President and Controller
STEPHEN F. BLACKWOOD
Vice President and Treasurer
GEORGE C. BOBB, III*
Vice President, Contracts, IT and Selected
Operations, and Deputy General Counsel
for Litigation
MELANIE S. CIBIK*
Senior Vice President, General Counsel,
Chief Compliance Officer and Secretary
JASON W. CONNELL
Vice President, Human Resources and
Associate General Counsel
JANICE L. HESS
President, Engineered Systems Segment
SUSAN L. MAIN*
Senior Vice President and
Chief Financial Officer
ROBERT MEHRABIAN*
Chairman, President and
Chief Executive Officer
ALDO (AL) PICHELLI*
Chief Operating Officer
MIKE R. READ
President, Marine Instrumentation
THOMAS H. RESLEWIC
Chief Executive Officer, Environmental &
Electronic Measurement Instrumentation
EDWIN ROKS
Vice President, Teledyne and President,
Teledyne DALSA, Inc.
JASON VANWEES*
Senior Vice President, Strategy and
Mergers & Acquisitions
* Section 16 Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 1, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-15295
TELEDYNE TECHNOLOGIES INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation of organization)
1049 Camino Dos Rios, Thousand Oaks, California
(Address of principal executive offices)
25-1843385
(I.R.S. Employer Identification Number)
91360-2362
(Zip Code)
Registrant’s telephone number, including area code: (805)-373-4545
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.01 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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 and posted on its corporate website, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the registrant’s Common Stock held by non-affiliates on June 30, 2016, was $3.2 billion, based on the closing price of a
share of Common Stock on such date, which is the last business day of the registrant’s most recently completed fiscal second quarter. Shares of Common Stock
known by the registrant to be beneficially owned by the registrant’s directors and the registrant’s executive officers subject to Section 16 of the Securities
Exchange Act of 1934 are not included in the computation. The registrant, however, has made no determination that such persons are “affiliates” within the
meaning of Rule 12b-2 under the Securities Exchange Act of 1934.
At February 28, 2017, there were 35,216,739 shares of the registrant’s Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the registrant’s proxy statement for its 2017 Annual Meeting of Stockholders (the “2017 Proxy Statement”) are incorporated by
reference in Part III of this Report. Information required by paragraphs (d)(1)-(3) and (e)(5) of Item 407 of Regulation S-K shall not be deemed “soliciting
material” or to be filed with the Commission as permitted by Item 407 of Regulation S-K.
INDEX
Page Number
PART I
PART II
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Item 15. Exhibits and Financial Statement Schedules
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION
SIGNATURES
EXHIBIT INDEX
Part III
PART IV
1
13
29
29
29
29
30
31
31
56
56
57
57
57
58
58
58
58
58
58
59
103
105
Explanatory Notes
In this Annual Report on Form 10-K, Teledyne Technologies Incorporated is sometimes referred to as the “Company” or
“Teledyne”.
For a discussion of risk factors and uncertainties associated with Teledyne and any forward looking statements made by us, see
the discussion beginning on page 13 of this Annual Report on Form 10-K.
i
Item 1. Business
Who We Are
PART I
Teledyne Technologies Incorporated provides enabling technologies for industrial growth markets. We have evolved
from a company that was primarily focused on aerospace and defense to one that serves multiple markets that require
advanced technology and high reliability. These markets include deepwater oil and gas exploration and production,
oceanographic research, air and water quality environmental monitoring, electronics design and development, factory
automation and medical imaging. Our products include monitoring and control instrumentation for marine and environmental
applications, harsh environment interconnects, electronic test and measurement equipment, digital imaging sensors and
cameras, aircraft information management systems, and defense electronics and satellite communication subsystems. We also
supply engineered systems for defense, space, environmental and energy applications. We differentiate ourselves from many
of our direct competitors by having a customer and company sponsored applied research center that augments our product
development expertise.
Our principal executive offices are located at 1049 Camino Dos Rios, Thousand Oaks, California 91360-2362. Our
telephone number is (805) 373-4545. We are a Delaware corporation that was spun-off as an independent company on
November 29, 1999.
Total sales in 2016 were $2,149.9 million, compared with $2,298.1 million in 2015 and $2,394.0 million in 2014.
Approximately 73% of our total sales in 2016 were to commercial and international customers and 27% was to the
U.S. Government, as a prime contractor or subcontractor. Of the 27% U.S. Government sales, approximately 54% were
attributable to fixed-price type contracts with the balance attributable to cost-plus-fee type contracts. Sales to international
customers accounted for approximately 43% of total sales in 2016.
Strategy
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, acquisitions and share repurchases. We aggressively pursue operational excellence
to continually improve our margins and earnings. 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.
Our Recent and Pending Acquisitions
Consistent with our strategy, during 2016, we made acquisitions and investments totaling $93.4 million, which
included the following:
To broaden our test and measurement instrumentation capabilities:
•
•
Assets of Quantum Data, Inc. (“Quantum Data”) based in Elgin, Illinois, which provides electronic test and
measurement instrumentation and is a market leader in video protocol analysis test tools.
Frontline Test Equipment, Inc. (“Frontline”) based in Charlottesville, Virginia, which provide electronic test and
measurement instrumentation and is a market leader in wireless protocol analysis test tools.
To expand our digital imaging capabilities:
•
CARIS, Inc. (“CARIS”) based in Fredericton, New Brunswick, Canada, is a leading developer of geospatial
software designed for the hydrographic and marine community.
To expand our environmental instrumentation capabilities:
•
•
Hanson Research Corporation (“Hanson Research”) headquartered in Chatsworth, California, which specializes
in analytical instrumentation for the pharmaceutical industry.
Assets of IN USA, Inc. (“IN USA”) headquartered in Norwood, Massachusetts, which manufactures a range of
ozone generators, ozone analyzers and other gas monitoring instruments utilizing ultraviolet and infrared based
technologies.
1
On December 12, 2016, Teledyne and e2v technologies plc (LSE:E2V.L) (“e2v”) reached agreement on the terms of a
recommended cash acquisition to be made by Teledyne for the ordinary share capital of e2v by means of a Scheme of
Arrangement (the “Offer”). Under the terms of the Offer, e2v’s ordinary shareholders (“e2v Shareholders”) will receive 275
pence in cash for each e2v share valuing the entire issued and to be issued ordinary share capital of e2v at approximately
£619.6 million on a fully diluted basis. It is expected that, subject to the satisfaction or waiver of all relevant conditions, the
acquisition will be completed in the first half of 2017.
Our Business Segments
Our businesses are aligned in four segments: Instrumentation, Digital Imaging, Aerospace and Defense Electronics, and
Engineered Systems. Financial information about our business segments can be found in Note 12 of our Notes to
Consolidated Financial Statements in this Annual Report on Form 10-K.
The respective percentage contributions of our four business segments to our total sales in 2016, 2015 and 2014 are
summarized in the following table:
Segment contribution to total sales (a)
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total
(a) For further discussion of our four segments see Note 12 to the Notes to Consolidated Financial Statements.
Instrumentation
Percentage of Sales
2015
2014
2016
41%
18%
29%
12%
100%
46%
16%
26%
12%
100%
47%
17%
25%
11%
100%
Our Instrumentation segment provides monitoring and control instruments for marine, environmental, industrial and
other applications, as well as electronic test and measurement equipment. We also provide power and communications
connectivity devices for distributed instrumentation systems and sensor networks deployed in mission critical, harsh
environments.
Marine Instrumentation
We offer a variety of products designed for use in harsh underwater environments, instruments that measure currents
and other physical properties in the water column, systems that create acoustic images of objects beneath the water’s surface,
including the bottom of a body of water, and sensors that determine the geologic structure below the bottom. We also design
and manufacture vehicles that utilize and transport these sensors over and beneath the water’s surface.
We design and manufacture geophysical streamer cables, hydrophones, seismic energy sources and specialty products
used in offshore hydrocarbon exploration to locate oil and gas reserves beneath the ocean floor. Through our 2014 acquisition
of Bolt Technology Corporation (“Bolt”), we are now a leading supplier of marine seismic energy sources and replacement
parts for offshore energy exploration. Our Acoustic Doppler Current Profilers (“ADCPs”) precisely measure currents at
varying depths in oceans and rivers, and our Doppler Velocity Logs (“DVLs”) are used for navigation by civilian and military
surface ships, unmanned underwater vehicles and naval divers. In addition to our DVLs, which are acoustic navigation
devices, we design and manufacture inertial sensing and navigation products, as well as subsea pipe and cable detection
systems for offshore energy, oceanographic and military marine markets. We also design and manufacture remotely-
controlled and tethered instrumentation deployment vehicles used for current measurement, seafloor mapping and
measurement of physical parameters such as salinity.
Additionally, we design and manufacture hydrographic survey instrumentation used in port surveys, dredging, pre- and
post-installation of offshore energy infrastructure and other challenging underwater applications. Our multibeam sonar
systems range from portable high-resolution systems used on autonomous underwater vehicles (“AUVs”) to full ocean depth
vessel-mounted oceanographic systems. Our multibeam sonar systems are used for creating highly accurate maps of
underwater offshore constructions, wrecks or quay walls in harbors, and in particular, high-quality maps of the seafloor. With
advanced imaging capabilities, our sonars create images of hidden structures on the seafloor and are also used to create real-
time images of the environment in the oceans and enable precise navigation of AUVs. Our products are being utilized in
both commercial and defense applications where we provide systems for detecting mines in the water.
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We provide a broad range of end-to-end undersea interconnect solutions to the offshore oil and gas, naval defense,
oceanographic and telecom markets. We manufacture subsea, wet-mateable electrical and fiber-optic interconnect systems
and subsea pressure vessel penetrators and connector systems with glass-to-metal seals. Our water-proof and splash-proof
neoprene and glass reinforced epoxy connectors and cable assemblies are used in underwater equipment and submerged
monitoring systems. We also manufacture subsea and topside pipeline corrosion and erosion monitoring detectors, subsea
pressure and temperature sensors as well as flow integrity monitoring solutions for the oil and gas industry. These flow
assurance sensors and equipment rely on our wet-mateable interconnect systems and our sensor feed-through systems. Our
Teledyne Marine group and Teledyne Scientific Company continue to work collaboratively to improve the reliability of
materials exposed to ultra deep-sea conditions.
Other marine products used by the U.S. Navy and commercial customers include acoustic modems for networked
underwater communication and optical underwater cameras and LED lighting sources.
We manufacture complete AUVs. Our marine gliders use a silent buoyancy engine for propulsion that takes advantage
of changes in buoyancy in conjunction with wings and tail steering to convert vertical motion to horizontal displacement,
thereby propelling the system on a programmed route with very low power consumption. Glider applications range from
oceanographic research to military persistent surveillance systems as part of a mobile underwater sensing and communication
network. The modular design of our battery-powered, man-portable Gavia™ AUV allows for rapid sensor bay
reconfiguration and battery replacement capability. Our Slocum gliders, as well as our ADCPs, are being used as part of the
National Science Foundation’s Ocean Observatories Initiative to collect physical, chemical, geological and biological data
from the ocean and the seafloor on coastal, regional and global scales. Through the SeaBotix business, we design and
manufacture Inspection Class remotely operated vehicles (“ROVs”) used in maritime security, military, search and rescue,
aquaculture, and scientific research applications.
Using our acoustic technology, we also provide quality control and package integrity systems under the Taptone®
brand to the food and beverage, personal care and pharmaceutical industries.
Environmental Instrumentation
We offer a wide range of products used for environmental monitoring, instruments that enable measurement and
monitoring of key air environmental parameters as well as gas purity and content for industrial and manufacturing
applications, sensors for the measurement and monitoring of the physical and chemical properties of untreated water, and
laboratory systems that improve sample acquisition, handling, and preparation for analysis.
Our instrumentation monitors trace levels of gases such as sulfur dioxide, carbon monoxide, oxides of nitrogen and
ozone in order to measure the quality of the air we breathe. Our instrumentation also monitors particulate air pollution, and
we supply environmental monitoring systems for the detection, measurement and automated reporting of air pollutants from
industrial stack emissions. In November 2016, we acquired assets of IN USA, which expanded our product portfolio to
include a range of ozone generators, ozone analyzers and other gas monitoring instruments. We serve the process control and
monitoring needs of industrial plants with instruments that include gas analyzers, and vacuum and flow measurement
devices. We were a pioneer in the development of precision trace oxygen analyzers, and we now manufacture a wide range
of process gas and liquid analysis products for the measurement of process contaminants, hydrocarbons, combustibles, oil-in-
water, moisture, pH and many other parameters. Our instrumentation is also used to detect a variety of water quality
parameters. Our sampler products include portable, refrigerated and specialty samplers used in hazardous location
applications. Flow meters include ultrasonic, submerged probe, bubbler and area velocity models. Laser technology is now
part of our flow capabilities. Our custom analyzer systems provide turn-key solutions to complex process monitoring and/or
control applications found in petrochemical and refinery facilities.
We provide laboratory instrumentation that complements our process or field environmental instrumentation. We
manufacture laboratory instrumentation that automates the preparation and concentration of organic samples for the analysis
of trace levels of volatile organic compounds by a gas chromatograph and mass spectrometer. We also provide laboratory
instrumentation for the detection of total organic carbon and total nitrogen in water and wastewater samples. In addition, we
provide inductively coupled plasma laboratory spectrometers, atomic absorption spectrometers, mercury analyzers and
calibration standards. We also provide laboratory automation and sample introduction systems. Our advanced elemental
analysis products are used by environmental and quality control laboratories to detect trace levels of inorganic contaminants
in water, foods, soils and other environmental and geological samples. Our high-precision, high pressure syringe pumps
measure process extraction rates of fluids ranging from liquefied gases to viscous tars. In addition, we manufacture liquid
chromatography instruments and accessories for the purification of organic compounds, which since our 2015 acquisition of
a product line include highly sensitive evaporative light scanning detectors. Our liquid chromatography customers include
pharmaceutical laboratories involved in drug discovery and development. In December 2016, we acquired Hanson Research,
a leading manufacturer of the systems used in testing of pharmaceutical products, including FDA-mandated dissolution rates
of oral dosage forms and systems used in the research and development of topical creams, ointments, and gels containing
active pharmaceutical ingredients.
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Test and Measurement Instrumentation
Since our August 2012 acquisition of LeCroy Corporation (“LeCroy”), we develop, manufacture, sell and license high-
performance oscilloscopes and high-speed protocol analyzers for various computer communication links. We also provide
related test and measurement equipment, probes, accessories and application solutions. To a lesser extent, we provide
extended warranty contracts, maintenance contracts and repairs and calibrations on our instruments after their warranties
expire.
Our oscilloscopes are tools used by designers and engineers to measure and analyze complex electronic signals in
order to develop high-performance systems, validate electronic designs and improve time to market. We offer eight families
of real-time oscilloscopes, which address different needs: HDO4000/HDO6000/HDO8000/HDO9000, our 12-bit, high-
definition oscilloscopes; LabMaster and WaveMaster, our industry leading high-end oscilloscope family; WavePro, which is
targeted at the mid-to high-range performance sector; WaveRunner, designed for the general purpose and bench-top sector;
WaveSurfer designed for users in the lower bandwidth bench-top sector of the market; WaveJet, designed for value-oriented
users in the economy sector of the market; and WaveAce, our entry-level oscilloscope products.
In 2014, we released the world’s first 100GHz real-time scope, aimed at applications such as high-speed optical
communications, and we extended our line of 12-bit oscilloscopes to include an eight channel product with specialized
capabilities for analyzing power and efficiency of motors and the associated drive circuitry. In 2015, we introduced the IQS
series of Coherent Optical Receivers, featuring the industry’s highest bandwidth - these products extend our technology
leadership in optical modulation analysis.
Our protocol analyzers are used by designers and engineers to reliably and accurately monitor communications traffic
and diagnose operational problems in a variety of communications devices to ensure that they comply with industry
standards. In April 2016, we acquired Frontline, which allowed us to expand our protocol test portfolio into important
wireless technologies like Bluetooth and 802.11 (Wi-Fi); and assets of Quantum Data, which broadened our protocol product
offering to penetrate emerging video technologies like HDMI, SDI and other digital video technologies.
We manufacture torque sensors and automatic data acquisition systems that are used to test critical control valves in
nuclear power and industrial plants.
Our test and measurement products are sold into a broad range of industry sectors, including computer, semiconductor,
consumer electronics, power electronics, data storage, automotive, industrial, military, aerospace and telecommunications.
We believe our test and measurement products address the needs of designers in all of these industry sectors in developing
products that rely on increasingly complex electronic signals.
Digital Imaging
Our Digital Imaging segment includes high-performance sensors, cameras and systems, within the visible, infrared,
ultraviolet and X-ray spectra for use in industrial, government and medical applications, as well as micro electro-mechanical
systems (“MEMS”). It also includes our sponsored and centralized research laboratories benefiting government programs and
businesses.
We design, develop and manufacture image capture products, primarily consisting of high-performance image sensors
and digital cameras for use in industrial, scientific, medical and photogrammetry applications. We also design, develop and
manufacture image processing products, primarily consisting of hardware and software for image processing in industrial and
medical applications. We develop high-resolution, low-dose X-ray sensors for medical, dental and industrial applications.
Our high-performance image sensors utilize both charge coupled device (“CCD”) and complementary metal-oxide
semiconductor (“CMOS”) technology. In particular, our CMOS image sensing technology is used in our large flat panel
detectors for X-ray imaging and in most of our sensors used for industrial machine vision applications. Our image
processing software allows original equipment manufacturers (“OEMs”) and systems integrators to develop vision
applications using our image acquisition and processing hardware. Our smart camera products are user-friendly, cost-
effective vision appliances for task-specific factory floor applications such as gauging, high-precision alignment, inspection,
assembly verification and machine guidance. Our smart cameras are designed to be quickly deployed by technicians on the
factory floor. The 2015 acquisition of Industrial Control Machines SA (“ICM”) added lightweight X-ray sources for the
inspection of materials and structures, ranging from light aviation parts to thick steel pipelines in harsh and extreme
environments. ICM’s mobile X-ray inspection systems are provided to government, security and explosive ordinance
disposal personnel for the analysis of suspicious objects.
4
Additionally, we produce and provide manufacturing services for MEMS. The majority of our semiconductor
manufacturing capacity is consumed by external customers with the remaining capacity applied towards supplying unique
CCD and microbolometer (for long-wave infrared detection) fabrication services for our internal image sensor requirements.
Our Digital Imaging segment also provides Light Detection and Ranging (“LIDAR”) systems for airborne terrestrial
mapping, mobile mapping, bathymetry and laser-based 3D imaging applications through our now wholly-owned subsidiary,
Optech. These imaging and mapping systems are used by commercial and government customers serving energy, natural
resources and infrastructure applications. As a result of our acquisition of CARIS in April 2016, we also provide geospatial
software designed for the hydrographic and marine community.
We provide research and engineering capabilities primarily in the areas of electronics, materials, optical systems, and
information science to military, aerospace and industrial customers, as well as to various businesses throughout Teledyne. We
receive funding from the Defense Advanced Research Products Agency (“DARPA”), the Intelligence Advanced Research
Projects Activity (“IARPA”), and various other U.S. Department of Defense funding agencies, and we collaborate with
researchers at universities and national laboratories to stay at the forefront of emerging technologies. We have developed
high-speed electronics, MEMS sensors and actuators, advanced functional and structural materials, liquid-crystal based
optical devices, and image processing algorithms.
We produce advanced focal plane arrays, sensors, and subsystems that cover a broad spectrum of frequencies from X-
ray wavelengths to 18 micron long-wave infrared wavelengths. We develop image processing algorithms and manufacture
compact mid-wave and short-wave infrared camera systems. We are a leader in the development and production of large
format focal plane array sensors for astronomy, defense, commercial and space science markets.
We deliver advanced imaging solutions to the U.S. Department of Defense, National Aeronautics and Space
Administration (“NASA”), prime system integrators, foreign space agencies and commercial customers. Our sensor
technologies are on many of NASA’s major astronomy missions (including Hubble, James Webb Space Telescope and Wide
Field Infrared Survey Telescope), are on weather satellites, are orbiting Mars, are on spacecraft involved in missions to
Jupiter and on asteroids, and can be found operating at nearly every major ground-based observatory telescope. In the U.S.
defense arena, our sensors are integrated into several major systems for space surveillance, airborne surveillance, chemical
detection and target identification. We have developed sensors, subassemblies and cameras for air- and ground-based
applications, including hyperspectral sensors for long-wave infrared and for simultaneous visible-shortwave infrared
applications. We provide focal plane electronics for our own sensors and for sensors produced by other companies. We
integrate our low-noise, high-performance sensors into cameras for commercial laboratory instrumentation. We also design
and manufacture advanced military laser eye protection spectacles and sensor protection filters.
Aerospace and Defense Electronics
Our Aerospace and Defense Electronics segment provides sophisticated electronic components and subsystems and
communications products, including defense electronics, harsh environment interconnects, data acquisition and
communications equipment for aircraft, and components and subsystems for wireless and satellite communications, as well
as general aviation batteries.
We provide a range of microwave products ranging from components to highly integrated subsystems and solutions to
our customers. Our helix traveling wave tubes, commonly called TWTs, used to provide broadband power amplification of
microwave signals. Military applications include radar, electronic warfare and satellite communication. We make TWTs for
commercial applications as well, such as electromagnetic compatibility test equipment and satellite communication terminals.
We also provide high-power solid-state TWT replacement amplifiers and complete amplifiers that incorporate a TWT and a
power supply.
We design and manufacture solid state radio frequency (“RF”) and microwave components and subassemblies used in a
wide variety of applications. As components which form the building blocks for electronic systems, we produce amplifiers,
voltage-controlled oscillators, YIGs, BAWs, low-noise amplifiers (“LNAs”), microwave mixers, and detectors using
LDMOS, GaAs, GaN, InP, and SiC technologies. These components form the basis for our line of solid state power
amplifiers, RF converters, and modems which are used in systems that provide communications links between ground
stations, mobile units, UAVs, and orbiting satellites. Such products are also used in mobile telephone, TV broadcast and
commercial data communications networks. In addition, we also provide higher level microwave subsystems and systems
for electronic warfare, UAV, radar and military communication applications.
5
We supply a variety of connectors and cable assemblies, including specialized high voltage connectors and
subassemblies and coax microwave cable and connectors, for defense, aerospace and industrial applications. Additionally,
we produce pilot helmet mounted display components and subsystems for the Joint Helmet Mounted Cueing System
(“JHMCS”) used in the F-15, F-16 and F-18 aircrafts. The JHMCS system is a multi-role system designed to enhance pilot
situational awareness and provides visual control of aircraft targeting systems and sensors. We manufacture microprocessor-
controlled aircraft ejection seat sequencers and related support elements to military aircraft programs. We also provide
initiators and electronic safe and arm devices for use in military applications.
We provide specialty electronic manufacturing services. We develop and manufacture custom microelectronic modules
that provide both high reliability and extremely dense packaging for military applications. We also develop custom tamper-
resistant microcircuits designed to provide enhanced security in military communication. We serve the market for high-mix,
low-volume manufacturing of sophisticated military electronics equipment.
We supply electromechanical relays, solid state power relays and coaxial switching devices to military, aerospace and
other industrial markets. Applications include microwave and wireless communication infrastructure, RF and general
broadband test equipment, test equipment used in semiconductor manufacturing, and industrial and commercial machinery
and control equipment. On commercial aircraft, our solid state and electromechanical relays are used in a variety of
applications, including jet engine fuel control, management of control surfaces and other on-board applications.
We are a leading supplier of digital flight data acquisition and analysis systems to the civil aviation market. These
systems acquire data for use by the aircraft’s flight data recorder as well as record additional data for the airline’s operation,
such as aircraft and engine condition monitoring. We provide the means to transfer this data, using Teledyne’s patented
wireless technology, from the aircraft to the airline operation center. We also design and manufacture airborne networking
products, including servers, as well as aircraft data loading equipment, flight line maintenance terminals and data distribution
software used by commercial airlines and the U.S. military. In 2013, the Boeing Company awarded us a single source
contract to develop and supply the next generation of aircraft data acquisition and information management systems for the
majority of future Boeing commercial aircraft. The first of these products, a network file server, was certified in January
2016 and production deliveries have begun. An enhanced digital flight data acquisition unit for the new Boeing 737MAX
aircraft is expected to be certified in the first quarter of 2017, with production deliveries to follow soon after. We also
provide lead acid aircraft batteries for general aviation, and business and light jet applications.
Engineered Systems
Our Engineered Systems segment provides innovative systems engineering and integration and advanced technology
development as well as complex manufacturing solutions for defense, space, environmental and energy applications. This
segment also designs and manufactures electrochemical energy systems and small turbine engines.
Teledyne Brown Engineering, Inc. is a well-recognized whole life-cycle space, missile defense, marine systems,
environmental and energy company. With changes in U.S. fiscal policy, we have been working to shift its focus from chiefly
supporting U.S. Government space and defense programs to increasing its commercial portfolio, specifically with the
commercialization of space.
We lead and support air and missile defense programs, including the Objective Simulation Framework (“OSF”) and
Test Execution Services and Launch Augmentation programs (“TESTLA”). As the Missile Defense Agency (“MDA”) prime
contractor for the OSF contract, we design, develop, test, implement and maintain the OSF. The OSF is being designed to
support full scale simulations, ground tests and live fire events throughout the life cycle of the Ballistic Missile Defense
System. Under the 2013-awarded TESTLA contract, we will continue development, manufacturing and integration of
product solutions in support of the war-fighter.
We specialize in marine systems design and manufacturing. For the U.S. Special Operations Command, we are the
prime contractor engaged to design, develop, test, manufacture and sustain the Shallow Water Combat Submersible
(“SWCS”) vehicle to replace the current SEAL Delivery Vehicle. With the design of the SWCS engineering development
model vehicle having been completed in 2015 and the development test phase having been completed in 2016, we began
low-rate initial production in late 2016. We are producing the Littoral Battlespace Sensing Glider (“LBS-G”) system for the
U.S. Navy Program Executive Office - Command, Control, Communications, Computers and Intelligence (“PEO-C4I”).
Teledyne Webb Research is the glider developer and manufacturer on the LBS-G program. We manufacture gun mounts for
the Littoral Combat Ship program. Under contract to Raytheon Company, we continue to manufacture advanced mine
detection and neutralization systems.
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We are active in U.S. space programs and continue to play a vital role in the science operations area of the International
Space Station (“ISS”) program. We provide 24-hour-per-day payload operations in the ISS Payload Operations and
Integration Center located at NASA’s Marshall Space Flight Center (“MSFC”). Under contract with MSFC, we have
designed, developed, and we are manufacturing, assembling, and testing the Launch Vehicle Stage Adapter, a critical element
of NASA’s Space Launch System. In 2012, NASA awarded us a cooperative agreement to foster the commercial utilization
of the ISS. Under this agreement, we have developed a commercial platform that will host payloads for earth imaging and
other scientific applications. The platform known as the Multi-User System for Earth Sensing (“MUSES”) is scheduled to
launch in mid-2017. We also design, develop, and manufacture components for liquid rocket engines, scientific payloads and
human space flight vehicles.
We operate a full service radiological analysis laboratory in Knoxville, Tennessee, which principally supports nuclear
power plants in the United States. We also manage and operate a separation, purification and analysis of atmospheric
samples laboratory for the U.S. Government, as well as, design, build, and test systems for processing the nation’s enriched
uranium at the United States Department of Energy National Nuclear Security Complex. Additionally, we provide
engineering and manufacturing for customers in the commercial nuclear market.
Continuing our historic facilities and plant management services to the commercial arena, in December 2015, we
extended by another three years our lab and office facility management contract with The Dow Chemical Company. We
currently lead on-site and off-site management and support of research services at three Dow Chemical research facilities.
We manufacture products that are primarily highly engineered and high-quality machined and metal fabricated
components and assemblies for external customers across the spectrum of our core business base, including NASA, the
U.S. Department of Defense customers and the U.S. Department of Energy, as well as commercial customers. Through our
U.K.-based operations, we manufacture advanced composites for the government and commercial aviation customers.
We manufacture hydrogen/oxygen gas generators used worldwide in electrical power generation plants, semiconductor
manufacturing, optical fiber production, chemical processing, specialty metals, float glass and other industrial processes. Our
sales of hydrogen generators have been primarily in developing countries and domestic applications where delivered
merchant gas is not practical.
We provide advanced thermoelectric material technology and generators for challenging applications. The NASA
Curiosity rover is powered by a thermoelectric generator designed and built by Teledyne Energy Systems, Inc., and we are
developing the next generation system based on advanced thermoelectric materials.
We provide leading edge battery and fuel cell energy technology solutions for use in U.S. Government programs.
These are lightweight compact systems for underwater vehicles, aircraft, launch vehicles, and spacecraft. Both technologies
can be customized to meet challenging applications for extended duration missions.
We design, develop and manufacture small turbine engines primarily used in tactical cruise missiles for military
markets. Our engines power the Boeing/U.S. Navy Harpoon and Standoff Land Attack Missile systems, and we are the sole
source provider of engines for the baseline Lockheed Martin/U.S. Air Force Joint Air-to-Surface Standoff Missile
(“JASSM”). We also continue to work on advanced technology for small turbine engines and components for programs
sponsored by the U.S. Air Force Research Laboratory.
Customers
We have hundreds of customers in the various industries we serve. No commercial customer accounted for more than
10% of any segment sales, during 2016, 2015 or 2014. No commercial customer in 2016 accounted for more than 2.0% of
total sales. In 2015 and 2014, our largest commercial customer, a customer of our Instrumentation segment, accounted for
2.3% and 2.8% of total sales, respectively.
Sales to international customers accounted for approximately 43% of total sales in 2016, compared with 44% in 2015
and 45% in 2014. In 2016, we sold products to customers in over 100 foreign countries. Approximately 90% of our sales to
foreign-based customers were made to customers in 24 foreign countries. In 2016, the top five countries for international
sales were China, the United Kingdom, Germany, South Korea and Japan and constituted approximately 20% of our total
sales.
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Approximately 27%, 26% and 25% of our total sales for 2016, 2015 and 2014, respectively, were derived from
contracts with agencies of, and prime contractors to, the U.S. Government. Information on our sales to the U.S. Government,
including direct sales as a prime contractor and indirect sales as a subcontractor, is as follows (in millions):
U.S. Government sales by segment:
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total U.S. Government sales
2016
$ 74.4
73.1
210.4
219.8
$ 577.7
2015
$ 61.2
78.9
223.5
234.4
$ 598.0
2014
$ 38.6
102.2
245.3
221.8
$ 607.9
Our principal U.S. Government customer is the U.S. Department of Defense. These sales represented 21%, 19% and
20% of our total sales for 2016, 2015 and 2014, respectively. In 2016, our largest program with the U.S. Government was
the Mission Operations and Integration contract with the NASA Marshall Space Flight Center which represented 1.5% of our
total sales. In 2015, our largest program with the U.S. Government was the Engineering Solutions and Prototyping contract
with the NASA Marshall Space Flight Center, which represented 1.5% of our total sales. In 2014, our largest program with
the U.S. Government was the Objective Simulation Framework contract with the Missile Defense Agency, which represented
1.3% of our total sales.
As described under risk factors, there are risks associated with doing business with the U.S. Government. In 2016,
approximately 54% of our U.S. Government prime contracts and subcontracts were fixed-price type contracts, compared to
54% in 2015 and 58% in 2014. Under these types of contracts, we bear the inherent risk that actual performance cost may
exceed the fixed contract price. Such contracts are typically not subject to renegotiation of profits if we fail to anticipate
technical problems, estimate costs accurately or control costs during performance. Additionally, U.S. Government contracts
are subject to termination by the U.S. Government at its convenience, without identification of any default. When contracts
are terminated for convenience, we recover costs incurred or committed, settlement expenses and profit on work completed
prior to termination. We had one U.S. Government contract terminated for convenience in 2016, compared with eight in 2015
and three in 2014.
Our total backlog of confirmed orders was approximately $916.4 million at January 1, 2017, compared with $802.8
million at January 3, 2016, and $944.6 million at December 28, 2014. We expect to fulfill 91% of such backlog of confirmed
orders during 2017.
Seasonality
No material portion of our business is considered to be seasonal.
Raw Materials and Suppliers
Generally, our businesses have experienced minimal fluctuations in the supply of raw materials, but not without some
price volatility. While some of our businesses provide services, for those businesses that sell hardware and product, a portion
of the value that we provide is labor-oriented, such as design, engineering, assembly and test activities. In manufacturing our
products, we use our own production capabilities and also third party suppliers and subcontractors, including international
sources. Some of the items we use for the manufacture of our products, including certain gyro components for some marine
navigation applications, certain magnets and helix wire for our traveling wave tubes, certain infrared detectors substrates and
certain ceramics and molding compounds used in our sonar systems, as well as certain scintillator materials used in the
production of our X-ray detectors, are purchased from limited or single sources, including international sources, due to
technical capability, price and other factors. While over the years we have not experienced much difficulty in procuring raw
materials, components, sub-assemblies and other supplies required in our manufacturing processes, disruption in the global
economy and financial markets could trigger increased pricing or otherwise affect our suppliers and negatively impact our
ability to procure such supplies.
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Sales and Marketing
Our sales and marketing approach varies by segment and by products within our segments. A shared fundamental tenet
is the commitment to work closely with our customers to understand their needs, with an aim to secure preferred supplier and
longer-term relationships.
Our segments use a combination of internal sales forces, third-party distributors and commissioned sales representatives
to market and sell our products and services. Our Teledyne Instruments companies and other businesses have been working
over the years to consolidate or share internal sales and servicing efforts. Several Teledyne businesses have been marketing
and selling products collaboratively to similar customers to promote “one-stop” shopping under singular “brand” names,
including Teledyne Marine, Teledyne Oil & Gas, Teledyne Water Quality and Teledyne Microwave Solutions.
Products are also advertised in appropriate trade journals and by means of various websites. To promote our products
and other capabilities, our personnel regularly participate in relevant trade shows and professional associations.
Many of our government contracts are awarded after a competitive bidding process in which we seek to emphasize our
ability to provide superior products and technical solutions in addition to competitive pricing.
Through Teledyne Technologies International Corp. and other subsidiaries, we have established offices in foreign
countries to facilitate international sales for various businesses. Locations include Brazil, China, France, Germany, Italy,
Japan, Malaysia, Singapore, South Korea, Switzerland and the United Arab Emirates.
Competition
We believe that technological capabilities and innovation and the ability to invest in the development of new and
enhanced products are critical to obtaining and maintaining leadership in our markets and the industries in which we
compete. Although we have certain advantages that we believe help us compete effectively in our markets, each of our
markets is highly competitive. With regard to our defense businesses, it is common in the defense industry for work on
programs to be shared among a number of companies, including competitors. In any event, because of the diversity of
products sold and the number of markets we serve, we encounter a wide variety of competitors, none of which we believe
offer all of the same product and service lines or serve all of the same markets as we do. Our businesses vigorously compete
on the basis of quality, product performance and reliability, technical expertise, price and service. Many of our competitors
have, and potential competitors could have, greater name recognition, a larger installed base of products, more extensive
engineering, manufacturing, marketing and distribution capabilities and greater financial, technological and personnel
resources than we do.
Research and Development
Our research and development efforts primarily involve engineering and design related to improving existing products
and developing new products and technologies in the same or similar fields. We spent a total of $458.3 million in 2016,
$476.6 million in 2015 and $428.8 million in 2014 on research and development and bid and proposal costs. Customer-
funded research and development, most of which was attributable to work under contracts with the U.S. Government,
represented approximately 63%, 66% and 61% of total research and development and bid and proposal costs for 2016, 2015
and 2014, respectively.
In 2016, we incurred $167.7 million in Company-funded research and development and bid and proposal costs. We
expect the level of Company-funded research and development and bid and proposal costs to be approximately $180.5
million in 2017.
Intellectual Property
While we own and control various intellectual property rights, including patents, trade secrets, confidential information,
trademarks, trade names, and copyrights, which, in the aggregate, are of material importance to our business, we believe that
our business as a whole is not materially dependent upon any one intellectual property or related group of such properties.
We own several hundred active patents and are licensed to use certain patents, technology and other intellectual property
rights owned and controlled by others. Similarly, other companies are licensed to use certain patents, technology and other
intellectual property rights owned and controlled by us.
Patents, patent applications and license agreements will expire or terminate over time by operation of law, in
accordance with their terms or otherwise. We do not expect the expiration or termination of these patents, patent applications
and license agreements to have a material adverse effect on our business, results of operations or financial condition.
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Employees
We consider our relations with our employees to be good. At January 1, 2017, our total workforce consisted of
approximately 8,970 employees, of which approximately 6,560 employees were located in the United States.
Executive Officers of the Registrant
Teledyne’s executive management includes:
Name and Title
Age
Principal Occupations Last 5 Years
Executive Officers:
Robert Mehrabian*
Chairman, President and Chief Executive
Officer; Director
Aldo Pichelli*
Chief Operating Officer
Melanie S. Cibik*
Senior Vice President, General Counsel,
Chief Compliance Officer
and Secretary
75 Dr. Mehrabian has served as Chairman, President and Chief Executive
Officer of Teledyne for more than five years.
65 Mr. Pichelli has been the Chief Operating Officer of Teledyne since October
6, 2015. Prior to his promotion, Mr. Pichelli had been an Executive Vice
President of Teledyne having responsibility for the Instrumentation and
Aerospace and Defense Electronics segments since July 1, 2013. Prior to
that, he had been President and Chief Operating Officer of Teledyne’s
Instrumentation and Aerospace and Defense Electronics segments since
January 2, 2011.
57 Miss Cibik has been Senior Vice President, General Counsel and Secretary
since September 1, 2012 and Chief Compliance Officer since August 22,
2016. For more than five years prior to her promotion on September 1,
2012, she had been Vice President, Associate General Counsel and Assistant
Secretary.
Susan L. Main*
Senior Vice President and Chief Financial
Officer
58 Ms. Main has been Senior Vice President and Chief Financial Officer of
Teledyne since November 19, 2012. For more than five years prior to that,
she had been Vice President and Controller of Teledyne.
Cynthia Belak*
Vice President and Controller
Jason VanWees*
Senior Vice President, Strategy and Mergers
& Acquisitions
George C. Bobb III*
Vice President Contracts, Information
Technology and Selected Operations and
Deputy General Counsel for Litigation
60 Ms. Belak has been Vice President and Controller of Teledyne since May 6,
2015. Prior to her promotion, Ms. Belak had been Vice President, Business
Risk Assurance of Teledyne since January 24, 2012. Prior to that, since
January 4, 2010, Ms. Belak had been Group Controller within the Aerospace
and Defense Electronics segment.
45 Mr. VanWees has been Senior Vice President, Strategy and Mergers &
Acquisitions since July 1, 2013. Prior to his promotion, he had been Vice
President, Strategy and Mergers & Acquisitions since September 1, 2012.
Prior to that, he had been Vice President, Corporate Development and
Investor Relations of Teledyne for more than five years.
42 Mr. Bobb has been Vice President-Information Technology and Selected
Operations and Deputy General Counsel for Litigation of Teledyne since
August 22, 2016. From July 22, 2014 to August 22, 2016, he was
Chief Compliance Officer, Vice President-Information Technology and
Selected Operations and Deputy General Counsel for Litigation of Teledyne.
Prior to that he had been Vice President, Chief Compliance Officer and
Deputy General Counsel for Litigation since September 1, 2012. Prior to
that, he had been an Associate General Counsel of Teledyne and the General
Counsel of the Engineered Systems and Digital Imaging segments since
August 2011.
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Name and Title
Other Officers:
Carl Adams
Vice President, Business Risk
Assurance
Age
Principal Occupations Last 5 Years
47 Mr. Adams has been Vice President, Business Risk Assurance of Teledyne since
May 6, 2015. Prior to that, upon joining Teledyne on April 22, 2015, he was
Senior Director, Finance. From March 2014 to March 2015, he was the Chief
Financial Officer and Vice President of NeuroSigma, Inc., a developer of
neurological disorder treatments. From January 2014 to March 2014, he was the
Corporate Controller and Vice President for NeuroSigma, Inc. From April 2011
to January 2014, he was a founding partner of Technical Accounting and
Controllership Solutions, LLP .
Stephen F. Blackwood
Vice President and Treasurer
54 Mr. Blackwood has been Vice President and Treasurer of Teledyne for more than
five years.
Edwin Roks
Vice President and President, Teledyne
DALSA
52 Mr. Roks has been a Vice President of Teledyne since January 2, 2014 and
President of Teledyne DALSA, Inc. since October 6, 2015. From January 2,
2014 to October 6, 2015, Mr. Roks had been the Chief Technology Officer of
Teledyne. Prior to that since April 2010, Mr. Roks served as Executive Vice
President and General Manager of the professional imaging division of Teledyne
DALSA, Inc. (formerly known as DALSA Corporation).
* Such officers are subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934, as amended.
Dr. Robert Mehrabian and Teledyne are parties to a Fifth Amended and Restated Employment Agreement dated as of
October 22, 2013, which was amended on September 28, 2015. Under the amended agreement, we will employ
Dr. Mehrabian as the Chairman, President and Chief Executive Officer of Teledyne through December 31, 2019, at an annual
base salary that is currently $975,000. The agreement provides that Dr. Mehrabian is entitled to participate in Teledyne’s
annual incentive bonus plan (“AIP”) and other executive compensation and benefit programs. The agreement provides
Dr. Mehrabian with a non-qualified pension arrangement, under which Teledyne will pay him annually starting six months
following his retirement and for a period of 10 years, as payments supplemental to any accrued pension under our qualified
pension plan, an amount equal to 50% of his base compensation as in effect on retirement.
Eleven current members of management (including the named executives) have entered into change of control
severance agreements. The agreements have a three-year, automatically renewing term, except as noted below. The executive
is entitled to severance benefits if (1) there is a change in control of the Company and (2) within three months before or
24 months after the change in control, either we terminate the executive’s employment for reasons other than cause or the
executive terminates the employment for good reason. “Severance benefits” currently consist of:
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A cash payment equal to three times in the case of Dr. Mehrabian or two times in the other cases the sum of (i) the
executive’s highest annual base salary within the year preceding the change in control and (ii) the Annual Incentive
Plan bonus target for the year in which the change in control occurs or the average actual bonus payout for the three
years immediately preceding the change in control, whichever is higher.
A cash payment for the current Annual Incentive Plan bonus cycle based on the fraction of the year worked times
the Annual Incentive Plan target objectives at 100%.
Payment in cash for unpaid performance share program awards, assuming applicable goals are met at 120% of
performance targets.
Continued equivalent health and welfare (e.g., medical, dental, vision, life insurance and disability) benefits at our
expense for a period of up to 36 months (24 months in some agreements) after termination (with the executive
bearing any portion of the cost the executive bore prior to the change in control); provided, however, such benefits
would be discontinued to the extent the executive receives similar benefits from a subsequent employer.
Removal of restrictions on restricted stock issued under our restricted stock award programs.
Full vesting under the Company’s pension plans (within legal parameters) such that the executive shall be entitled to
receive the full accrued benefit under all such plans in effect as of the date of the change in control, without any
actuarial reduction for early payment.
Up to $25,000 ($15,000 in some agreements) reimbursement for actual professional outplacement services.
Immediate vesting of all stock options, with options being exercisable for the full remainder of the term.
There is no “gross up payment” to hold the executive harmless against the impact, if any, of federal excise taxes
imposed on executive as a result of “excess parachute” payments as defined in Section 280G of the Internal
Revenue Code. The executive will receive the better of, on an after-tax basis, (a) the unreduced excess parachute
payment with no tax gross up payment, or (b) a parachute payment reduced to a level below which an excise tax is
imposed.
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Certain payments are deferred for six months following a separation of service to assure compliance with
Section 409A of the Internal Revenue Code.
The Company has entered into individual Indemnification Agreements with directors and certain officers and
executives of Teledyne, including those members of Executive Management listed above. The Indemnification Agreements
provide the directors and executives who are parties to the agreements with a stand-alone contractual right to indemnification
and expense advancement to the greatest extent allowable under Delaware law. The Indemnification Agreements also
provide:
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In a third-party proceeding, an indemnitee is entitled to indemnification if the indemnitee acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and, if in a
criminal action or proceeding, if the indemnitee had no reason to believe that his or her conduct was unlawful. In a
third party proceeding, the indemnification obligation covers reasonable expenses, judgment fines, and amounts
paid in settlement actually and reasonably incurred by the indemnity.
In proceedings by or in the name of the Company (e.g., derivative suits), an indemnitee is entitled to indemnification
if the indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company. In derivative suits, the indemnification obligation covers reasonable expenses, but in
proceedings where the Company is alleging harm caused by the indemnitee, the indemnitee would generally not be
entitled to be indemnified for judgments, fines and amounts paid in settlement (otherwise the Company would
effectively not recover any damages), unless a Delaware or other court determines otherwise despite the finding of
liability.
The Company has an obligation to advance, on an unsecured and interest free basis, reasonable expenses incurred by
the indemnitee within 30 days of the indemnitee’s request. The indemnitee does not need to meet any standard of
conduct to be entitled to advancement of expenses and there is no determination requirement to be made by the
Board in connection with the advancements of expenses. An indemnity must repay any amounts advanced if it
ultimately determined that the indemnity is not entitled to indemnification.
Our indemnification obligations do not cover the following situations: (1) where indemnification payments have been
made under director’s and officer’s insurance or other indemnification provisions; (2) where the claim is based on
disgorgement of short-swing profits under Section 16(b) of the Exchange Act; (3) where the claim is based on reimbursement
by the indemnitee to the Company of a bonus or other incentive-based or equity-based compensation if required under the
Exchange Act (e.g., in connection with a restatement as a result of the Company’s noncompliance with the financial reporting
requirements required by Section 304 of the Sarbanes-Oxley Act); or (4) where the proceeding is initiated by the indemnitee
(other than proceedings that are consented to by the Board or that the indemnitee initiates against the Company to enforce the
Agreement).
Under the Indemnification Agreements, in the event of a change in control or we reduce or do not renew our
director’s and officer’s insurance coverage, we are required to purchase (or cause the acquirer or successor to the Company to
purchase or maintain) a six-year tail policy, subject to a 200% premium cap. The agreements continue until the later of
(i) 10 years after the indemnitee ceases to serve as a director or officer, and (ii) one year following the final termination of
any proceeding subject to the agreement.
Available Information
Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K, and any
amendments to these reports, are available on our website as soon as reasonably practicable after we electronically file such
materials with, or furnish them to, the Securities and Exchange Commission (the “SEC”). The SEC also maintains a website
that contains these reports and other information we file, including our proxy statements, at www.sec.gov. Any materials we
file with the SEC may be viewed at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may
obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, our
Corporate Governance Guidelines, our Global Code of Ethical Business Conduct, our Codes of Ethics for Financial
Executives, Directors and Service Providers and the Charters of the standing committees of our Board of Directors are
available on our website. We intend to post any amendments to or waivers of these policies, guidelines and charters on our
website. Our website address is www.teledyne.com. This information on our website is available free-of-charge.
Alternatively, if you would like a paper copy of any report we file with the SEC (without exhibits) or other document, please
write to Melanie S. Cibik, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary, at Teledyne
Technologies Incorporated, 1049 Camino Dos Rios, Thousand Oaks, California 91360-2362, and a copy of such requested
document will be provided to you, free-of-charge.
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Item 1A. Risk Factors
Risk Factors; Cautionary Statement as to Forward-Looking Statements
The following text highlights various risks and uncertainties associated with Teledyne. These factors could materially
affect “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) that we may
make from time to time, including forward-looking statements contained in “Item 1. Business” and “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K and in Teledyne’s 2016 Annual
Report to Stockholders. It is not possible for management to predict all such factors, and new factors may emerge.
Additionally, management cannot assess the impact of each such factor on Teledyne or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
A new global recession, continued economic uncertainty in Europe or an economic downturn in China may adversely
affect us.
If another global recession emerges, if economic uncertainty in Europe continues or worsens, or if economic growth in
China substantially slows, we may experience declines in revenues, profitability and cash flows from reduced orders, payment
delays, collection difficulties, increased price pressures for our products, increased risk of excess and obsolete inventories or
other factors caused by the economic problems of customers. If negative conditions in the global credit markets prevent our
customers’ access to credit or render them insolvent, orders for our products may decrease, which would result in lower
revenue. Likewise, if our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their
businesses or remaining solvent, they may become unable to offer the materials we use to manufacture our products. These
events could adversely impact our ability to manufacture affected products and could also result in reductions in our revenue,
increased price competition, and increased operating costs, which could adversely affect our business, financial condition,
results of operations, and cash flows.
We develop and manufacture products for customers in the energy exploration and production markets, domestic and
international commercial aerospace markets, the semiconductor industry, the consumer electronics, telecommunications and
automotive industries, each of which has been cyclical, exhibited rapid changes and suffered from fluctuating market demands.
A cyclical downturn in these markets may materially affect future operating results. In 2015 and 2016, for example, our
revenue and income were negatively impacted by the downturn in energy markets.
In addition, we sell products and services to customers in industries that are sensitive to the level of general economic
activity and consumer spending habits and in more mature industries that are sensitive to capacity. Adverse economic
conditions affecting these industries may reduce demand for our products and services, which may reduce our revenues, profits
or production levels. For example, in 2014 several of our major customers reduced their marine seismic operations in
connection with a general slowdown in the marine seismic exploration industry. Some of our businesses serve industries such
as power generation and petrochemical refining, which may be negatively impacted by reductions in global capital expenditures
and manufacturing capacity.
A material amount of our total revenues is derived from companies in the oil and gas industry, especially the offshore oil
and gas industry, a historically cyclical industry with levels of activity that are significantly affected by the levels and
volatility of oil and gas prices.
A material amount of our total revenues is derived from customers in or connected to the oil and gas exploration,
development and production, especially the offshore oil and gas industry. One of our largest commercial customers is in the
offshore oil and gas industry and accounted for 2.3% and 2.8% of total sales in 2015 and 2014, respectively. In 2016, no
commercial customer in the offshore oil and gas industry accounted for more than 1% of total sales. The oil and gas industry is
a historically cyclical industry characterized by significant changes in the levels of exploration and development activities. In
2014 and again in 2015 and 2016, the price of Brent crude oil experienced dramatic declines, from a high of $116 in June 2014,
to a low of $27 in January 2016. Oil and gas prices, and market expectations of potential changes in those prices, significantly
affect the levels of those activities. Worldwide political, economic and military events have contributed to oil and gas price
volatility and are likely to continue to do so in the future. Any prolonged reduction in the overall level of offshore oil and gas
exploration and development activities, whether resulting from changes in oil and gas prices or otherwise, could materially and
adversely affect our financial condition and results of operations of our businesses within our Instrumentation segment. Some
factors that have affected and are likely to continue affecting oil and gas prices and the level of demand for our services and
products include the following:
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worldwide demand for oil and gas;
general economic and business conditions and industry trends;
the ability of the Organization of Petroleum Exporting Countries, or OPEC, to set and maintain production levels;
the level of production by non-OPEC countries;
the ability of oil and gas companies to generate funds for capital expenditures;
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domestic and foreign tax policy;
laws and governmental regulations that restrict exploration and development of oil and gas in various offshore
jurisdictions;
laws and governmental regulation that restrict the use of hydraulic fracturing;
technological changes;
the political environment of oil-producing regions;
the price and availability of alternative fuels; and
climate change regulation that provide incentives to conserve energy or use alternative energy sources.
Teledyne manufactures seismic sources, interconnects and data acquisition products used in offshore energy exploration.
When crude oil and natural gas prices are low, the level of marine seismic exploration activity typically decreases, potentially
resulting in reduced demand for our products used in offshore energy exploration. In addition, a decline in the level of capital
spending by oil and natural gas companies may result in a reduced pace of development of new energy reserves, which could
adversely affect demand for our products related to energy production, and, in certain instances, result in the cancellation,
modification or rescheduling of existing orders.
Risks related to the proposed acquisition of e2v:
With the pending acquisition of e2v, the risk profile of Teledyne may differ materially from prior years, which
could materially change our results of operations.
On December 12, 2016, Teledyne and e2v reached agreement on the terms of a recommended cash acquisition to be made
by Teledyne for the ordinary share capital of e2v by means of a Scheme of Arrangement. At announcement, the aggregate
enterprise value for the transaction is expected to be approximately £627.1 million (or approximately $788.9 million) taking
into account e2v stock options and net debt. It is expected that, subject to the satisfaction or waiver of all relevant conditions,
the acquisition will be completed in the first half of calendar 2017. e2v is a leading designer, developer and manufacturer of
radio frequency (“RF”) power systems, imaging solutions and semiconductors to the aerospace, security and defense, space,
medical, scientific and industrial markets. e2v is headquartered in the United Kingdom, with key operations in the United
Kingdom, France, the United States and Spain.
As discussed below, while there are risks associated with acquisitions generally, including closing and integration risks,
there are additional risks associated with owning and operating businesses internationally, including those arising from U.S. and
foreign policy changes, political instability, and exchange rate fluctuations. With this acquisition, a greater percentage of
Teledyne’s revenues and expenses will arise from international sources. The acquisition will also significantly expand
Teledyne’s international employee base and manufacturing footprint. As a result of the acquisition of e2v, the financial results
of the combined company will be more exposed to currency exchange rate fluctuations and an increased proportion of assets,
liabilities and earnings will be denominated in non-U.S. dollar currencies. The combined company will present its financial
statements in U.S. dollars and will have a significant proportion of net assets, expenses and income in non-U.S. dollar
currencies, primarily the British pound, the Canadian dollar and the euro. The combined company’s financial results and capital
ratios will therefore be sensitive to movements in foreign exchange rates. A depreciation of non-U.S. dollar currencies relative
to the U.S. dollar could have an adverse impact on the combined company’s financial results.
While most of the products made and markets served by e2v are complementary to Teledyne, the acquisition of e2v will
expand the size of Teledyne’s Digital Imaging segment relative to its other segments. Continued innovation and research and
development efforts will be required to maintain e2v’s leadership position in imaging products and semiconductor production.
e2v’s business also may be more capital intensive than many of Teledyne’s other businesses, increasing Teledyne’s capital
requirements. Approximately one quarter of e2v’s revenue relates to long-term contracts, many of which involve advancements
in technology and are fixed price. As discussed below, an inherent risk in fixed price contracts is that actual performance costs
may exceed the projected costs on which the contracts are agreed. The failure to anticipate technical problems, estimate costs
accurately or control costs during the performance of a fixed price contract can reduce its profitability or result in a loss.
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We may not realize all of the anticipated benefits of the proposed acquisition of e2v, or those benefits may take
longer to realize than expected. We may also encounter significant unexpected difficulties in integrating the two
businesses.
Our ability to realize the anticipated benefits of the pending acquisition of e2v will depend, to a large extent, on our ability
to integrate our business with e2v’s business. Combining two independent businesses is a complex, costly and time-consuming
process. As a result, we will be required to devote significant management attention and resources to integrating the business
practices and operations of the company and e2v. The integration process may disrupt the combined business and, if
implemented ineffectively, could preclude the realization of the full benefits of the acquisition that are currently expected. Our
failure to meet the challenges involved in integrating the two businesses and to realize the anticipated benefits of the proposed
acquisition could cause an interruption of, or a loss of momentum in, the activities of e2v and Teledyne and could adversely
affect our results of operations. In addition, the overall integration of the businesses may result in material unanticipated
problems, expenses, liabilities, competitive responses, loss of customer relationships, and diversion of management’s attention.
In addition, even if the operations of the businesses of the Teledyne and e2v are integrated successfully, we may not realize the
full benefits of the proposed acquisition, including the synergies, cost savings or sales or growth opportunities that we expect,
or the full benefits may not be achieved within the anticipated time frame, or at all. Additional unanticipated costs may be
incurred in the integration of the two businesses. All of these factors could adversely affect our earnings, decrease or delay the
expected accretive effect of the proposed acquisition, or negatively impact the price of our common stock. As a result, we
cannot assure that the combination of Teledyne’s and e2v’s businesses will result in the realization of the full benefits
anticipated from the proposed acquisition.
In order to close the proposed acquisition of e2v, we will need to incur a significant level of debt that could have
significant consequences for our business and any investment in our securities.
The proposed acquisition of e2v will be Teledyne’s largest acquisition to date. In connection with the announcement of the
proposed acquisition, in December 2016, we entered into a £625.0 million bridge credit facility to fund the acquisition and
related transaction costs, in order to meet the requirement under the U.K. City Code on Takeovers and Mergers that we have
sufficient and certain resources available to fund the consideration for the acquisition. In January 2017, we amended our
revolving credit agreement to allow us to use that facility to fund part of the consideration in lieu of the bridge credit facility.
We intend to use the proceeds of the term loans and the senior notes to fund the consideration and transaction costs for the
proposed acquisition. The indebtedness we have incurred and expect to incur to fund the proposed acquisition could have
significant consequences for our business and any investment in our common stock, including:
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increasing our vulnerability to adverse economic, industry or competitive developments;
reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities
and stock repurchases;
limiting our ability to making large acquisitions;
limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt
service requirements, acquisitions and general corporate or other purposes; and
limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a
competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able
to take advantage of opportunities that our leverage prevents us from exploiting.
The pending acquisition of e2v is subject to various closing conditions, as well as other uncertainties, and there can
be no assurances as to whether and when it may be completed. Failure to consummate the proposed acquisition
could negatively impact our stock price and our future business and financial results.
The consummation of the proposed acquisition of e2v is subject to certain customary conditions. A number of the
remaining conditions are not within our or e2v’s control, and it is possible that such conditions may prevent, delay or otherwise
materially adversely affect the completion of the acquisition. At meetings held in January 2017, e2v shareholders voted in
favor of the resolution to approve the scheme of arrangement and voted to pass a special resolution to approve the
implementation of the scheme. The waiting periods required under both the U.S. Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and in respect of the e2v’s U.S. State Department’s ITAR registration have expired. Clearance or
expiration of the waiting period under German merger control laws remains outstanding. After discussions with the German
authorities, e2v and Teledyne submitted a revised application for clearance on February 24, 2017 in respect of the acquisition.
The German authorities have one month to review such revised submission. Clearance from the French Ministry of Economy
and Finance and the French Ministry of Defense in respect of the acquisition also remains outstanding.
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Under the U.K. City Code on Takeovers and Mergers, we may in certain cases invoke a condition to the acquisition to
cause the acquisition not to proceed only if the U.K. Panel on Takeovers and Mergers, is satisfied that the circumstances giving
rise to that condition not being satisfied are of material significance to the company in the context of the acquisition. Because of
this consent requirement, the conditions, may provide us less protection than the customary conditions in an offer for a U.S.
domestic company. We therefore may be required to proceed with the acquisition in the event of a material adverse change at
e2v.
We cannot predict with certainty whether and when any of the remaining required conditions will be satisfied or if
another uncertainty may arise. If the proposed acquisition does not receive, or timely receive, the required regulatory approvals
and clearances, or if another event occurs that delays or prevents the acquisition, such delay or failure to complete the
acquisition and the acquisition process may cause uncertainty or other negative consequences that may materially and adversely
affect our business, financial condition and results of operations and, to the extent that the current price of our common stock
reflects an assumption that the acquisition will be completed, the price per share for our common stock could be negatively
impacted.
We are subject to the risks associated with international sales and international operations, which could harm our
business or results of operations.
During 2016, sales to international customers accounted for approximately 43% of our total revenues, compared with
44% in 2015 and 45% in 2014. In 2016, we sold products to customers in over 100 countries. In 2016, the top five countries
for international sales were China, the United Kingdom, Germany, South Korea and Japan, constituting approximately 20% of
our total sales. Our acquisitions, including CARIS in 2016, Bowtech Products Limited (“Bowtech”) and ICM in 2015, Bolt in
2014, RESON in 2013, LeCroy in 2012 and DALSA in 2011, contributed to greater international sales. As noted above, our
pending acquisition of e2v will add to our international presence. We anticipate that future sales to international customers will
continue to account for a significant and increasing percentage of our revenues, particularly since business and growth plans for
many Teledyne businesses focus on sales outside of the United States, including to emerging markets such as China, Brazil and
West Africa.
Risks associated with international sales include, but are not limited to:
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political and economic instability;
international terrorism;
export controls, including U.S. export controls related to China, sanctions related to Russia, and increased scrutiny of
exports of marine instruments, digital imaging and other products;
changes in legal and regulatory requirements;
U.S. and foreign government policy changes affecting the markets for our products;
changes in tax laws and tariffs;
changes in U.S. - China and U.S. - Russia relations;
difficulties in protection and enforcement of intellectual property rights;
transportation, including piracy in international waters; and
exchange rate fluctuations.
Any of these factors could have a material adverse effect on our business, results of operations and financial condition.
Exchange rate fluctuations may negatively affect the cost of our products to international customers and therefore reduce our
competitive position. Given our several Canada-based businesses, volatility in the value of the Canadian dollar relative to the
U.S. dollar, or other foreign currencies, could adversely affect the business, operations and the financial condition of our Digital
Imaging segment.
In June 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European
Union (“E.U.”), commonly referred to as “Brexit.” The announcement of Brexit caused significant volatility in global stock
markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies
in which we conduct business. The announcement of Brexit and the potential withdrawal of the U.K. from the E.U. may also
create further global economic uncertainty, which may adversely impact the economies of the U.K., the E.U. countries and
other nations, may cause our current and future customers to reduce their spending on our products and services, and may cause
certain E.U.-based customers to source products from businesses based outside of the U.K. For example, Brexit-related
uncertainty could lead to a reconsideration by Airbus as to future investment and spending in the U.K., which could reduce
sales for our U.K.-based businesses that supply Airbus. Given our several U.K.-based businesses, including our pending
acquisition of e2v, volatility in the value of the British pound relative to the U.S. dollar, or other foreign currencies, could
increase the cost of raw materials and components for our U.K.-based businesses and could otherwise adversely affect the
business, operations and the financial condition of our UK-based businesses.
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Sales of our products and services internationally are subject to U.S. and local government regulations and procurement
policies and practices including regulations relating to import-export control. Violations of export control rules could result in
the impositions of fines and penalties or the suspension of our ability to export items from one or more businesses or the entire
corporation. Depending on the scope of the suspension, this could have a material effect on our ability to perform certain
international contracts. Attempts by the new Presidential Administration to withdraw from or materially modify international
trade agreements, which were raised as a possibility in the 2016 Presidential campaign, could adversely affect our business,
financial condition and results of operations.
Among other things, we are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, which generally prohibits
U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business or
otherwise obtaining favorable treatment. Further, in 2011, the United Kingdom also implemented the U.K. Bribery Act, which
increased the level of anti-bribery law enforcement and compliance relative to the FCPA. Any determination that we had
violated the FCPA, the U.K. Bribery Act, or equivalent anti-bribery and corruption laws in countries in which we do business
could result in sanctions that could have a material adverse effect on our business, financial condition and results of operations.
While we have procedures and compliance programs in place and conduct FCPA and other trainings, we cannot provide
assurance that our internal controls will always protect us from misconduct by our employees, agents or business partners.
Our international operations are subject to risks customarily encountered in foreign operations, including interruption to
transportation flows for delivery of parts to us and finished goods to our customers, changes in a specific country’s or region’s
political or economic conditions, trade protection measures, import or export licensing requirements, consequences from
changes in tax laws and regulatory requirements, difficulty in staffing and managing widespread operations, differing labor
regulations, differing protection of intellectual property and geopolitical turmoil, including terrorism and war. We are also
exposed to foreign currency exchange rate risk inherent in our sales commitments, anticipated sales and expenses, and assets
and liabilities denominated in currencies other than the local functional currency, and may also become subject to interest rate
risk inherent in any debt we incur, or financial investments we hold.
Acquisitions involve inherent risks that may adversely affect our operating results and financial condition.
Our growth strategy includes acquisitions. Acquisitions involve various inherent risks, such as:
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our ability to assess accurately the value, strengths, weaknesses, internal controls, contingent and other liabilities and
potential profitability of acquisition candidates;
the potential loss of key personnel of an acquired business;
our ability to integrate acquired businesses and to achieve identified financial, operating and other synergies
anticipated to result from an acquisition;
our ability to assess, integrate and implement internal controls of acquired businesses in accordance with Section 404
of the Sarbanes-Oxley Act of 2002;
the distraction of management resulting from the need to integrate acquired businesses;
increased competition for acquisition targets, which may increase acquisition costs;
the potential impairment of assets;
potential unknown liabilities associated with a business we acquire or in which we invest, including environmental
liabilities;
the risks associated with acquiring privately-held companies, which generally do not have as formal or comprehensive
internal controls and compliance systems in place as public companies;
production delays associated with consolidating acquired facilities and manufacturing operations;
risks associated with owning and operating businesses internationally, including those arising from U.S. and foreign
government policy changes or actions and exchange rate fluctuations; and
unanticipated changes in business and economic conditions affecting an acquired business.
While we conduct financial and other due diligence in connection with our acquisitions and generally seek some form of
protection, including indemnification from a seller and sometimes an escrow of a portion of the purchase price to cover
potential issues, such acquired companies may have weaknesses or liabilities that are not accurately assessed or brought to our
attention at the time of the acquisition. Further, indemnities or escrows may not fully cover such matters, particularly matters
identified after a closing.
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As they have over the last few years, acquisitions may also change the nature and level of various risks faced by
Teledyne. For example, our acquisition of Bolt in 2014 increased our exposure to the offshore energy exploration market. The
Bolt acquisition, the DALSA acquisition in 2011 and the LeCroy acquisition in 2012 increased the percentage of sales
attributable to commercial customers as opposed to the U.S. Government. As noted above, our pending acquisition of e2v
increases our international presence and the percentage of sales related to the Digital Imaging segment. These acquisitions,
coupled with our other recently acquired companies, located outside of the United States, also increased the percentage of
revenues and expenses that arise from international sources and consequently our exposure to U.S. and foreign policy changes
and exchange rate fluctuations. Additionally, the businesses of e2v, DALSA and LeCroy are more capital intensive than other
Teledyne businesses, which could result in increasing Teledyne’s capital requirements.
Under SEC rules, Teledyne must issue a report on management’s assessment of the effectiveness of internal controls over
financial reporting. The SEC permits a limited time-based exclusion for acquisitions to give a company an opportunity to
evaluate more fully the internal controls of acquired companies and correct deficiencies and institute new or additional internal
controls. Our 2016 management’s report specifically excludes from its scope and coverage our 2016 acquisitions of CARIS,
Quantum Data, Frontline, IN USA and Hanson, allowing us additional time to evaluate existing internal controls and implement
additional controls as appropriate. With regard to future acquisitions, we can provide no assurance that we will be able to
provide a report that contains no significant deficiencies or material weaknesses with respect to these acquired companies or
other acquisitions.
In connection with our acquisitions, including ones which we do not complete, we may incur significant transaction costs.
We are required to expense, as incurred, such transaction costs, which may have a material adverse impact on our quarterly
financial results. Further, the acquisitions of U.S. public companies, such as Bolt and LeCroy, now routinely trigger purported
class action lawsuits, filed by shareholders of the target companies, the defense of which has increased transaction costs, among
other things.
Changes in future business conditions could cause business investments, goodwill and other long-lived assets to become
impaired, resulting in significant losses and write-downs that would reduce our operating income.
On January 1, 2017, Teledyne’s goodwill was $1,193.5 million and net acquired intangible assets were $234.6 million.
Under current accounting guidance, we are required to test annually both acquired goodwill and other indefinite-lived
intangible assets for impairment based upon a fair value approach, rather than amortizing them over time. We have chosen to
perform our annual impairment reviews of goodwill and other indefinite-lived intangible assets during the fourth quarter of
each fiscal year. We also are required to test goodwill for impairment between annual tests if events occur or circumstances
change that would more likely than not reduce our enterprise fair value below its book value. These events or circumstances
could include a significant change in the business climate, including a significant sustained decline in an entity’s market value,
legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business, or other
factors. If the fair market value is less than the carrying value, including goodwill, we could be required to record an
impairment charge. The valuation of reporting units requires judgment in estimating future cash flows, discount rates and
estimated product life cycles. In making these judgments, we evaluate the financial health of the business, including such
factors as industry performance, changes in technology and operating cash flows. As we have grown through acquisitions, the
amount of goodwill and net acquired intangible assets is a significant portion of our total assets. As a result, the amount of any
annual or interim impairment could be significant and could have a material adverse effect on our reported financial results for
the period in which the charge is taken. We also may be required to record an earnings charge or incur unanticipated expenses
if, as a result of a change in strategy or other reason, we were to determine the value of other assets had been impaired.
United States and global responses to terrorism, continuing turmoil in Middle Eastern countries, concerns regarding
nuclear proliferation and the safety of nuclear energy, potential epidemics, financial issues facing airlines and volatile
energy prices increase uncertainties with respect to many of our businesses and may adversely affect our business and
results of operations.
United States’ and global responses to terrorism, continuing turmoil in Middle Eastern countries and nuclear proliferation
concerns increase uncertainties with respect to U.S. and other business and financial markets and could adversely affect our
business and operations.
Air travel declines have occurred after terrorist attacks and heightened security alerts, as well as after the high-profile
outbreaks of disease. While travel by our sales and service personnel to various regions has been affected by such factors,
additional declines in air travel resulting from such factors and other factors could adversely affect the financial condition of
many of our commercial airline and aircraft manufacturer customers and, in turn, could adversely affect our Aerospace and
Defense Electronics segment. The 2015 Paris terrorist attacks or the Syrian refugee crisis could result in governments in Europe
imposing greater restrictions on the movement of personnel or goods, which could adversely impact our businesses located
within the European Union or our ability to sell products in that region. In addition, a prolonged virus epidemic or pandemic,
or the threat thereof, could result in worker absences, lower productivity, voluntary closure of our offices and manufacturing
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facilities, disruptions in our supply chain, travel restrictions on our employees, and other disruptions to our businesses.
Moreover, health epidemics may force local health and government authorities to mandate the temporary closure of our offices
and manufacturing facilities.
Deterioration of financial performance of airlines could result in a reduction of discretionary spending for upgrades of
avionics and in-flight communications equipment, which would adversely affect our Aerospace and Defense Electronics
segment.
Higher oil prices could adversely affect commercial airline-related customers of our Aerospace and Defense Electronics
segment. Conversely, lower oil prices have decreased oil exploration and petrochemical refining activities and have hindered
our marine and other instrumentation businesses. In addition, instability in the Middle East or other oil-producing regions could
adversely affect expansion plans of the oil and gas industry customers of our instrumentation and cable solutions businesses.
Our revenue from government contracts subjects us to many risks:
Our revenue from U.S. government contracts depends on the continued availability of funding from the U.S.
Government, and, accordingly, we have the risk that funding for our existing contracts may be canceled or
diverted to other uses or delayed.
We perform work on a number of contracts with the U.S. Department of Defense and other agencies and departments of
the U.S. Government including sub-contracts with government prime contractors. Sales under contracts with the
U.S. Government as a whole, including sales under contracts with the U.S. Department of Defense, as prime contractor or
subcontractor, represented approximately 27% of our total revenue in 2016, compared with 26% in 2015 and 25% in 2014.
Performance under government contracts has inherent risks that could have a material effect on our business, results of
operations, and financial condition.
Government contracts are conditioned upon the continuing availability of Congressional appropriations and the failure of
Congress to appropriate funds for programs in which we participate could negatively affect our results of operations. The U.S.
Government shutdown during 2013 negatively affected many of our businesses, and the failure by Congress to approve future
budgets on a timely basis could delay procurement of our products and services and cause us to lose future revenues.
Additionally, defense spending is expected to continue to decline in some areas over the next few years. A continued emphasis
on Federal deficit and debt reduction could lead to a further decrease in overall defense spending. The continued war on
terrorism also could result in a diversion of funds from programs in which Teledyne participates. Budgetary concerns could
result in future contracts being awarded more on price than on other competitive factors, and smaller defense budgets could
result in government in-sourcing of programs and more intense competition on programs that are not in-sourced, which could
result in lower revenues and profits.
The sequestration provision of the Budget Control Act of 2011 originally imposed $500.0 billion of defense cuts over nine
years starting in fiscal year 2013, which represented approximately 9% of planned defense funding over the period. On
November 2, 2015, the Bipartisan Budget Act of 2015 (the Budget Act) was signed into law. The Budget Act raises the statutory
limit on the amount of permissible federal debt (the debt ceiling) until March 2017 and raises the sequester caps imposed by the
Budget Control Act of 2011 by $80.0 billion, split equally between defense and domestic spending ($50.0 billion in government
fiscal year 2016 and $30.0 billion in government fiscal year 2017). On December 18, 2015, Congress passed and the President
signed the Consolidated Appropriations Act of 2016, which provides funding for the U.S. government for the government’s
2016 fiscal year, providing $1.1 trillion in discretionary funding for federal agencies through September 2016. The President
signed a continuing resolution in September 2016, which was extended in December 2016, and provides funding for the U.S.
Government at fiscal 2016 levels through April 28, 2017. Congress has yet to pass a budget, although both chambers are
moving forward with appropriations bills. The total statutory spending cap remains at $1.1 trillion as set by the relief
authorized in 2016 and 2017 by the Bipartisan Budget Act of 2015 to the original sequestration specified by the Budget Act of
2011, which set discretionary caps through 2021.
Continued defense spending does not necessarily correlate to continued business for us, because not all of the programs in
which we participate or have current capabilities may be provided with continued funding. Changes in policy and budget
priorities by the President, his Administration and the U.S. Congress for various Defense and NASA programs could continue
to impact our Engineered Systems, Aerospace and Defense Electronics and Digital Imaging segments. For example, changes in
national space policy that affect NASA’s budget have occurred. There have also been significant reductions in missile defense
budgets. Our Engineered Systems segment may be further impacted by delays in production runs under the JASSM and
Harpoon missile programs, as well as U.S. Department of Defense directives to introduce competitive bidding for programs on
which we have previously served as sole source. The President has expressed concern over the cost of the F-35 Joint Strike
Fighter program. Our Aerospace and Defense Electronics segment may be impacted by volume and/or price reductions in
connection with this program, to the extent they are imposed. The timing of program cycles can affect our results of operations
for a particular quarter or year, and cancellations of significant programs such as the Objective Simulation Framework (“OSF”)
or the Shallow Water Combat Submersible (“SWCS”) would affect our results. It is also not uncommon for the U.S.
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Department of Defense to delay the timing of awards for major programs for six to twelve months. Reductions and delays in
research and development funding by the U.S. Government may continue to impact our revenues. As DARPA reviews its
programs aimed to technologically enhance U.S. military capabilities and national security, changes to the DARPA research and
technology development programs in which we participate could occur. Uncertainty over budgets or priorities with the new
Presidential Administration could result in delays in funding, changes in funded programs and the timing of awards that could
have a material impact on our revenues in 2017. Finally, various U.S. Department of Defense initiatives, such as the emphasis
on in-sourcing positions to the Government and anticipated reductions or cancellations of existing programs, could negatively
impact our Engineered Systems segment.
Our participation in government programs may decrease or be subject to renegotiation as those programs evolve
over time.
The U.S. Government has been placing emphasis on small business quotas and increasing small business contract set
asides and minimum work percentages. In some cases, prime contractors are required to reduce participation by large
subcontractors like Teledyne in order to fill small business quotas and be responsive to proposals and bids. As a result, our
Engineered Systems segment could be significantly impacted.
Over time, and for a variety of reasons, programs can evolve and affect the extent of our participation. We have been a
significant participant in NASA programs, primarily through our Engineered Systems segment and through Teledyne Scientific
Company. The prior Administration introduced significant changes to the national space policy, including the cancellation of
the NASA’s Constellation Program which includes Ares launch vehicles. Teledyne Brown Engineering has developed the
MUSES, an Earth imaging platform, as part of our commercial space-based digital imaging business. The MUSES platform
depends on continued operation of the ISS, and we may not be successful in developing the technology or commercial
relationships necessary to make this investment profitable. The launch of MUSES has been delayed due to several launch
failures by Space X, and is now scheduled for the summer of 2017. Continued delays in launching MUSES could have adverse
impact on the success of this platform. While most recently, in early 2014, we were awarded a five-year $60.0 million contract
by NASA’s Marshall Space Flight Center to develop and manufacture the Launch Vehicle Stage Adapter for the Space Launch
System, failure to further transition our business successfully could result in reduced sales. In addition, delayed funding and
changes in support for NASA’s current space policy could negatively impact our business. The new Presidential Administration
could also lead to changes to the nation’s space policy, some or all of which could materially impact our results.
Our contracts with the U.S. Government are subject to termination rights that could adversely affect us.
Most of our U.S. Government contracts are subject to termination by the U.S. Government either at its convenience or
upon the default of the contractor. Termination for convenience provisions provide only for the recovery of costs incurred or
committed, settlement expenses, and profit on work completed prior to termination. Termination for default clauses impose
liability on the contractor for excess costs incurred by the U.S. Government in re-procuring undelivered items from another
source. We had one U.S. Government contract terminated for convenience in 2016, compared with eight in 2015 and three in
2014. No contracts were terminated for default during such three-year period.
We may lose money or generate less than expected profits on our fixed-price and other government contracts and
we may lose money if we fail to meet certain pre-specified targets in government contracts.
There is no guarantee that U.S. Government contracts will be profitable. A number of our U.S. Government prime
contracts and subcontracts are fixed-price type contracts (54% of our total U.S. Government contracts were fixed-price in 2016,
54% in 2015 and 58% in 2014). Under these types of contracts, we bear the inherent risk that actual performance cost may
exceed the fixed contract price. Under such contracts, we must absorb cost overruns, notwithstanding the difficulty of
estimating all of the costs we will incur in performing these contracts. We cannot assure that our contract loss provisions in our
financial statements will be adequate to cover all actual future losses. We may lose money or generate lower profits on some
contracts if we fail to meet these estimates. We may also lose money on non-fixed price, cost-reimbursement contracts that
contain dis-incentives or penalties related to cost, schedule or performance.
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Our business is subject to government contracting regulations, including increasingly complex regulations on
cybersecurity and our failure to comply with such laws and regulations could harm our operating results and
prospects.
We, like other government contractors, are subject to various audits, reviews and investigations (including private party
“whistleblower” lawsuits) relating to our compliance with federal and state laws. More routinely, the U.S. Government may
audit the costs we incur on our U.S. Government contracts, including allocated indirect costs. Such audits could result in
adjustments to our contract costs. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and
such costs already reimbursed would need to be refunded. We have recorded contract revenues based upon costs we expect to
realize on final audit. In a worst case scenario, should a business or division involved be charged with wrongdoing, or should
the U.S. Government determine that the business or division is not a “presently responsible contractor”, that business or
division, and conceivably our Company as a whole, could be temporarily suspended or, in the event of a conviction, could be
debarred for up to three years from receiving new government contracts or government-approved subcontracts. In addition, we
could expend substantial amounts defending against such charges and in damages, fines and penalties if such charges were
proven or were to result in negotiated settlements. The Department of Defense as well as other U.S. Government contracting
agencies have adopted new rules and regulations requiring contractors to implement a set of cyber security measures to attain
the safeguarding of contractor systems that process, store, or transmit certain information. Implementation and compliance
with these new cyber security requirements is complex and costly, and could result in unforeseen expenses, lower profitability
and, in the case of non-compliance, penalties and damages, all of which could have an adverse effect on our business.
Our indebtedness, and any failure to comply with our covenants that apply to our indebtedness, could materially and
adversely affect our business.
As of January 1, 2017, we had $611.7 million in total outstanding indebtedness. This indebtedness included $425.0
million in senior unsecured notes, $182.5 million in term loans and no amounts outstanding under our $750.0 million 2015-
amended credit facility. As a result of our pending acquisition of e2v, we expect that our total indebtedness will initially
increase by approximately $700.0 million. Our indebtedness could harm our business by, among other things, reducing the
funds available to make new strategic acquisitions or reducing our flexibility in planning for or reacting to changes in our
business and market conditions. Our indebtedness exposes us to interest rate risk since a portion of our debt obligations are at
variable rates. Our indebtedness could also have a material adverse effect on our business by increasing our vulnerability to
general adverse economic and industry conditions or a downturn in our business. General adverse economic and industry
conditions or a downturn in our business could result in our inability to repay this indebtedness in a timely manner.
Our pension expense and the value of our pension assets are affected by factors outside of our control, including the
performance of plan assets, the stock market, interest rates and actuarial experience.
We have a domestic qualified defined benefit pension plan covering most of our U.S. employees hired prior to 2004 or
approximately 16% of our active employees. We also have several smaller domestic and foreign-based pension plans. As of
January 1, 2017, the value of the combined pension assets is greater than our combined pension benefit obligations. The
accounting rules applicable to our pension plans require that amounts recognized in the financial statements be determined on
an actuarial basis, rather than as contributions are made to the plan. Two significant elements in determining our pension
income or pension expense are the expected return on plan assets and the discount rate used in projecting pension benefit
obligations. Declines in the stock market and lower rates of return could increase required contributions to our qualified
pension plan and/or result in a change to shareholders’ equity. Our investment strategy may not produce the expected returns if
the credit, financial or stock markets deteriorate. Any decreases or increases in market interest rates will affect the discount rate
assumption used in projecting pension benefit obligations. In addition, changes in other actuarial assumptions such as mortality
assumptions or change due to legislative or regulatory actions could impact our pension income or expense as well as funding
obligations. Each year beginning with 2014, the Society of Actuaries released revised mortality tables, which updated life
expectancy assumptions. In consideration of these tables, we updated the mortality assumptions used in determining our
pension and post-retirement obligations. In consideration of these tables, we modified the mortality assumptions used in
determining our pension and post-retirement benefit obligations. The impact of these mortality assumptions increased our
pension obligation and increased future pension expense. In 2013, we made a voluntary pretax cash contribution of $83.0
million to the domestic pension plan. No contributions were made to the domestic pension plan since the 2013 contribution. If,
and to the extent, decreases in our pension assets are not offset by voluntary contributions, recovered through future asset
returns, mitigated by an increase in the rate at which the benefit obligation is discounted, or other actions, our required cash
contributions and pension expense could increase under the plans. For additional discussion of pension matters, see the
discussion under “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition” and
Notes 2 and 11 to our Notes to Consolidated Financial Statements.
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Our business and operations could suffer in the event of cyber security breaches.
Attempts by others to gain unauthorized access to our information technology systems have become more sophisticated
and are sometimes successful. These attempts, which might be related to industrial or foreign government espionage, activism,
or other motivations, include covertly introducing malware to our computers and networks, performing reconnaissance,
impersonating authorized users, stealing, corrupting or restricting our access to data, among other activities. We continue to
update our infrastructure, security tools and processes to protect against security incidents, including both external and internal
threats, and to prevent their recurrence. Company personnel and third parties have been tasked to detect and investigate such
incidents, but it is possible that we might not prevent or be aware of an incident or its magnitude and effects. The theft,
corruption, unauthorized use or publication of our intellectual property and/or confidential business information could harm our
competitive position, reduce the value of our investment in research and development and other strategic initiatives or
otherwise adversely affect our business. We are subject to U.S. Department of Defense regulations applicable to certain types
of data residing on or transiting through certain information systems, and we expect these regulations will be incorporated into
certain contracts we hold. To the extent that any security breach results in inappropriate disclosure of confidential or controlled
information of employees, third parties or the U.S. Government, we may incur liability or the loss of contracts or security
clearances as a result. In addition, we expect to continue devoting additional resources to the security of our information
technology systems. More resources may be required in the defense arena to the extent the U.S. Government increases its
cyber security mandates.
We may not have sufficient resources to fund all future research and development and capital expenditures or possible
acquisitions.
In order to remain competitive, we must make substantial investments in research and development of new or enhanced
products and continuously upgrade our process technology and manufacturing capabilities. Our Teledyne Scientific Company
subsidiary, which serves as our primary research center, has been actively promoting and funding joint research and
development projects with other Teledyne businesses, including our Teledyne Oil & Gas businesses, Teledyne Reynolds, Inc.,
Teledyne Brown Engineering, Inc., DALSA and LeCroy. The business of e2v, for which the design and development of
specialized technology for high performance systems and equipment is integral, will, once acquired also require substantial
investments in research and development. Additionally, some of our businesses are actively pursuing governmental support
and funding for some of their research and development initiatives, including DALSA with respect to its CMOS and uncooled
infrared image sensor development efforts. Nonetheless, we may be unable to fund all of our research and development and
capital investment needs or possible acquisitions. Our ability to raise additional capital will depend on a variety of factors, some
of which will not be within our control, including the existence of bank and capital markets, investor perceptions of us, our
businesses and the industries in which we operate, and general economic conditions. Failure to successfully raise needed capital
or generate cash flow on a timely or cost-effective basis could have a material adverse effect on our business, results of
operations and financial condition. In addition, if we fail to accurately predict future customer needs and preferences or fail to
produce viable technologies, we may invest heavily in research and development of products that do not lead to significant
revenue, which would adversely affect our profitability.
Limitations in customer funding for applied research and development and technology insertion projects and government
support for research and development expenditures may reduce our ability to apply our ongoing investments in some market
areas.
We may be unable to successfully introduce new and enhanced products in a timely and cost-effective manner or
increase our participation in new markets, which could harm our profitability and prospects.
Our operating results depend in part on our ability to introduce new and enhanced products on a timely basis. In order to
improve our product development capabilities we purchased the research center that is now Teledyne Scientific Company in
2006 and in 2011 we purchased DALSA, which has access to a well-equipped MEMS research and development center. In
2013, we opened a 52,000-square-foot technology development center in Daytona Beach, Florida primarily to serve the
offshore oil and gas production and exploration industries. Successful product development and introduction depend on
numerous factors, including our ability to anticipate customer and market requirements, changes in technology and industry
standards, our ability to differentiate our offerings from offerings of our competitors, and market acceptance. We may not be
able to develop and introduce new or enhanced products in a timely and cost-effective manner or to develop and introduce
products that satisfy customer requirements.
Our new products also may not achieve market acceptance or correctly address new industry standards and technological
changes. We may also lose any technological advantage to competitors if we fail to develop new products in a timely manner.
Additionally, new products may trigger increased warranty costs as information on such products is augmented by actual
usage. Accelerated entry of new products to meet heightened market demand and competitive pressures may cause additional
warranty costs as development and testing time periods might be accelerated or condensed.
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We intend to both adapt our existing technologies and develop new products to expand into new market segments. We
may be unsuccessful in accessing these and other new markets if our products do not meet our customers’ requirements, as a
result of changes in either technology and industry standards or because of actions taken by our competitors.
Technological change and evolving industry and regulatory standards could cause some of our products or services to
become obsolete or non-competitive.
The markets for some of our products and services are characterized by rapid technological development, evolving
industry standards, changes in customer requirements and new product introductions and enhancements. A faster than
anticipated change in one or more of the technologies related to our products or services, or in market demand for products or
services based on a particular technology, could result in faster than anticipated obsolescence of certain of our products or
services and could lead to reduced sales of those products, which could have a material adverse effect on our business, results
of operations and financial condition. Currently accepted industry and regulatory standards are also subject to change, which
may contribute to the obsolescence of our products or services. The political agenda of the new Presidential Administration
may affect the level of environmental regulations and enforcement and government spending on scientific research, which
could adversely impact the sales of our products and services, including sales of pollution monitoring instruments and
instruments used to measure the Earth’s climate and climate change, such as undersea gliders and space-based imaging sensors.
We may not be able to reduce the costs of our products to satisfy customers’ cost reduction mandates, which could harm
our sales or margins.
More and more customers continue to seek price reductions of our products. While we continually work to reduce our
manufacturing and other costs of our products, without affecting product quality and reliability, there is no assurance that we
will be able to do so and do so in a timely manner to satisfy the pricing pressures of our customers. Cost reductions of raw
materials and other components used in our products may be beyond our control depending on market conditions. Customers
may seek lower cost products from China and other developing countries where manufacturing costs are lower.
The airline industry is heavily regulated, and if we fail to comply with applicable requirements, our results of operations
could suffer.
Governmental agencies throughout the world, including the U.S. Federal Aviation Administration, or the FAA, prescribe
standards and qualification requirements for aircraft components, including virtually all commercial airline and general aviation
products. Specific regulations vary from country to country, although compliance with FAA requirements generally satisfies
regulatory requirements in other countries. If any material authorization or approval qualifying us to supply our products is
revoked or suspended, then the sale of the product would be prohibited by law, which would have an adverse effect on our
business, financial condition and results of operations.
From time to time, the FAA or equivalent regulatory agencies in other countries propose new regulations or changes to
existing regulations, which are usually more stringent than existing regulations. If these proposed regulations are adopted and
enacted, we may incur significant additional costs to achieve compliance, which could have a material adverse effect on our
business, financial condition and results of operations. Recent trends by China’s aviation authority to relax restrictions on
airspace may be reversed, and anticipated new regulations loosening airspace restrictions may not materialize, which could
impact the future prospects of our commercial aerospace businesses. China’s aviation authorities recently adopted new safety
regulations for airlines that resulted in increased sales of our avionics products in China in 2016. If these regulations are
reversed, the growth prospects of our commercial aerospace business in China may be limited.
Increasing competition could reduce the demand for our products and services.
Each of our markets is highly competitive. Many of our competitors have, and potential competitors could have, greater
name recognition, a larger installed base of products, more extensive engineering, manufacturing, marketing and distribution
capabilities and greater financial, technological and personnel resources than we do. New or existing competitors may also
develop new technologies that could adversely affect the demand for our products and services. Industry acquisition and
consolidation trends, particularly among aerospace and defense contractors, have adversely impacted demand for our aerospace
and defense related engineering services as large prime contractors in-source increased amounts of major acquisition programs
and also require significant expansion in small business participation to meet Government contracting goals. Low-cost
competition from China and other developing countries could also result in decreased demand for our products. Increasing
competition could reduce the volume of our sales or the prices we may charge, which would negatively impact our revenues.
Smaller defense budgets both in the United States and Europe could result in additional competition for new and existing
defense programs.
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Product liability claims, product recalls and field service actions could have a material adverse effect on our reputation,
business, results of operations and financial condition and we may have difficulty obtaining product liability and other
insurance coverage.
As a manufacturer and distributor of a wide variety of products, including monitoring instruments, products used in
offshore oil and gas production, products used in commercial aviation and products used in medical devices (most recently
including X-ray detectors and generators), our results of operations are susceptible to adverse publicity regarding the quality or
safety of our products. In part, product liability claims challenging the safety of our products may result in a decline in sales for
a particular product, which could adversely affect our results of operations. This could be the case even if the claims themselves
are proven untrue or settled for immaterial amounts.
While we have general liability and other insurance policies concerning product liabilities, we have self-insured retentions
or deductibles under such policies with respect to a portion of these liabilities. Awarded damages could be more than our
accruals. We could incur losses above the aggregate annual policy limit as well. We cannot assure that, for 2017 and in future
years, insurance carriers will be willing to renew coverage or provide new coverage for product liability.
Product recalls can be expensive and tarnish our reputation and have a material adverse effect on the sales of our
products. We cannot assure that we will not have additional product liability claims or that we will not recall any products.
We have been joined, among a number of defendants (often over 100), in lawsuits alleging injury or death as a result of
exposure to asbestos. In addition, because of the prominent “Teledyne” name, we may continue to be mistakenly joined in
lawsuits involving a company or business that was not assumed by us as part of our 1999 spin-off. To date, we have not
incurred material liabilities in connection with these lawsuits. However, our historic insurance coverage, including that of its
predecessors, may not fully cover such claims and the defense of such matters. Coverage typically depends on the year of
purported exposure and other factors. Nonetheless, we intend to vigorously defend our position against these claims.
Certain gas generators historically manufactured by Teledyne Energy Systems, Inc. contained a sealed, wetted asbestos
component. While the company has transitioned to a replacement material, had placed warning labels on its products and took
care in the handling of this discontinued material by employees, there is no assurance that the company will not face product
liability or workers’ compensation claims involving this component.
Our Teledyne Brown Engineering, Inc.’s laboratory in Knoxville, Tennessee performs radiological analyses. Our
Teledyne DALSA Professional Imaging unit develops image sensors used in medical and dental X-ray applications along with
portable X-ray generators used in non-destructive testing and security applications. In addition, our Teledyne DALSA Digital
Imaging unit develops equipment and sensors used in eye examination and general surgical vision applications. Errors and
omissions in analyses may occur or erroneous images could be captured. Our insurance coverage or indemnities may not be
adequate to cover potential problems associated with faulty radiological analyses.
Teledyne Brown Engineering, Inc. and other Teledyne companies manufacture components for customers in the nuclear
power market, including utilities and certain governmental entities. Certain liabilities associated with such products are covered
by the Price-Anderson Nuclear Industries Indemnity Act and other statutory and common law defenses, and we have received
indemnities from some of our customers. However, there is no assurance we will not face product liability claims related to
such products or that our exposure will not exceed the amounts for which we have liability coverage or protection.
Our business and financial results could be adversely affected by conditions and other factors associated with our
suppliers.
Some items we purchase for the manufacture of our products are purchased from limited or single sources of supply due
to technical capability, price and other factors. For example, DALSA has a single source of supply for CCD semiconductor
wafers used to assemble image sensors and an external single source of supply for CMOS semiconductor wafers used to
assemble X-ray panel products. LeCroy continues to outsource a portion of its research and development activities to a third
party engineering firm in Malaysia where it may be more difficult for us to enforce our intellectual property rights. We have
also outsourced from time to time the manufacturing of certain parts, components, subsystems and even finished products to
single or limited sources, including international sources. Disruption of these sources could cause delays or reductions in
shipments of our products or increases in our costs, which could have an adverse effect on our financial condition or operations.
International sources possess additional risks, some of which are similar to those described above in regard to international
sales. With any continuing disruption in the global economy and financial markets, some of our suppliers may also continue to
face issues gaining access to sufficient credit and materials to maintain their businesses, which could reduce the availability of
some components and, to the extent such suppliers are single source suppliers, could adversely affect our ability to continue to
manufacture and sell our products. Continuing economic pressure on suppliers may also trigger increased pricing or workforce
reductions or reduced workweeks and a shrinking supply base, possibly creating longer lead times to obtain needed components
for our products, delays in material acceptance and a greater risk of receiving counterfeit parts.
24
Some of our commercial product lines may have one or a limited number of customers, the loss of which could adversely
affect our business or financial results.
While no commercial customer accounted for more than 10% of our total sales during 2016, 2015 and 2014 and we have
hundreds of customers in the various industries that we serve, some of our product lines may have one or a few key customers
the loss of which could adversely affect our business or financial results. In 2016, no commercial customer accounted for more
than 2.0% of total sales. Teledyne’s largest commercial customer in 2015 and 2014, a customer of our Instrumentation
segment, accounted for 2.3% and 2.8% of total sales in 2015 and 2014, respectively.
Newer products, such as our X-ray generators and X-ray panel products, may initially be more heavily dependent on a
singular or limited number of customers until market acceptance is obtained or due to contractual terms. Similarly, some older
product lines may be more heavily dependent on a singular or limited number of customers. In either such case, program
delays of such customer or customers, as well as the loss of such customer or customers, could adversely affect our business or
financial results.
We face risks related to sales through distributors and other third parties that we do not control, which could harm our
business.
We sell a portion of our products through third parties such as distributors, value-added resellers and OEMs (collectively
“distributors”). Using third parties for distribution exposes Teledyne to many risks, including concentration, credit risk and
compliance risks. We may rely on one or more key distributors for a product, and the loss of these distributors could reduce our
revenue. Distributors may face financial difficulties, including bankruptcy, which could harm our collection of accounts
receivables and financial results. Violations of the FCPA or similar anti-bribery laws by distributors or other third party
intermediaries could have a material impact on our business. Failing to manage risks related to our use of distributors may
reduce sales, increase expenses, and weaken our competitive position, and could result in sanctions against us.
Compliance with increasing environmental and climate change regulations, as well as the effects of potential
environmental liabilities, could have a material adverse financial effect on us.
We, like other industry participants, are subject to various federal, state, local and international environmental laws and
regulations. We may be subject to increasingly stringent environmental standards in the future, particularly as greenhouse gas
emissions and climate change regulations and initiatives increase. Future developments, administrative actions or liabilities
relating to environmental and climate change matters could have a material adverse effect on our business, results of operations
or financial condition. Environmental regulations on hydraulic fracturing and the use of seismic energy sources for offshore
energy exploration could adversely affect some product lines of our Instrumentation segment.
Our manufacturing operations, including former operations, could expose us to material environmental liabilities.
Additionally, companies we acquire may have environmental liabilities that are not accurately assessed or brought to our
attention at the time of the acquisition.
The U.S. Environmental Protection Agency (“EPA”) has focused on greenhouse gases (“GHGs”), maintaining GHGs
threaten the public health and welfare of the American people. The EPA also maintains that GHG emissions from on-road
vehicles contribute to that threat. The EPA’s endangerment finding covers emissions of six greenhouse gases. The EPA’s
continuing efforts to limit GHG emissions could adversely affect our U.S. manufacturing operations, increase prices for energy,
fuel and transportation, require us to accommodate changes in parameters, such as the way parts are manufactured, and may, in
some cases, require us to redesign certain of our products. This could lead to increased costs, which we may not be able to
recover from customers, delays in product shipments and loss of market share to competitors.
For additional discussion of environmental matters, see the discussion under the caption “Other Matters - Environmental”
of “Item 7. Management’s Discussion and Analysis of Results of Operation and Financial Condition” and Note 14 to our Notes
to Consolidated Financial Statements.
Our inability to attract and retain key personnel could have a material adverse effect on our future success.
Our future success depends to a significant extent upon the continued service of our executive officers and other key
management and technical personnel and on our ability to continue to attract, retain and motivate qualified personnel. We also
have a maturing workforce. While we have engaged in succession planning, the loss of the services of one or more of our key
employees or our failure to attract, retain and motivate qualified personnel could have a material adverse effect on our business,
financial condition and results of operations.
25
We may not be able to sell, exit or reconfigure businesses, facilities or product lines that we determine no longer meet
with our growth strategy or that should be consolidated.
Consistent with our strategy to emphasize growth in our core markets, we continually evaluate our businesses to ensure
that they are aligned with our strategy. This review led to the decision to sell the net assets of the Printed Circuit Technology
(“PCT”) business in 2016 and the general aviation piston engine businesses in 2011. As a result of our review and declines in
our electronic manufacturing services businesses, in 2013, we closed our Teledyne Microelectronics Technologies’ facility in
Marina del Rey, California and relocated several of its product lines to other Teledyne locations. In further response to
downturns in our defense businesses, in 2013, we also began consolidating some of our microelectronic component operations
into our Mountain View, California facility and also our Shipley, England facility, and relatedly sold a former manufacturing
site in Sunnyvale, California. Additionally, we closed Teledyne CML Group Limited’s precision machining and fabrications
business in Birkenhead, England to focus more on its advanced composites manufacturing business.
In 2015, we began to consolidate some of the businesses units and facilities in our Instrumentation segment, and it
continued into 2016. We may not be able to realize efficiencies and cost savings from these consolidation activities. There is
no assurance that our efforts will be successful. If we do not successfully manage our current consolidation activities, or any
other similar activities that we may undertake in the future, expected efficiencies and benefits might be delayed or not realized,
and our operations and business could be disrupted. Our ability to dispose of, exit or reconfigure businesses that may no longer
be aligned with our growth strategy will depend on many factors, including the terms and conditions of any asset purchase and
sale agreement, as well as industry, business and economic conditions. We cannot provide any assurance that we will be able to
sell non-strategic businesses on terms that are acceptable to us, or at all. In addition, if the sale of any non-strategic business
cannot be consummated or is not practical, alternative courses of action, including relocation of product lines or closure, may
not be available to us or may be more costly than anticipated.
Natural and man-made disasters could adversely affect our business, results of operations and financial condition.
Several of our facilities, as a result of their locations, could be subject to a catastrophic loss caused by earthquakes,
hurricanes, tornados, floods, ice storms or other natural disasters. Many of our production facilities and our headquarters are
located in California and thus are in areas with above average seismic activity and may also be at risk of damage in wildfires.
Teledyne DALSA’s semiconductor facilities in Quebec, Canada have been impacted by severe ice storms, including a storm in
2013. In addition, we have manufacturing facilities in the Southeastern United States and Texas that have been threatened and
struck by major hurricanes. In October 2012, LeCroy and other Teledyne facilities incurred business interruptions and were
without power for several days as a result of Hurricane Sandy. Our facilities in Alabama, Florida, Nebraska, Tennessee and
Virginia have also been threatened by tornados. In June 2012, a tornado caused substantial damage to and interrupted business
at our Teledyne Hastings Instruments facility in Hampton, Virginia. In April 2011, tornados caused substantial damage in
Huntsville, Alabama. While Teledyne Brown Engineering’s main facility in Huntsville, Alabama incurred minimal building
damage and business interruption, the facility was without power for several days. If any of our California facilities, including
our California headquarters, were to experience a catastrophic earthquake or wildfire loss or if any of our Alabama, Florida,
Louisiana, Nebraska, Tennessee or Texas facilities were to experience a catastrophic hurricane, storm, tornado or other natural
disaster, or if DALSA’s facilities in Quebec experience long-term loss of electrical power, such event could disrupt our
operations, delay production, shipments and revenue, and result in large expenses to repair or replace the facility or facilities.
While Teledyne has property insurance to partially reimburse it for losses caused by windstorm and earth movement, such
insurance would not cover all possible losses. In addition, our existing disaster recovery and business continuity plans
(including those relating to our information technology systems) may not be fully responsive to, or minimize losses associated
with, catastrophic events.
The environmental disaster triggered by the Deepwater Horizon rig explosion and oil spill in 2010 resulted in a
moratorium on offshore oil and gas production in the Gulf of Mexico that adversely affected the results of operations of some
of our Teledyne oil and gas businesses, although such adverse impact was offset, in part, by the products we manufacture that
supported well-capping and environmental clean-up efforts. Environmental regulations enacted in the wake of this oil spill
have resulted in increased compliance costs to some of our Teledyne oil and gas businesses. Similar future man-made disasters
that limit or cease offshore oil and gas production or further exploration in the regions in which we sell our products could have
a material adverse effect on our business, results of operations and financial condition.
Disasters that do not directly impact us can have an indirect adverse impact on our business. For example, in 2011 the
earthquake in northern Japan and the related tsunami and severe flooding in Thailand resulted in certain of our customers
delaying orders for our products because they were unable to obtain critical supplies from vendors in the impacted areas.
26
Teledyne Brown Engineering, Inc. is building an imaging platform to be affixed to the ISS. For the program to be
financially successful, the 18 year-old ISS must continue to fly in a safe and human tended condition. While certain spaceflight
risks, such as a high-velocity debris impact to the station causing significant structural damage or necessitating the evacuation
of the ISS, have been regarded as small, if such event were to occur, the ISS program continuation could be threatened,
jeopardizing our investment and potential revenue generation from ISS-based Earth imaging.
We may not be able to enforce or protect our intellectual property rights, or third parties may claim infringement of
their intellectual rights, each which may harm our ability to compete and thus harm our business.
Our ability to enforce and protect our patents, copyrights, software licenses, trade secrets, know-how, and other
intellectual property rights is subject to general litigation risks, as well as uncertainty as to the enforceability of our intellectual
property rights in various countries. When we seek to enforce our rights, we have found that various claims may be asserted
against us, including claims that our intellectual property right is invalid, is otherwise not enforceable or is licensed to the party
against whom we are asserting a claim. In addition, we may be the target of aggressive and opportunistic enforcement of
patents by third parties. If we are not ultimately successful in defending ourselves against these claims in litigation, we may not
be able to sell a particular product or family of products due to an injunction, or we may have to pay damages that could, in
turn, harm our results of operations. Our inability to enforce our intellectual property rights under these circumstances may
harm our competitive position and our business.
Higher tax rates may harm our results of operations and cash flow.
Our effective tax rate for 2016 was 20.9%, compared with 24.3% for 2015 and 23.6% for 2014. While the new
Presidential Administration has commented about lowering the corporate tax rate in the United States to improve global
competitiveness, a number of factors may impact our effective tax rates, which could reduce our net income and increase our
tax payments, including:
•
•
•
•
•
•
•
•
the relative amount of income we earn in jurisdictions;
changes in tax laws or their interpretation, including changes in the United States to the taxation of foreign income
and expenses, changes in tax laws in foreign jurisdictions, and changes in U.S. generally accepted accounting
principles and governing body pronouncements and interpretations;
the resolution of issues arising from tax audits;
changes in valuation of our deferred tax assets and liabilities, including deferred tax valuation allowances;
adjustments to income taxes upon finalization of tax returns;
increases in expense not deductible for tax purposes;
changes in available tax credits; and
any decision to repatriate non-U.S. earnings for which we have not previously provided for U.S. taxes.
Our inability to efficiently implement changes to our enterprise resource planning software could result in higher than
expected costs or otherwise adversely impact our internal controls environment, operations and profitability.
We are implementing enterprise resource planning software systems, which are intended to improve our business
processes in certain business units. The costs associated with such systems can be significant and we could incur costs in excess
of budgeted costs. Any technical or other difficulties in developing or implementing this initiative may increase the costs of the
project and have an adverse effect on our operations and reporting processes, including our internal controls over financial
reporting. As we make adjustments to operations as a result of this project, we may incur incremental expenses prior to
realizing the benefits of a more efficient workforce and operating structure. Although implementation has occurred in only
selected business units to date and efforts have been made to minimize adverse impacts on our controls, we cannot assure that
all such impacts have been mitigated. Further, we may not realize anticipated cost improvements and greater efficiencies from
the project.
Our financial statements are based on estimates required by Generally Accepted Accounting Principles in the United
States (“GAAP”), and actual results may differ materially from those estimated under different assumptions or
conditions.
Our financial statements are prepared in conformity with GAAP. These principles require our management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. For example, estimates are used when accounting for
items such as asset valuations, allowances for doubtful accounts, allowance for excess and obsolete inventory, depreciation and
amortization, impairment assessments, employee benefits, taxes, recall and warranty costs, product and general liability and
contingencies. While we base our estimates on historical experience and on various assumptions that we believe to be
reasonable under the circumstances at the time made, actual results may differ materially from those estimated. Our most
critical accounting estimates are described in the Management Discussion in this Form 10-K under “Critical Accounting
Estimates.”
27
While we believe our internal control systems are effective, there are inherent limitations in all control systems, and
misstatements resulting from error or fraud may occur and may not be detected.
We continue to take action to assure compliance with the internal controls, disclosure controls and other requirements of
the Sarbanes-Oxley Act of 2002. Our management, including our Chief Executive Officer and Chief Financial Officer, cannot
guarantee that our internal controls and disclosure controls will prevent all possible errors or all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and the
benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no system of
controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Further, controls can be circumvented by individual acts of some persons, by
collusion of two or more persons, or by management override of the controls. The design of any system of controls is also
based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future conditions. Over time, a control may be inadequate because
of changes in conditions or the degree of compliance with the policies or procedures may deteriorate. Because of inherent
limitations in a cost-effective control system, misstatements resulting from error or fraud may occur and may not be detected.
Provisions of our governing documents, applicable law, and our Change in Control Severance Agreements could make
an acquisition of Teledyne more difficult.
Our Restated Certificate of Incorporation, our Amended and Restated Bylaws and the General Corporation Law of the
State of Delaware contain several provisions that could make the acquisition of control of Teledyne, in a transaction not
approved by our Board of Directors, more difficult. We have also entered into Change in Control Severance Agreements with
thirteen members of our current management, which could have an anti-takeover effect. These provisions may prevent or
discourage attempts to acquire our company.
The market price of our Common Stock has fluctuated significantly since we became a public company, and could
continue to do so.
Since we became an independent public company on November 29, 1999, the market price of our Common Stock has
fluctuated substantially and fluctuations in our stock price could continue. In fiscal 2015, our stock price declined 15% and in
fiscal 2016, our stock increased 38.6%. Among the factors that could affect our stock price are:
quarterly variations in our operating results;
strategic actions by us or our competitors;
acquisitions;
divestitures;
stock repurchases;
adverse business developments;
war in the Middle East or elsewhere;
terrorists activities;
•
•
•
•
•
•
•
•
• military or homeland defense activities;
changes to the U.S. Federal budget;
•
changes in the energy exploration or production, semiconductor, digital imaging, telecommunications, commercial
•
aviation, and electronic manufacturing services markets;
general market conditions;
changes in tax laws;
general economic factors unrelated to our performance;
changes from analysts’ expectations in revenues, earnings or other financial results; and
one or more of the risk factors described in this report.
•
•
•
•
•
The stock markets in general, and the markets for high-technology companies in particular, have experienced a high
degree of volatility that is not necessarily related to the operating performance of these companies. We cannot provide
assurances as to our stock price. We have in the past repurchased shares of our stock pursuant to board-approved stock
repurchase programs. We cannot provide assurances that we will continue to repurchase shares under those programs, or that
our board will authorize new repurchase programs.
28
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The Company has 61 principal operating facilities in 16 states and five foreign countries. The Company’s executive
offices are located in Thousand Oaks, California. Its principal research and development center is also located in Thousand
Oaks, California. Our maintain our facilities in good operating condition and we believe they are suitable and adequate for the
purposes for which they are intended and overall have sufficient capacity to conduct business as currently conducted.
Information on the number, ownership and location of principal operating facilities by segment was as follows at
February 28, 2017:
Principal operating facilities by segment:
Location of Facilities
Segment
Owned
Leased
States
Instrumentation
13
12 California, Colorado,
Florida, Massachusetts,
Nebraska, New
Hampshire, New York,
Ohio, Texas and Virginia
Countries
United States,
Canada, Denmark
and United
Kingdom
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total
Item 3. Legal Proceedings
8
7
1
29
4 California, Massachusetts,
North Carolina and
Pennsylvania
United States,
Belgium,
Canada and The
Netherlands
California, Illinois, New
Hampshire, Pennsylvania,
Tennessee and Texas
United States and
United Kingdom
Alabama, Colorado,
Maryland, Ohio and
Tennessee
United States and
United Kingdom
12
4
32
From time to time, we become involved in various lawsuits, claims and proceedings arising out of, or incident to, our
ordinary course of business including lawsuits, claims or proceedings pertaining to product liability, patent infringement,
commercial contracts, employment and employee benefits. While we cannot predict the outcome of any lawsuit, claim or
proceeding, our management does not believe that the disposition of any pending matters is likely to have a material adverse
effect on our business, financial condition or liquidity.
Item 4. Mine Safety Disclosures
No information is required in response to this item.
29
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Price Range of Common Stock and Dividend Policy
Our Common Stock is listed on the New York Stock Exchange and traded under the symbol “TDY”. The following table
sets forth, for the periods indicated, the high and low sale prices for the Common Stock as reported by the New York Stock
Exchange.
High and low stock price:
2015
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2017
1st Quarter (through February 28, 2017)
High
Low
$ 105.77 $ 93.19
$ 110.08 $100.29
$ 111.81 $ 91.13
$ 94.35 $ 83.08
$ 90.85 $ 73.66
$ 101.66 $ 85.29
$ 110.61 $ 94.68
$ 129.36 $101.90
$ 134.79 $119.67
On February 28, 2017, the closing sale price of our Common Stock as reported by the New York Stock Exchange was
$131.41 per share. As of February 28, 2017, there were 3,574 holders of record of the Common Stock. Because many of our
shares of common stock are held by brokers and institutions on behalf of stockholders, we are unable to estimate the total
number of beneficial owners of our stock represented by these stockholders of record.
We intend to use future earnings to fund the development and growth of our businesses, including through potential
acquisitions. We may also deploy cash to fund share repurchases. Therefore, we do not anticipate paying any cash dividends in
the foreseeable future.
In January 2015, our Board of Directors authorized a stock repurchase program to repurchase 2,500,000 shares of our
common stock. In January 2016, our Board of Directors authorized a stock repurchase program to repurchase 3,000,000 shares
of our common stock. See Note 8 to our Consolidated Financial Statements for additional information about our stock
repurchase program.
Information relating to compensation plans under which our equity securities are outstanding for issuance is set forth in
Part III, Item 12 of this Annual Report on Form 10-K.
30
Item 6.
Selected Financial Data
The following table presents our summary consolidated financial data. We derived the following historical selected
financial data from our audited consolidated financial statements. Our fiscal year is determined based on a 52- or 53-week
convention ending on the Sunday nearest to December 31. Each fiscal year presented below contained 52 weeks except for
fiscal year 2015 which contained 53 weeks. The five-year summary of selected financial data should be read in conjunction
with the discussion under “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operation”
and the Notes to the Consolidated Financial Statements. The Company’s Form 10-Qs for the second and third quarters of 2016
classified our Printed Circuit Technology (“PCT”) business, which was sold in July 2016, as discontinued operations. Based on
further review we have determined that the sale and impact to the Company’s operations were insignificant and therefore the
results of PCT are no longer presented within discontinued operations.
Five-Year Summary of Selected Financial Data
Sales
Net income from continuing operations
Net income from discontinued operations
Net income attributable to Teledyne
Basic earnings per common share - continuing operations
Diluted earnings per common share - continuing operations
Basic earnings per common share
Diluted earnings per common share
Weighted average diluted common shares outstanding
Total assets
Long-term debt and capital lease obligations, net of current
portion
Total equity
2012
2016
2015
2013
2014
(In millions, except per-share amounts)
$ 2,149.9 $ 2,298.1 $ 2,394.0 $ 2,338.6 $ 2,127.3
$
161.8
$
2.3
$
164.1
$
4.41
$
4.33
$
4.47
$
4.39
37.4
190.9 $
— $
190.9 $
5.52 $
5.37 $
5.52 $
5.37 $
35.5
195.8 $
— $
195.8 $
5.55 $
5.44 $
5.55 $
5.44 $
36.0
217.7 $
— $
217.7 $
5.87 $
5.75 $
5.87 $
5.75 $
37.9
185.0 $
— $
185.0 $
4.96 $
4.87 $
4.96 $
4.87 $
38.0
$ 2,774.4 $ 2,717.1 $ 2,862.2 $ 2,751.1 $ 2,406.4
515.8 $
$
556.2
$ 1,554.4 $ 1,344.1 $ 1,468.5 $ 1,518.7 $ 1,203.4
761.5 $
618.9 $
549.0 $
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Teledyne Technologies Incorporated provides enabling technologies for industrial growth markets. We have evolved from
a company that was primarily focused on aerospace and defense to one that serves multiple markets that require advanced
technology and high reliability. These markets include deepwater oil and gas exploration and production, oceanographic
research, air and water quality environmental monitoring, factory automation and medical imaging. Our products include
monitoring instrumentation for marine and environmental applications, harsh environment interconnects, electronic test and
measurement equipment, digital imaging sensors and cameras, aircraft information management systems, and defense
electronics and satellite communication subsystems. We also supply engineered systems for defense, space, environmental and
energy applications. We differentiate ourselves from many of our direct competitors by having a customer and company
sponsored applied research center that augments our product development expertise.
Strategy/Overview
Our strategy continues to emphasize growth in our core markets of instrumentation, digital imaging, aerospace and
defense electronics and engineered systems. Our core markets are characterized by high barriers to entry and include
specialized products and services not likely to be commoditized. We intend to strengthen and expand our core businesses with
targeted acquisitions and through product development. We continue to focus on balanced and disciplined capital deployment
among capital expenditures, acquisitions and share repurchases. We aggressively pursue operational excellence to continually
improve our margins and earnings. 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.
31
Consistent with this strategy, we made five acquisitions in 2016, three acquisitions in 2015 and four acquisitions in 2014.
On December 6, 2016, Teledyne Instruments, Inc. acquired Hanson Research Corporation (“Hanson Research”) which
specializes in analytical instrumentation for the pharmaceutical industry. On November 2, 2016, Teledyne Instruments, Inc.
acquired assets of IN USA, Inc. (“IN USA”), a manufacturer of a range of ozone generators, ozone analyzers and other gas
monitoring instruments utilizing ultraviolet and infrared based technologies. On May 3, 2016, Teledyne DALSA, Inc., a
Canadian-based subsidiary, acquired the assets and business of CARIS, Inc. (“CARIS”) a leading developer of geospatial
software designed for the hydrographic and marine community. On April 15, 2016, Teledyne LeCroy, Inc., a U.S.-based
subsidiary, acquired assets of Quantum Data, Inc. (“Quantum Data”) a market leader in video protocol analysis test tools. On
April 6, 2016, Teledyne LeCroy, Inc. also acquired Frontline Test Equipment, Inc. (“Frontline”) a market leader in wireless
protocol analysis test tools.
On June 5, 2015, Teledyne DALSA B.V., a Netherlands-based subsidiary, acquired Industrial Control Machines SA
(“ICM”) a leading supplier of portable X-ray generators for non-destructive testing applications, as well as complete X-ray
imaging systems for on-site security screening. On April 29, 2015, Teledyne DALSA, Inc. acquired the remaining 49%
noncontrolling interest in the parent company of Optech Incorporated (“Optech”). On February 2, 2015, Teledyne acquired
Bowtech Products Limited (“Bowtech”) through a U.K.-based subsidiary. Bowtech designs and manufactures harsh
underwater environment vision systems. In 2015, Teledyne made an additional investment in Ocean Aero, Inc. (“Ocean Aero”)
and we acquired a product line.
On December 12, 2016, Teledyne and e2v technologies plc (“e2v”) reached agreement on the terms of a recommended
cash acquisition to be made by Teledyne for the ordinary share capital of e2v by means of a Scheme of Arrangement (the
“Offer”). Under the terms of the Offer, e2v’s ordinary shareholders (“e2v Shareholders”) will receive 275 pence in cash for
each e2v share valuing the entire issued and to be issued ordinary share capital of e2v at approximately £619.6 million on a
fully diluted basis. It is expected that, subject to the satisfaction or waiver of all relevant conditions, the acquisition will be
completed in the first half of calendar 2017. At meetings held in January 2017, e2v shareholders voted in favor of the
resolution to approve the scheme of arrangement and voted to pass a special resolution to approve the implementation of the
scheme. The waiting periods required under both the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and in respect of the e2v’s U.S. State Department’s ITAR registration have expired. Clearance or expiration of the
waiting period under German merger control laws remains outstanding. After discussions with the German authorities, e2v and
Teledyne submitted a revised application for clearance on February 24, 2017 in respect of the acquisition. The German
authorities have one month to review such revised submission. Clearance from the French Ministry of Economy and Finance
and the French Ministry of Defense in respect of the acquisition also remains outstanding. Teledyne expects to fund the
acquisition from cash on hand and its credit facility, as well as the anticipated proceeds from the issuance of senior unsecured
notes and term loans.
For the machine vision market, e2v provides high performance image sensors and custom camera solutions and application
specific standard products. In addition, e2v provides high performance space qualified imaging sensors and arrays for space
science and astronomy. e2v also produces components and subsystems that deliver high reliability radio frequency power
generation for healthcare, industrial and defense applications. Finally, the company provides high reliability semiconductors
and board-level solutions for use in aerospace, space and radio frequency communications applications. At announcement, the
aggregate enterprise value for the transaction is expected to be approximately £627.1 million (or approximately $788.9 million)
taking into account e2v stock options and net debt. For its fiscal year ended March 31, 2016, e2v had sales of approximately
£236.4 million.
In connection with our strategy, in the third quarter of 2016, Teledyne completed the disposition of the net assets of its
Printed Circuit Technology (“PCT”) business for $9.3 million in cash, resulting in no gain or loss. PCT was part of the
Aerospace and Defense Electronics segment. In connection with the sale, we entered into a transition services agreement,
effective July 8, 2016, to provide certain administrative services to facilitate the orderly transfer of the business operations to
the buyer, with the transition services agreement expected to continue through the first half of 2017. In addition, in 2016 we
sold a former operating facility in California and recorded a pretax gain of $17.9 million, and incurred pretax charges totaling
$7.9 million related to the pending e2v acquisition.
32
As part of a continuing effort to reduce costs and improve operating performance, we took actions to consolidate and
relocate certain facilities and reduce headcount across various businesses, reducing our exposure to weak end markets and high
cost locations. We continue to seek cost reductions in our businesses. The following pre-tax charges were incurred related to
severance and facility consolidations (in millions):
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total
Severance
Facility consolidations
Total
Cost of sales
Selling, general and administrative expenses
Total
2016
2015
2014
$
$
10.6
2.0
4.6
0.1
17.3
$
$
3.9
3.2
1.2
0.1
8.4
$
$
1.0
2.7
0.9
(0.2)
4.4
2016
2015
2014
$
$
9.5
7.8
17.3
$
$
8.4
—
8.4
$
$
4.2
0.2
4.4
2016
2015
2014
$
$
6.8
10.5
17.3
$
$
3.7
4.7
8.4
$
$
1.0
3.4
4.4
At January 1, 2017, $3.7 million remains to be paid related to these actions.
Recent Acquisitions
The Company spent $93.4 million, $66.7 million and $195.8 million on acquisitions and investments in 2016, 2015 and
2014, respectively.
On November 2, 2016, Teledyne Instruments, Inc. acquired assets of IN USA, headquartered in Norwood, Massachusetts,
for $10.2 million in cash. Teledyne intends to relocate and consolidate manufacturing into the new, owned facility of Teledyne
Advanced Pollution Instrumentation in San Diego, California. On December 6, 2016, Teledyne Instruments, Inc. acquired
Hanson Research, headquartered in Chatsworth, California, for $25.0 million, net of cash acquired. On May 3, 2016, Teledyne
DALSA, Inc., a Canadian-based subsidiary, acquired the assets and business of CARIS, based in Fredericton, New Brunswick,
Canada, for $26.2 million, net of cash acquired. On April 15, 2016, Teledyne LeCroy, Inc., a U.S.-based subsidiary, acquired
assets of Quantum Data, based in Elgin, Illinois, for $17.3 million in cash. On April 6, 2016, Teledyne LeCroy, Inc. also
acquired Frontline, based in Charlottesville, Virginia, for $13.7 million in cash.
Each of the 2016 acquisitions are part of the Instrumentation segment except for CARIS which is part of the Digital
Imaging segment.
On June 5, 2015, Teledyne DALSA B.V., a Netherlands-based subsidiary, acquired Industrial Control Machines SA
(“ICM”) for $21.8 million, net of cash acquired. In December 2016, an additional $2.5 million was paid by Teledyne related to
an indemnification holdback. Based in Liège, Belgium, ICM is a leading supplier of portable X-ray generators for non-
destructive testing applications, as well as complete X-ray imaging systems for on-site security screening and is part of the
Digital Imaging segment.
As a result of the purchase of the remaining interest in Optech in 2015, the difference between the cash paid and the
balance of noncontrolling interest was recorded to additional paid-in capital. The balance of the noncontrolling interest of
$41.2 million at December 28, 2014 decreased by $0.3 million for the net loss and $1.3 million in translation adjustments prior
to the purchase which eliminated the remaining balance. The balance of the noncontrolling interest of $47.0 million at
December 29, 2013 decreased by $2.1 million for the net loss and $3.7 million in translation adjustments, resulting in a balance
of $41.2 million at December 28, 2014. Teledyne no longer has any noncontrolling interests.
On February 2, 2015, Teledyne acquired Bowtech Products Limited (“Bowtech”) through a U.K.-based subsidiary for
$18.9 million in cash, net of cash acquired and including an estimated working capital adjustment. Based in Aberdeen,
Scotland, Bowtech designs and manufactures harsh underwater environment vision systems and is part of the Instrumentation
segment.
33
The 2014 acquisitions included, Bolt Technology Corporation (“Bolt”) which expanded our capabilities related to offshore
oil and natural gas exploration, as well as increased our offerings of remotely operated robotic vehicles systems. We acquired
the assets of The Oceanscience Group Ltd. (“Oceanscience”) to enhance our capabilities related to marine sensor platforms and
unmanned surface vehicles. We also acquired assets of Atlas Hydrographic GmbH (“Atlas”) to add marine sonar systems for
mid and deep water applications and we acquired Photon Machines, Inc. (“Photon”) to supplement our offerings of laser-based
sample introduction equipment for laboratory instrumentation. In addition, in 2014 we made an initial investment in Ocean
Aero, Inc.
Teledyne funded the purchases from borrowings under its credit facility and cash on hand. The CARIS, ICM, Bowtech
and Optech acquisitions were funded with cash held by foreign subsidiaries. The results of the acquisitions have been included
in Teledyne’s results since the dates of the respective acquisition.
On November 18, 2014, Teledyne acquired all of the outstanding common shares of Bolt for $22.00 per share payable in
cash. The aggregate value for the transaction was $171.0 million, excluding transaction costs and taking into account Bolt’s
stock options, other liabilities and net cash on hand. Bolt is a developer and manufacturer of marine seismic data acquisition
equipment used for offshore oil and natural gas exploration. Bolt is also a developer and manufacturer of remotely operated
robotic vehicles systems used for a variety of underwater tasks. Bolt had sales of $67.5 million for its fiscal year ended June
30, 2014.
On October 22, 2014, a subsidiary of Teledyne acquired the assets of Oceanscience for $14.7 million, net of cash acquired.
On August 18, 2014, a subsidiary of Teledyne acquired assets of Atlas for $5.2 million. On March 31, 2014, a subsidiary of
Teledyne acquired Photon Machines, Inc. (“Photon”) for an initial payment of $3.3 million.
All of the 2014 acquisitions are part of the Instrumentation segment.
See Note 3 to our Consolidated Financial Statements for additional information about our recent acquisitions.
Consolidated Operating Results
Our fiscal year is determined based on a 52- or 53-week convention ending on the Sunday nearest to December 31. Fiscal
year 2016 contained 52 weeks, fiscal year 2015 contained 53 weeks and fiscal year 2014 contained 52 weeks. The following
are selected financial highlights for 2016, 2015 and 2014 (in millions, except per-share amounts):
Sales
Costs and Expenses
Cost of sales
Selling, general and administrative expenses
Total costs and expenses
Operating Income
Interest and debt expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
Noncontrolling interest
Net income attributable to Teledyne
Basic earnings per common share
Diluted earnings per common share
2016
2015
$ 2,149.9 $ 2,298.1
2014
$ 2,394.0
1,318.0
578.1
1,896.1
1,427.8
588.6
2,016.4
1,487.1
612.4
2,099.5
253.8
(23.2)
10.7
241.3
50.4
190.9
—
190.9 $
281.7
(23.9)
0.4
258.2
62.7
195.5
0.3
195.8
5.52
5.37
$
$
5.55
5.44
$
$
$
294.5
(19.0)
6.6
282.1
66.5
215.6
2.1
217.7
5.87
5.75
$
$
$
34
Our businesses are aligned in four business segments: Instrumentation, Digital Imaging, Aerospace and Defense
Electronics and Engineered Systems. Our four business segments and their respective percentage contributions to our total sales
in 2016, 2015 and 2014 are summarized in the following table:
Percentage of Total Sales
2014
2015
2016
41%
18%
29%
12%
100%
46%
16%
26%
12%
100%
47%
17%
25%
11%
100%
2016
2015
(in millions)
$
876.7 $ 1,051.1
398.7
379.0
615.9
593.4
258.6
274.6
$ 2,149.9 $ 2,298.1
2016
2015
(in millions)
109.8
45.9
112.1
32.1
(46.1)
253.8
(23.2)
10.7
241.3
50.4
190.9
—
190.9
$ 171.0
40.0
84.8
26.1
(40.2)
281.7
(23.9)
0.4
258.2
62.7
195.5
0.3
$ 195.8
$
$
%
Change
(16.6)%
5.2 %
3.8 %
(5.8)%
(6.4)%
%
Change
(35.8)%
14.8 %
32.2 %
23.0 %
14.7 %
(9.9)%
(2.9)%
*
(6.5)%
(19.6)%
(2.4)%
(100.0)%
(2.5)%
Segment contribution to total sales:
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Results of Operations
2016 compared with 2015
Sales
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total sales
Results of operations
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Corporate expense
Operating income
Interest and debt expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
Noncontrolling interest
Net income attributable to Teledyne
* not meaningful
35
Sales and cost of sales by segment and total company:
2016
Instrumentation
Sales
Cost of sales
Cost of sales % of sales
Digital Imaging
Sales
Cost of sales
Cost of sales % of sales
Aerospace and Defense Electronics
Sales
Cost of sales
Cost of sales % of sales
Engineered Systems
Sales
Cost of sales
Cost of sales % of sales
Total Company
Sales
Cost of sales
Cost of sales % of sales
2015
(dollars in millions)
$ 1,051.1
589.8
$
56.1%
876.7
494.6
56.4%
398.7
239.4
60.0%
615.9
377.5
61.3%
258.6
206.5
79.9%
$
$
$
$
$
$
379.0
228.0
60.1%
593.4
383.8
64.7%
274.6
226.2
82.4%
$
$
$
$
$
$
$
$
$ 2,149.9
$ 1,318.0
$ 2,298.1
$ 1,427.8
61.3%
62.1%
Change
(174.4)
(95.2)
19.7
11.4
22.5
(6.3)
(16.0)
(19.7)
(148.2)
(109.8)
$
$
$
$
$
$
$
$
$
$
We reported 2016 sales of $2,149.9 million, compared with sales of $2,298.1 million for 2015, a decrease of 6.4%. Net
income attributable to Teledyne was $190.9 million ($5.37 per diluted share) for 2016, compared with net income attributable
to Teledyne of $195.8 million ($5.44 per diluted share) for 2015, a decrease of 2.5%.
Total year 2016 and 2015 reflected pretax charges totaling $17.3 million and $8.4 million, respectively, for severance
and facility consolidation charges. Net income for 2016 and 2015 also included net discrete tax benefits of $10.9 million and
$9.8 million, respectively. We also recorded a gain in 2016 of $17.9 million on the sale of a former operating facility in
California, and incurred pretax charges totaling $7.9 million related to the pending e2v acquisition.
Sales
The decrease in sales in 2016, compared with 2015, reflected lower sales in the Instrumentation and Engineered Systems
segments, partially offset by higher sales in the Aerospace and Defense and Electronics and Digital Imaging segments. Sales
in the Instrumentation segment reflected $15.6 million of incremental sales from recent acquisitions while sales in the Digital
Imaging segment reflected $9.6 million of incremental sales from recent acquisitions. The incremental sales from recent
acquisitions in 2016 was $25.2 million.
Sales under contracts with the U.S. Government were approximately 27% of sales in 2016 and 26% of sales in 2015.
Sales to international customers represented approximately 43% of sales in 2016 and 44% of sales in 2015.
Cost of Sales
Total company cost of sales decreased by $109.8 million in 2016, compared with 2015, which primarily reflected the
impact of lower sales, partially offset by higher severance and facility consolidation expenses of $3.1 million. The total
company cost of sales as a percentage of sales for 2016 was 61.3%, compared with 62.1% for 2015.
36
Selling, general and administrative expenses
Selling, general and administrative expenses, including Company-funded research and development and bid and
proposal expense, in total dollars were lower in 2016, compared with 2015. The decrease reflected the impact of lower sales,
partially offset by higher severance and facility consolidation expenses of $5.8 million. Corporate administrative expense in
2016 was $46.1 million, compared with $40.2 million in 2015, an increase of 14.7%. The increase in corporate administrative
expense reflected higher professional fees expense, including $1.9 million related to the pending e2v acquisition. For 2016,
we recorded a total of $11.6 million in stock option expense, of which $3.2 million was recorded as corporate expense and
$8.4 million was recorded in the operating segment results. For 2015, we recorded a total of $12.2 million in stock option
expense, of which $3.4 million was recorded as corporate expense and $8.8 million was recorded in the operating segment
results. Selling, general and administrative expenses as a percentage of sales, was 26.9% for 2016, compared with 25.6% for
2015 and reflected the impact of higher research and development and bid and proposal expense, higher severance and facility
consolidation expenses and professional fees expense related to the pending e2v acquisition.
Pension Income/Expense
Included in operating income in 2016 was pension income of $2.2 million compared with pension expense of $3.0
million in 2015. The change to pension income in 2016 from pension expense in 2015 primarily reflected the impact of using
a 4.91 percent discount rate to determine the benefit obligation for the domestic plan in 2016 compared with a 4.50 percent
discount rate used in 2015. Included in the $3.0 million of pension expense in 2015, in the first quarter of 2015, Teledyne
froze its non-qualified pension plan for top executives which resulted in a one-time gain of $1.2 million. Pension expense
allocated to contracts pursuant to U.S. Government Cost Accounting Standards (“CAS”) was $13.8 million for both 2016 and
2015. Pension expense determined under CAS can generally be recovered through the pricing of products and services sold to
the U.S. Government.
Operating Income
Operating income for 2016 was $253.8 million, compared with $281.7 million for 2015, a decrease of 9.9%. The
decrease in operating income primarily reflected lower costs as a result of the lower sales. Operating income in 2016 and
2015 included $17.3 million and $8.4 million in severance and facility consolidation costs, respectively. The incremental
operating loss included in the results for 2016 from recent acquisitions was $0.6 million which included $1.3 million in
additional intangible asset amortization expense. Operating income in 2016 included pension income of $2.2 million
compared to pension expense of $3.0 million in 2015.
Interest Expense and Other Income and Expense
Total interest expense, including credit facility fees and other bank charges, was $23.6 million in 2016, including $0.5
million related to the pending e2v acquisition, and $24.0 million in 2015. Interest income was $0.3 million in 2016 and
$0.1 million in 2015. Other income for 2016 included a gain of $17.9 million on the sale of a former operating facility in
California. Other income and expense in 2016 reflected $5.5 million of expense for a foreign currency hedge contract related
to the pending e2v acquisition. Other income and expense in 2015 included net gains on legal settlements of $3.0 million.
Income Taxes
The Company’s effective tax rate for 2016 was 20.9%, compared with 24.3% for 2015. Total year 2016 reflected $10.9
million in net discrete income tax benefits. The net discrete income tax benefits of $10.9 million, includes $6.7 million in
income tax expense related to the $17.9 million gain on the sale of the operating facility and a $8.5 million income tax benefit
related to the adoption of ASU 2016-09, as well as $9.1 million income tax benefit for the remeasurement of uncertain tax
positions due to the expiration of statute of limitations, the release of valuation allowances and a favorable tax ruling in the
Netherlands. Total year 2015 included net discrete tax benefits of $9.8 million primarily related to the remeasurement of
uncertain tax positions which were mainly due to the expiration of statute of limitations and the release of valuation
allowances. Total year 2016 and 2015 also included $4.1 million and $5.9 million in federal research and development tax
credits, respectively. Excluding the net discrete income tax benefits in both years, and the gain and related taxes on the
operating facility sale in 2016, the effective tax rates would have been 27.4% for 2016 and 28.1% for 2015.
37
2015 Compared with 2014
Sales
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total sales
Results of operations
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Corporate expense
Operating income
Interest and debt expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
Noncontrolling interest
Net income attributable to Teledyne
2015
2014
(in millions)
$ 1,051.1
379.0
593.4
274.6
$ 2,298.1
$ 1,115.5
403.6
603.0
271.9
$ 2,394.0
2015
2014
(in millions)
$
$
171.0
40.0
84.8
26.1
(40.2)
281.7
(23.9)
0.4
258.2
62.7
195.5
0.3
195.8
$
$
181.6
37.1
88.3
31.4
(43.9)
294.5
(19.0)
6.6
282.1
66.5
215.6
2.1
217.7
%
Change
(5.8)%
(6.1)%
(1.6)%
1.0 %
(4.0)%
%
Change
(5.8)%
7.8 %
(4.0)%
(16.9)%
(8.4)%
(4.3)%
25.8 %
(93.9)%
(8.5)%
(5.7)%
(9.3)%
(85.7)%
(10.1)%
38
Sales and cost of sales by segment and total company:
Instrumentation
Sales
Cost of sales
Cost of sales % of sales
Digital Imaging
Sales
Cost of sales
Cost of sales % of sales
Aerospace and Defense Electronics
Sales
Cost of sales
Cost of sales % of sales
Engineered Systems
Sales
Cost of sales
Cost of sales % of sales
Total Company
Sales
Cost of sales
Cost of sales % of sales
2015
2014
Change
(dollars in millions)
$ 1,051.1
589.8
$
56.1%
$ 1,115.5
630.0
$
56.5%
$
$
$
$
$
$
379.0
228.0
60.1%
593.4
383.8
64.7%
274.6
226.2
82.4%
$
$
$
$
$
$
403.6
252.0
62.4%
603.0
386.6
64.2%
271.9
218.5
80.4%
$ 2,298.1
$ 1,427.8
$ 2,394.0
$ 1,487.1
62.1%
62.1%
$
$
$
$
$
$
$
$
$
$
(64.4)
(40.2)
(24.6)
(24.0)
(9.6)
(2.8)
2.7
7.7
(95.9)
(59.3)
We reported 2015 sales of $2,298.1 million, compared with sales of $2,394.0 million for 2014, a decrease of 4.0%. Net
income attributable to Teledyne was $195.8 million ($5.44 per diluted share) for 2015, compared with net income attributable
to Teledyne of $217.7 million ($5.75 per diluted share) for 2014, a decrease of 10.1%. Total year 2015 and 2014 reflected
pretax charges totaling $8.4 million and $4.2 million, respectively, for severance charges. Net income for 2015 and 2014 also
included net discrete tax benefits of $9.8 million and $8.9 million, respectively.
Sales
The decrease in sales in 2015, compared with 2014, reflected lower sales in each segment except the Engineered Systems
segment. Sales in the Instrumentation segment reflected $32.1 million of incremental sales from recent acquisitions while
sales in the Digital Imaging segment reflected $6.8 million of incremental sales from a recent acquisition. The incremental
increase in revenue in 2015 from businesses acquired in 2015 and in 2014 was $38.9 million.
Sales under contracts with the U.S. Government were approximately 26% of sales in 2015 and 25% of sales in 2014.
Sales to international customers represented approximately 44% of sales in 2015 and 45% of sales in 2014.
Cost of Sales
Total company cost of sales decreased by $59.3 million in 2015, compared with 2014, primarily due to lower sales. The
total company cost of sales as a percentage of sales was 62.1%, for both 2015 and 2014.
39
Selling, general and administrative expenses
Selling, general and administrative expenses, including Company-funded research and development and bid and
proposal expense, in total dollars were lower in 2015 compared with 2014. The decrease reflected the impact of lower sales
and lower corporate administrative expense. Corporate administrative expense in 2015 was $40.2 million, compared with
$43.9 million in 2014, a decrease of 8.4%. The decrease in corporate administrative expense reflected lower compensation
and professional fees expense. For 2015, we recorded a total of $12.2 million in stock option expense, of which $3.4 million
was recorded as corporate expense and $8.8 million was recorded in the operating segment results. For 2014, we recorded a
total of $14.0 million in stock option expense, of which $4.5 million was recorded as corporate expense and $9.5 million was
recorded in the operating segment results. Stock option expense in 2015 was lower than in 2014 primarily due to the absence
of stock option grants in 2015. Selling, general and administrative expenses as a percentage of sales, were 25.6% for both
2015 and 2014.
Pension Income/Expense
Included in operating income in 2015 was pension expense of $3.0 million compared with pension income of $1.3
million in 2014. The change to pension expense in 2015 from pension income in 2014 primarily reflected the impact of using
a 4.5 percent discount rate to determine the benefit obligation for the domestic plan in 2015 compared with a 5.4 percent
discount rate used in 2014. In the first quarter of 2015, Teledyne froze its non-qualified pension plan for top executives which
resulted in a one-time gain of $1.2 million. Pension expense allocated to contracts pursuant to CAS was $13.8 million for
both 2015 and 2014.
Operating Income
Operating income for 2015 was $281.7 million, compared with $294.5 million for 2014, a decrease of 4.3%. Operating
income reflected the impact of lower sales. Operating income in 2015 and 2014 included $8.4 million and $4.2 million in
severance costs, respectively. The incremental operating loss included in the results for 2015 from recent acquisitions was
$3.7 million which included $3.3 million in additional intangible asset amortization expense. Operating income in 2015
included pension expense of $3.0 million compared to pension income of $1.3 million in 2014.
Interest Expense and Other Income and Expense
Total interest expense, including credit facility fees and other bank charges, was $24.0 million in 2015 and $19.2 million
in 2014. The increase in interest expense primarily reflected the impact of higher outstanding debt levels, due to recent
acquisitions and stock repurchases. Interest income was $0.1 million in 2015 and $0.2 million in 2014. Other income and
expense in 2015 and 2014 included net gains on legal settlements of $3.0 million and $6.5 million, respectively.
Income Taxes
The Company’s effective tax rate for 2015 was 24.3%, compared with 23.6% for 2014. Total year 2015 included net
discrete tax benefits of $9.8 million primarily related to the remeasurement of uncertain tax positions which were mainly due
to the expiration of statute of limitations and the release of valuation allowances. Total year 2015 also included $5.9 million in
federal research and development tax credits. Total year 2014 included net discrete tax benefits of $8.9 million primarily
related to the remeasurement of uncertain tax positions, which were mainly due to an expiration of statute of limitations and
the favorable resolution of a tax matter. Total year 2014 also included $5.6 million in federal research and development tax
credits. Excluding the impact of the net discrete tax benefits of $9.8 million for 2015 and $8.9 million for 2014, the effective
tax rates would have been 28.1% for 2015, compared with 26.7% for 2014.
40
Segments
The following discussion of our four segments should be read in conjunction with Note 12 to the Notes to
Consolidated Financial Statements.
Instrumentation
(Dollars in millions)
Sales
Cost of sales
Selling, general and administrative expenses
Operating income
Cost of sales % of sales
Selling, general and administrative expenses % of sales
Operating income % of sales
International sales % of sales
U.S. Government sales % of sales
Capital expenditures
2016
876.7
494.6
272.3
109.8
56.4%
31.1%
12.5%
53.8%
8.5%
50.9
$
$
$
$
$
2015
$ 1,051.1
589.8
$
290.3
$
171.0
$
56.1%
27.6%
16.3%
58.2%
5.8%
20.9
$
2014
$ 1,115.5
$ 630.0
$ 303.9
$ 181.6
56.5%
27.2%
16.3%
58.1%
3.5%
17.0
$
Our Instrumentation segment provides monitoring and control instruments for marine, environmental, industrial and
other applications, as well as electronic test and measurement equipment. We also provide power and communications
connectivity devices for distributed instrumentation systems and sensor networks deployed in mission critical, harsh
environments.
2016 compared with 2015
Our Instrumentation segment sales were $876.7 million in 2016 compared with sales of $1,051.1 million in 2015, a
decrease of 16.6%. Operating income was $109.8 million in 2016, compared with $171.0 million in 2015, a decrease of
35.8%. The 2016 sales decrease primarily resulted from lower sales of marine instrumentation partially offset by increased
sales of test and measurement instrumentation. Sales for marine instrumentation decreased $195.3 million and primarily
reflected lower sales of interconnect systems and other marine sensors for energy exploration and production, as a result of
weak energy markets, partially offset by higher sales of interconnects and marine systems for U.S. Government applications.
Sales of test and measurement instrumentation increased $19.5 million and included $15.4 million in incremental sales from
recent acquisitions. Sales of environmental instrumentation increased $1.4 million. The decrease in operating income
primarily reflected the impact of lower sales and also reflected $6.8 million in higher severance and facility consolidation costs
compared with 2015. The incremental operating profit from recent acquisitions was $0.9 million, which included $0.8 million
in additional intangible asset amortization.
Cost of sales decreased by $95.2 million in 2016, compared with 2015, and primarily reflected the impact of lower sales,
partially offset by higher severance and facility consolidation expenses. The cost of sales percentage increased slightly to
56.4% in 2016 from 56.1% in 2015. Selling, general and administrative expenses, including research and development and
bid and proposal expense, in 2016, decreased by $18.0 million, compared with 2015, and primarily reflected the impact of
lower sales. Selling, general and administrative expenses for 2016, as a percentage of sales, increased to 31.1%, compared
with 27.6% for 2015 and reflected the impact of lower sales while certain fixed costs decreased slightly.
2015 compared with 2014
Our Instrumentation segment sales were $1,051.1 million in 2015 compared with sales of $1,115.5 million in 2014, a
decrease of 5.8%. Operating income was $171.0 million in 2015, compared with $181.6 million in 2014, a decrease of 5.8%.
The 2015 sales decrease resulted from lower sales of marine instrumentation and electronic test and measurement
instrumentation, while sales for environmental instrumentation increased slightly. Sales for marine instrumentation decreased
by $40.8 million and primarily reflected lower sales of geophysical sensors for offshore oil exploration, interconnect systems
for land-based energy applications, and other marine sensors and systems, partially offset by $32.1 million in incremental sales
from recent acquisitions. Sales of electronic test and measurement instrumentation decreased $23.9 million primarily as a
result of lower international sales due in part to the impact of foreign exchange rates. Sales of environmental instrumentation
increased $0.3 million. The decrease in operating income primarily reflected the impact of lower sales as well as $2.9 million
in higher severance costs compared with 2014. The incremental operating loss from recent acquisitions was $4.6 million,
which included $3.0 million in additional intangible asset amortization.
Cost of sales decreased by $40.2 million in 2015, compared with 2014, and primarily reflected the impact of lower sales.
The cost of sales percentage decreased slightly to 56.1% from 56.5%. Selling, general and administrative expenses, including
research and development and bid and proposal expense, in 2015, decreased by $13.6 million, compared with 2014, and
41
primarily reflected the impact of lower sales. Selling, general and administrative expenses for 2015, as a percentage of sales,
increased slightly to 27.6%, compared with 27.2% for 2014.
Digital Imaging
(Dollars in millions)
Sales
Cost of sales
Selling, general and administrative expenses
Operating income
Cost of sales % of sales
Selling, general and administrative expenses % of sales
Operating income % of sales
International sales % of sales
U.S. Government sales % of sales
Capital expenditures
2016
$ 398.7
$ 239.4
$ 113.4
$ 45.9
60.0%
28.5%
11.5%
54.7%
18.3%
$ 12.5
2015
$ 379.0
$ 228.0
$ 111.0
40.0
$
60.1%
29.3%
10.6%
51.0%
20.8%
9.2
$
2014
$ 403.6
$ 252.0
$ 114.5
37.1
$
62.4%
28.4%
9.2%
50.2%
25.3%
10.3
$
Our Digital Imaging segment includes high-performance sensors, cameras and systems, within the visible, infrared and
X-ray spectra for use in industrial, government and medical applications, as well as micro electro-mechanical systems
(“MEMS”). It also includes our sponsored and centralized research laboratories which benefit government programs and
commercial businesses.
2016 compared with 2015
Our Digital Imaging segment sales were $398.7 million in 2016, compared with sales of $379.0 million in 2015, an
increase of 5.2%. Operating income was $45.9 million in 2016, compared with $40.0 million in 2015, an increase of 14.8%.
The 2016 sales increase primarily reflected higher sales of sensors and systems for life sciences and industrial X-ray
applications, MEMS and geospatial software. Sales in 2016 included $9.6 million in incremental sales from recent
acquisitions. The increase in operating income in 2016, compared with 2015, reflected the impact of higher sales and favorable
product mix. The incremental operating loss included in the results for 2016 from recent acquisitions was $1.5 million, which
included $0.5 million in additional intangible asset amortization expense.
Cost of sales for 2016 increased by $11.4 million, compared with 2015, and primarily reflected the impact of higher
sales. The cost of sales percentage in 2016 decreased slightly. Selling, general and administrative expenses, for 2016,
increased to $113.4 million, compared with $111.0 million in 2015 and primarily reflected higher research and development
expense and the impact of higher sales, partially offset by lower general and administrative costs. The selling, general and
administrative expense percentage decreased to 28.5% in 2016 from 29.3% in 2015.
2015 compared with 2014
Our Digital Imaging segment sales were $379.0 million in 2015, compared with sales of $403.6 million in 2014, a
decrease of 6.1%. Operating income was $40.0 million in 2015, compared with $37.1 million in 2014, an increase of 7.8%.
The 2015 sales decrease primarily reflected lower sales from U.S. Government research and development contracts and
reduced sales of machine vision cameras for semiconductor and electronics inspection and of infrared imaging systems,
partially offset by increased sales of sensors and cameras for life sciences and general industrial applications. Sales in 2015
included $6.8 million in incremental sales from a recent acquisition. Operating income in 2015 increased, compared with
2014, despite lower sales, and reflected the impact of improved margins across a number of product categories as a result of
ongoing cost reductions and improved contract performance and also included $0.9 million in operating income from a recent
acquisition.
Cost of sales for 2015 decreased by $24.0 million, compared with 2014, and primarily reflected the impact of lower costs
as a result of ongoing cost reduction actions and product mix differences. The decrease in the cost of sales percentage
primarily reflected lower costs as a result of ongoing cost reduction actions and a greater mix of higher gross margin
commercial sales. Selling, general and administrative expenses, for 2015, decreased to $111.0 million, compared with $114.5
million in 2014 and primarily reflected lower general and administrative expenses. The selling, general and administrative
expense percentage increased to 29.3% in 2015 from 28.4% in 2014 and reflected higher research and development spending.
42
Aerospace and Defense Electronics
(Dollars in millions)
Sales
Cost of sales
Selling, general and administrative expenses
Operating income
Cost of sales % of sales
Selling, general and administrative expenses % of sales
Operating income % of sales
International sales % of sales
U.S. Government sales % of sales
Capital expenditures
2016
$ 615.9
$ 377.5
$ 126.3
$ 112.1
61.3%
20.5%
18.2%
32.6%
34.2%
$ 12.6
2015
$ 593.4
$ 383.8
$ 124.8
84.8
$
64.7%
21.0%
14.3%
31.8%
37.7%
9.1
$
2014
$ 603.0
$ 386.6
$ 128.1
88.3
$
64.2%
21.2%
14.6%
32.2%
40.7%
8.8
$
Our Aerospace and Defense Electronics segment provides sophisticated electronic components and subsystems and
communications products, including defense electronics, harsh environment interconnects, data acquisition and
communications equipment for aircraft, and components and subsystems for wireless and satellite communications, as well
as general aviation batteries. In the third quarter of 2016, Teledyne completed the disposition of the net assets of its PCT
business. Sales for this business totaled $10.1 million, $16.6 million and $18.8 million for 2016, 2015 and 2014,
respectively. For 2016, PCT reported a pretax loss of $3.1 million, compared with a pretax loss of $3.9 million in 2015 and
pretax income of $1.1 million in 2014.
2016 compared with 2015
Our Aerospace and Defense Electronics segment sales were $615.9 million in 2016, compared with sales of $593.4
million in 2015, an increase of 3.8%. Operating income was $112.1 million in 2016, compared with $84.8 million in 2015,
an increase of 32.2%.
Sales for 2016, compared with 2015, increased by $22.5 million and reflected higher sales of $26.3 million from
avionics products and electronic relays partially offset by lower sales of $3.7 million from electronic manufacturing services
products. The lower sales from electronic manufacturing services products reflected $6.5 million in lower sales from the
PCT business, sold in July 2016. Operating income in 2016 increased by $27.3 million and reflected the impact of higher
sales, as well as overall improved margins, partially offset by $3.4 million in higher severance and facility and consolidation
costs. Operating income in 2016 reflected higher pension income of $2.4 million and 2015 included the reversal of facility
and consolidation reserves of $1.7 million no longer needed.
Cost of sales for 2016 decreased by $6.3 million, compared with 2015, and reflected the impact of favorable product
mix and higher pension income and higher pension income. Cost of sales as a percentage of sales for 2016 decreased to
61.3% from 64.7% in 2015 and reflected favorable product mix and the impact of higher pension income. Selling, general
and administrative expenses, including research and development and bid and proposal expense, increased to $126.3 million
in 2016, compared with $124.8 million in 2015. The selling, general and administrative expense percentage in 2016
decreased to 20.5% from 21.0% for 2015.
2015 compared with 2014
Our Aerospace and Defense Electronics segment sales were $593.4 million in 2015, compared with sales of $603.0
million in 2014, a decrease of 1.6%. Operating income was $84.8 million in 2015, compared with $88.3 million in 2014, a
decrease of 4.0%.
Sales for 2015, compared with 2014, decreased by $9.6 million and reflected lower sales of $19.8 million from
microwave and interconnect systems and lower sales of $13.3 million from electronic manufacturing services products,
partially offset by increased sales of $23.5 million from avionics products and electronic relays. Operating income in 2015
decreased by $3.5 million and reflects the impact of lower sales, as well as lower margins for most defense electronics
products. Operating income in 2015 reflected higher pension expense of $1.9 million and the reversal of facility and
consolidation reserves of $1.7 million no longer needed.
Cost of sales for 2015 decreased by $2.8 million, compared with 2014, and reflected the impact of lower sales, partially
offset by higher pension expense. Cost of sales as a percentage of sales for 2015 increased slightly to 64.7% from 64.2% in
2014. Selling, general and administrative expenses, including research and development and bid and proposal expense,
decreased to $124.8 million in 2015, compared with $128.1 million in 2014, and reflected the impact of lower sales. The
selling, general and administrative expense percentage in 2015 decreased slightly to 21.0% from 21.2% for 2014.
43
Engineered Systems
(Dollars in millions)
Sales
Cost of sales
Selling, general and administrative expenses
Operating income
Cost of sales % of sales
Selling, general and administrative expenses % of sales
Operating income % of sales
International sales % of sales
U.S. Government sales % of sales
Capital expenditures
2016
$ 258.6
$ 206.5
$ 20.0
$ 32.1
79.9%
7.7%
12.4%
11.2%
85.0%
5.9
$
2015
$ 274.6
$ 226.2
22.3
$
26.1
$
82.4%
8.1%
9.5%
9.9%
85.4%
5.7
$
2014
$ 271.9
$ 218.5
22.0
$
31.4
$
80.4%
8.1%
11.5%
9.0%
81.6%
4.3
$
Our Engineered Systems segment provides innovative systems engineering and integration, advanced technology
development, and manufacturing solutions for defense, space, environmental and energy applications. This segment also
designs and manufactures electrochemical energy systems and small turbine engines.
2016 compared with 2015
Our Engineered Systems segment sales were $258.6 million in 2016, compared with sales of $274.6 million in 2015, a
decrease of 5.8%. Operating income was $32.1 million in 2016, compared with $26.1 million in 2015, an increase of 23.0%.
The 2016 sales decrease of $16.0 million reflected lower sales of engineered products and services of $12.7 million and
lower energy system products of $4.8 million, partially offset by higher sales of turbine engine sales of $1.5 million. The
lower sales of engineered products and services primarily resulted from decreased sales of space and missile defense
programs. The lower energy systems sales reflected lower sales of commercial hydrogen generators, as well as government
energy systems. Operating income in 2016 reflected improved margins for engineered products and services and higher
pension income of $2.5 million, partially offset by the impact of lower sales.
Cost of sales for 2016 decreased by $19.7 million, compared with 2015, and reflected the impact of lower sales and
higher pension income. Cost of sales as a percentage of sales for 2016 decreased to 79.9%, compared with 82.4% in 2015
reflected the lower margin space and marine manufacturing programs ending in 2015 and also reflected the impact of higher
pension income. Selling, general and administrative expenses, including research and development and bid and proposal
expense, decreased to $20.0 million in 2016, compared with $22.3 million in 2015, and reflected the impact of lower sales.
The selling, general and administrative expense percentage decreased to 7.7% for 2016, compared with 8.1% in 2015.
2015 compared with 2014
Our Engineered Systems segment sales were $274.6 million in 2015, compared with sales of $271.9 million in 2014, an
increase of 1.0%. Operating income was $26.1 million in 2015, compared with $31.4 million in 2014, a decrease of 16.9%.
The 2015 sales increase of $2.7 million reflected higher sales of energy systems products of $6.5 million and
engineered products and services of $4.0 million. The higher energy systems sales primarily reflected increased sales for
government energy systems. Turbine engine sales were lower by $7.8 million and reflected decreased sales for the Joint Air-
to-Surface Standoff Missile program. Operating income in 2015 reflected the impact of higher sales more than offset by the
impact of lower sales of higher margin turbine engines and higher pension expense of $2.0 million.
Cost of sales for 2015 increased by $7.7 million, compared with 2014, and reflected the higher sales and higher pension
expense. Cost of sales as a percentage of sales for 2015 increased to 82.4%, compared with 80.4% in 2014 and reflected the
impact of higher pension expense and lower sales of higher margin turbine engines. Selling, general and administrative
expenses, including research and development and bid and proposal expense, increased to $22.3 million in 2015, compared
with $22.0 million in 2014, and reflected the impact of higher sales. The selling, general and administrative expense
percentage remained at 8.1% for 2015, compared with 2014.
44
Financial Condition, Liquidity and Capital Resources
Principal Capital Requirements
Our principal cash and capital requirements are to fund working capital needs, capital expenditures, income tax
payments, pension contributions and debt service requirements, as well as acquisitions and the pending e2v acquisition. We
may also deploy cash for the stock repurchase program. It is anticipated that operating cash flow, together with available
borrowings under the credit facility described below, will be sufficient to meet these requirements and could be used to fund
acquisitions in 2017. To support acquisitions, we may need to raise additional capital. Our liquidity is not dependent upon the
use of off-balance sheet financial arrangements. We have no off-balance sheet financing arrangements that incorporate the use
of special purpose or unconsolidated entities.
Credit Facility, Senior Notes and Term Loans
In December 2016, the Company entered into an amendment relating to unsecured term loans of $182.5 million in
aggregate principal amount (the “Term Loans”) to extend the maturity date of the Term Loans from March 1, 2019 to January
31, 2022 and extending the date on which amortization of principal begins; and generally lowering the applicable rate for base
rate and Eurocurrency loans. The other material terms of the Term Loans, including covenants, remain unchanged. In
November 2015, the Company issued $125.0 million in aggregate principal amount of senior unsecured notes (“senior
unsecured notes”). The notes consisted of $25.0 million of 2.81% senior unsecured notes due in November 2020, and $100.0
million of 3.28% senior unsecured notes due in November 2022. Also in December 2015, the Company amended the $750.0
million unsecured credit facility (“credit facility”) to extend the maturity from March 2018 to December 2020. Excluding
interest and fees, no payments are due under the credit facility until it matures. Borrowings under our credit facility and term
loans are at variable rates which are, at our option, tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered
Rate) plus an applicable rate or a base rate as defined in our credit agreements. Eurocurrency rate loans may be denominated
in U.S. dollars or an alternative currency as defined in the agreement. Eurocurrency or LIBOR based loans under the facility
typically have terms of one, two, three or six months and the interest rate for each such loan is subject to change if the loan is
continued or converted following the applicable maturity date. The Company has not drawn any loans with a term longer than
three months under the credit facility. Base rate loans have interest rates that primarily fluctuate with changes in the prime
rate. Interest rates are also subject to change based on our consolidated leverage ratio as defined in the credit agreement. The
credit facility also provides for facility fees that vary between 0.12% and 0.25% of the credit line, depending on our
consolidated leverage ratio as calculated from time to time.
In connection with the agreement to acquire e2v, Teledyne, together with certain of its subsidiaries as guarantors, has
entered into a Credit Agreement (the “Bridge Facility”) dated December 11, 2016. The lenders under the Bridge Facility are
committed to lend up to £345.0 million to fund the acquisition, and Teledyne has committed to have remain available for
borrowing up to $410.0 million under its $750.0 million credit facility to fund the acquisition. No amounts have been drawn
against the Bridge Facility to date.
Long-term debt (in millions):
January 1, 2017
January 3, 2016
$750.0 million credit facility, due December 2020, weighted average rate
of 1.67% at January 3, 2016
Term Loans due through January 2022, weighted average rate of 1.90% at
January 1, 2017, and 1.55% at January 3, 2016
4.74% Fixed Rate Senior Notes due September 2017
2.61% Fixed Rate Senior Notes due December 2019
5.30% Fixed Rate Senior Notes due September 2020
2.81% Fixed Rate Senior Notes due November 2020
3.09% Fixed Rate Senior Notes due December 2021
3.28% Fixed Rate Senior Notes due November 2022
Other debt
Total long-term debt
Current portion of long-term debt and debt issue costs
Total long-term debt, net of current portion
$
— $
182.5
100.0
30.0
75.0
25.0
95.0
100.0
4.2
611.7
(102.0)
509.7
$
$
150.5
190.0
100.0
30.0
75.0
25.0
95.0
100.0
—
765.5
(11.4)
754.1
At January 1, 2017, we had $7.4 million in capital leases, of which $1.3 million is current and had $15.5 million in
outstanding letters of credit.
45
Our credit facility, senior notes and term loans agreements require the Company to comply with various financial and
operating covenants, including maintaining certain consolidated leverage and interest coverage ratios, as well as minimum net
worth levels and limits on acquired debt. At January 1, 2017, the Company was in compliance with these covenants and we
had a significant amount of margin between required financial covenant ratios and our actual ratios. Currently, we do not
believe our ability to undertake additional debt financing, if needed, is reasonably likely to be materially impacted by debt
restrictions under our credit agreements subject to our complying with required financial covenants listed in the table below.
Financial covenant ratios and the actual ratios at January 1, 2017:
$750.0 million Credit Facility expires December 2020 and $182.5 million term loans due through January 2022
(issued in October 2012)
Financial Covenant
Consolidated Leverage Ratio (Net Debt/EBITDA) (a)
Consolidated Interest Coverage Ratio (EBITDA/Interest) (b)
Requirement
No more than 3.25 to 1
No less than 3.0 to 1
Actual Measure
1.7 to 1
16.0 to 1
$425.0 million Private Placement Senior Notes due from 2017 to 2022
Financial Covenant
Consolidated Leverage Ratio (Net Debt/EBITDA) (a)
Consolidated Interest Coverage Ratio (EBITDA/Interest) (b)
Requirement
No more than 3.25 to 1
No less than 3.0 to 1
Actual Measure
1.7 to 1
16.0 to 1
(a)
(b)
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.
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.
In the event of an acquisition, our debt instruments permit us, at our option, to exceed the Consolidated Leverage Ratio
of 3.25 to 1 for up to four quarters following the fiscal quarter in which the acquisition event occurs, provided that the
Consolidated Leverage Ratio does not exceed 3.5 to 1. If the pending acquisition of e2v closes, we expect to remain in
compliance with this financial ratio as a result.
Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and outstanding
letters of credit, was $735.5 million at January 1, 2017; noting, however, that Teledyne has committed to have remain
available for borrowing up to $410.0 million under this facility to fund the pending e2v acquisition.
Teledyne also has a $5.0 million uncommitted credit line which permits credit extensions up to $5.0 million plus an
incremental $2.0 million solely for standby letters of credit. This credit line is utilized, as needed, for periodic cash needs. At
January 1, 2017, $3.5 million was outstanding under the uncommitted credit line. No amounts were outstanding under this
credit line at January 3, 2016.
Permanently Reinvested Earnings
We intend to indefinitely reinvest the earnings of our material foreign subsidiaries in our operations outside of the United
States. The cash that the Company’s foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign
operations and investments, including acquisitions. We expect to fund a portion of the cost of the e2v acquisition with cash
held by our foreign subsidiaries. We estimate that future domestic cash generation will be sufficient to meet future domestic
cash requirements. At January 1, 2017, the amount of undistributed foreign earnings was $226.6 million, of which we have
not recorded a deferred tax liability of approximately $59.0 million. Should we decide to repatriate the foreign earnings, we
would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely
invested outside the United States.
46
Contractual Obligations
The following table summarizes our expected cash outflows resulting from financial contracts and commitments at
January 1, 2017. We have not included information on our normal recurring purchases of materials for use in our operations.
We have also not included any amounts that may be required related to our pending acquisition of e2v.
The amounts in the following table are generally consistent from year to year, closely reflect our levels of production and
are not long-term in nature:
Contractual obligations (in millions):
Debt obligations
Interest expense(a)
Operating lease obligations
Capital lease obligations(b)
Purchase obligations (c)
Total
2017
$100.7
19.6
18.1
1.3
74.4
$214.1
2018
1.1
$
15.5
17.1
1.3
3.7
$ 38.7
2019
$ 34.6
15.3
14.6
1.4
2.0
$ 67.9
2020
$108.6
11.9
13.4
1.1
1.7
$136.7
2021
$ 102.4
9.2
12.3
1.1
0.7
$ 125.7
$
After
2021
$ 264.3
1.4
55.9
2.2
1.9
$ 325.7 $
Total
611.7
72.9
131.4
8.4
84.4
908.8
(a)
Interest expense related to the credit facility, including facility fees, is assumed to accrue at the rates in effect at year-end 2016 and is assumed to be paid
at the end of each quarter with the final payment in December 2020 when the credit facility expires.
Includes imputed interest and short-term portion.
(b)
(c) Purchase obligations generally include contractual obligations for the purchase of goods and services.
Unrecognized tax benefits of $24.5 million are not included in the table above because $7.1 million is offset by deferred
tax assets, and the remainder cannot be reasonably estimated to be settled in cash due to a lack of prior settlement history.
At January 1, 2017, we were not required, and accordingly are not planning, to make any cash contributions to the
domestic qualified pension plan for 2017. Our minimum funding requirements after 2017, as set forth by ERISA, are
dependent on several factors as discussed under “Accounting for Pension Plans” in the Critical Accounting Policies section of
this Management’s Discussion and Analysis of Financial Condition and Results of Operation. Estimates beyond 2017 have not
been provided due to the significant uncertainty of these amounts, which are subject to change until the Company’s pension
assumptions can be updated at the appropriate times. In addition, certain pension contributions are eligible for future recovery
through the pricing of products and services to the U.S. government under certain government contracts, therefore, the
amounts noted are not necessarily indicative of the impact these contributions may have on our liquidity. We also have
payments due under our other postretirement benefit plans. These plans are not required to be funded in advance, but are pay
as you go. See further discussion in Note 11 of the Notes to our Consolidated Financial Statements. Teledyne intends to
continue to monitor and manage its defined benefit pension plans obligation and may take additional actions to manage risk in
the future.
Operating Activities
In 2016, net cash provided by operating activities was $317.0 million, compared with $210.2 million in 2015 and $287.9
million in 2014. The higher cash provided by operating activities in 2016, compared with 2015, reflected $61.9 million in
lower income tax payments, lower annual bonus and regular payroll payments and higher customer advanced payments,
partially offset by higher payments for severance, facility closure and relocation costs and lower operating income. The 2015
amounts reflected the receipt of $3.0 million related to a legal settlement while the 2014 amount reflected the receipt of $10.0
million related to a legal settlement. The lower cash provided by operating activities in 2015, compared with 2014, reflected
lower net income, lower customer deposits and advanced payments and higher income tax payments.
Free cash flow (cash provided by operating activities less capital expenditures) was $229.4 million in 2016, compared
with $163.2 million in 2015 and $244.4 million in 2014. Adjusted free cash flow reflects utilization of restricted cash from the
sale of a former operating facility which funded, in part, the facility purchase pursuant to a 1031 like-kind exchange and was
$248.9 million in 2016, compared with $163.2 million in 2015 and $244.4 million in 2014.
47
Free Cash Flow(a)
(in millions, brackets indicate use of funds)
Cash provided by operating activities
Capital expenditures for property, plant and equipment, excluding facility purchase
Facility purchase pursuant to 1031 like-kind exchange
Total capital expenditures
Free cash flow
Restricted cash utilized for 1031 like-kind exchange facility purchase
Adjusted free cash flow
2016
$ 317.0
(61.6)
(26.0)
(87.6)
229.4
19.5
$ 248.9
2015
$ 210.2
(47.0)
—
(47.0)
163.2
—
$ 163.2
2014
$ 287.9
(43.5)
—
(43.5)
244.4
—
$ 244.4
a) We define free cash flow as cash provided by operating activities (a measure prescribed by generally accepted accounting principles) less capital
expenditures for property, plant and equipment. Adjusted free cash flow reflects utilization of restricted cash from the sale of a former operating
facility which funded, in part, the facility purchase pursuant to a 1031 like-kind exchange. The company believes that this supplemental non-GAAP
information is useful to assist management and the investment community in analyzing the company’s ability to generate cash flow.
Selected balance sheet changes (in millions):
Cash
Current portion of long-term debt, capital leases and other debt
Long-term debt and capital lease obligations, net of current portion
Treasury stock
Accumulated other comprehensive loss
2016
$
98.6
$ 102.0
$ 515.8
$ 242.9
$ 451.2
2015
85.1
$
$
19.1
$ 761.5
$ 309.9
$ 413.2
The increase in the current portion of long-term debt primarily reflects the expected repayment in 2017 of $100.0 million
in term loans. The increase in accumulated other comprehensive loss reflects the impact of foreign currency adjustments and
the non-cash reduction to stockholders’ equity for the pension and postretirement plans.
Investing Activities
Net cash used in investing activities was $151.0 million, $109.9 million and $238.7 million for 2016, 2015 and 2014,
respectively. Cash flows relating to investing activities consists primarily of cash used for acquisitions and capital
expenditures, except 2016 also includes $9.3 million of cash received from the sale of a business and cash received of $19.5
million from the sale of a former operating facility.
Capital expenditures (in millions):
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Corporate
2016
$ 50.9
12.5
12.6
5.9
5.7
$ 87.6
2015
$ 20.9
9.2
9.1
5.7
2.1
$ 47.0
2014
$ 17.0
10.3
8.8
4.3
3.1
$ 43.5
The increase in capital spending in 2016, compared with 2015, primarily reflected the purchase of an operating facility.
During 2017 we plan to invest approximately $60.0 million in capital expenditures, principally to upgrade capital equipment,
reduce manufacturing costs and introduce new products. Commitments at January 1, 2017, for capital expenditures were
approximately $9.5 million.
Acquisitions
Investing activities used cash for acquisitions and investments of $93.4 million, $66.7 million and $195.8 million, in
2016, 2015 and 2014, respectively (see “Recent Acquisitions”).
Teledyne funded the acquisitions primarily from borrowings under its credit facility and cash on hand.
For all acquisitions, the results of operations and cash flows are included in our consolidated financial statements from
the date of each respective acquisition. The CARIS, ICM and Axiom acquisitions are part of the Digital Imaging segment. All
other acquisitions in 2016, 2015 and 2014 are part of the Instrumentation segment.
48
The following table shows the purchase price (net of cash acquired), goodwill acquired and intangible assets acquired for
the acquisitions and other investments made in 2016 and 2015 (in millions):
Acquisition
Frontline
Quantum Data
CARIS
IN USA
Hanson Research
Other investments
(a) net of any cash acquired and any purchase price adjustments.
Acquisition
Bowtech
ICM
Purchase of remaining interest of Optech
Other Investments
(a) net of any cash acquired.
Acquisition Date
April 6, 2016
April 15, 2016
May 3, 2016
November 2, 2016
December 6, 2016
Acquisition Date
February 2, 2015
June 5, 2015
April 29, 2015
2016
Cash Paid (a)
13.7
$
17.3
26.2
10.2
25.0
1.0
93.4
$
2015
Cash Paid (a)
18.9
$
21.8
22.0
4.0
66.7
$
Goodwill
Acquired
11.3
$
10.7
22.2
6.3
13.5
—
64.0
$
Acquired
Intangible
Assets
$
$
2.3
5.4
3.6
3.0
8.4
—
22.7
Goodwill
Acquired
7.0
$
19.2
—
1.4
27.6
$
Acquired
Intangible
Assets
$
$
4.3
5.8
—
0.9
11.0
Goodwill resulting from the acquisitions of Frontline, Quantum Data, IN USA and CARIS made in 2016 will be
deductible for tax purposes. Goodwill resulting from the 2016 acquisition of Hanson Research and the 2015 acquisitions of
Bowtech and ICM will not be deductible for tax purposes.
Financing Activities
Financing activities for 2016 reflected net payments on debt of $163.1 million, compared with net payments on debt of
$47.6 million in 2015 and net proceeds from debt of $29.5 million for 2014. In addition, in both 2015 and 2014, the Company
issued $125.0 million of senior unsecured notes. Financing activities in 2016 also included the payment of $11.6 million for
an option contract in connection with the pending e2v acquisition.
Fiscal years 2016, 2015 and 2014 reflect proceeds from the exercise of stock options of $36.1 million, $19.0 million and
$18.3 million, respectively. Financing activities for 2015 and 2014 also reflected the repurchase of common stock of $243.8
million and $146.6 million, respectively. Share repurchases totaled 2,561,815 shares in 2015 and 1,396,290 shares in 2014.
See Note 8 to our Consolidated Financial Statements for additional information about our stock repurchase program.
Other Matters
Pension Plans
Teledyne has a domestic qualified defined benefit pension plan covering substantially all U.S. employees hired before
January 1, 2004, or approximately 16% of Teledyne’s active employees. As of January 1, 2004, new U.S. hires participate in a
domestic defined contribution plan. In 2016, 2015 and 2014, Teledyne’s domestic pension plan was over 100% funded, thus
no cash contributions were made. For the Company’s domestic pension plan, the discount rate for 2017 will decrease to
4.54% from 4.91% in 2016. The Company also has several smaller domestic and foreign-based defined benefit pension plans.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect
management’s best assessment of estimated current and future taxes to be paid. We are subject to income taxes in both the
United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the
consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported
amount in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to
recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative
evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, and
49
results of recent operations. In projecting future taxable income, we begin with historical results adjusted for the results of
discontinued operations and incorporate assumptions about the amount of future state, federal and foreign pretax operating
income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant
judgment and are consistent with the plans and estimates we are using to manage the underlying businesses. In evaluating the
objective evidence that historical results provide, we consider three years of cumulative operating income. Based on the
Company’s history of operating earnings, expectations of future operating earnings and potential tax planning strategies,
management believes that it is possible that some portion of deferred taxes will not be realized as a future tax benefit and
therefore has recorded a valuation allowance.
We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. The
Company has substantially concluded on all U.S. federal income tax matters for all years through 2012, California income tax
matters for all years through 2011 and Canadian income tax matters for all years through 2008.
Costs and Pricing
Inflationary trends in recent years have been moderate. Current inventory costs, the increasing costs of equipment and
other costs are considered in establishing sales pricing policies. The Company emphasizes cost containment in all aspects of
its business.
Hedging Activities and Market Risk Disclosures
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 objective is to protect the United
States dollar value of future cash flows and minimize the volatility of reported earnings. The Company utilizes foreign
currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenue and expenses
denominated in Canadian dollars for our Canadian companies, including DALSA. These contracts are designated and qualify
as cash flow hedges.
The effectiveness of the cash flow hedge contracts, excluding time value, is assessed prospectively and retrospectively
on a monthly basis using regression analysis, as well as using other timing and probability criteria. To receive hedge
accounting treatment, all hedging relationships are formally documented at the inception of the hedges and must be highly
effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash flow hedge
contracts’ gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a
component of accumulated other comprehensive income/(loss) (“AOCI”) in stockholders’ equity until the underlying hedged
item is reflected in our consolidated statements of income, at which time the effective amount in accumulated other
comprehensive income is reclassified to cost of sales in our consolidated statements of income. The Company expects to
reclassify a loss of approximately $0.8 million, net of tax, over the next 12 months based on the year-end 2016 exchange rate.
In the event that the gains or losses in AOCI are deemed to be ineffective, the ineffective portion of gains or losses
resulting from changes in fair value, if any, is reclassified to other income and expense. In the event that the underlying
forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or
losses on the related cash flow hedges will be reclassified from AOCI to other income and expense. During the current
reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other
income and expense. As of January 1, 2017, Teledyne had foreign currency forward contracts designated as cash flow hedges
to buy Canadian dollars and to sell U.S. dollars totaling $56.8 million and these contracts had a negative fair value of $1.1
million. These foreign currency forward contracts have maturities ranging from March 2017 to February 2018.
In addition, the Company utilizes foreign currency forward contracts to mitigate foreign exchange rate risk associated
with foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. As of
January 1, 2017, Teledyne had foreign currency contracts of this type in the following currency pairs (in millions):
Contracts to Buy
Contracts to Sell
Currency
Canadian Dollars
Euros
Great Britain Pounds
Great Britain Pounds
Canadian Dollars
U.S. Dollars
Singapore Dollars
Amount
C$
£
£
C$
US$
S$
32.1
10.4
1.4
41.3
15.9
0.9
1.8
50
Currency
U.S. Dollars
U.S. Dollars
Australian Dollars
U.S. Dollars
Euros
Japanese Yen
U.S. Dollars
Amount
US$
US$
A$
US$
¥
US$
24.2
11.1
2.4
52.0
10.6
110.0
1.3
€
€
These contracts had a fair value of $5.4 million at January 1, 2017. 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. 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. Teledyne does not use foreign currency forward contracts for speculative or trading purposes.
Notwithstanding our efforts to mitigate portions of our foreign currency exchange rate risks, there can be no assurance
that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. A
hypothetical 10% appreciation of the U.S. dollar from its value at January 1, 2017, would decrease the fair value of our foreign
currency forward contracts associated with our cash flow hedging activities by $5.7 million. A hypothetical 10% depreciation
of the U.S. dollar from its value at January 1, 2017, would increase the fair value of our foreign currency forward contracts
associated with our cash flow hedging activities by $5.7 million.
Borrowings under our credit facility are at fixed rates that vary with the term and timing of each loan under the facility.
Loans under the facility typically have terms of one, two, three or six months and the interest rate for each such loan is subject
to change if the loan is continued or converted following the applicable maturity date. Interest rates are also subject to change
based on our debt to earnings before interest, taxes, depreciation and amortization ratio. As of January 1, 2017, we had no
amounts outstanding under our $750.0 million credit facility. Any borrowings under the Company’s revolving credit line are
based on a fluctuating market interest rate and, consequently, the fair value of any outstanding debt should not be affected
materially by changes in market interest rates.
We believe that adequate controls are in place to monitor any hedging activities. Our primary exposure to market risk
relates to changes in interest rates and foreign currency exchange rates. We periodically evaluate these risks and have taken
measures to mitigate these risks. We own assets and operate facilities in countries that have been politically stable.
Environmental
We are subject to various federal, state, local and international environmental laws and regulations which require that we
investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations.
These include sites at which Teledyne has been identified as a potentially responsible party under the Comprehensive
Environmental Response, Compensation and Liability Act, commonly known as Superfund, and comparable state laws. We
are currently involved in the investigation and remediation of a number of sites. Reserves for environmental investigation and
remediation totaled $7.0 million at January 1, 2017, and $8.7 million at January 3, 2016. As investigation and remediation of
these sites proceed and new information is received, the Company will adjust accruals to reflect new information. Based on
current information, we do not believe that future environmental costs, in excess of those already accrued, will materially and
adversely affect our financial condition or liquidity. See also our environmental risk factor disclosure beginning on page 25
and Notes 2 and 14 to our Notes to Consolidated Financial Statements.
Government Contracts
We perform work on a number of contracts with the U.S. Department of Defense and other agencies and departments of
the U.S. Government including sub-contracts with government prime contractors. Sales under these contracts with the
U.S. Government, which included contracts with the U.S. Department of Defense, were approximately 27% of total sales in
2016, 26% of total sales in 2015 and 25% of total sales in 2014. For a summary of sales to the U.S. Government by segment,
see Note 12 to our Notes to Consolidated Financial Statements. Sales to the U.S. Department of Defense represented
approximately 21%, 19% and 20% of total sales for 2016, 2015 and 2014, respectively.
Performance under government contracts has certain inherent risks that could have a material adverse effect on the
Company’s business, results of operations and financial condition. Government contracts are conditioned upon the continuing
availability of Congressional appropriations, which usually occurs on a fiscal year basis even though contract performance
may take more than one year. See also our government contracts risks factor disclosure beginning on page 19.
For information on accounts receivable from the U.S. Government, see Note 5 to our Notes to Consolidated Financial
Statements.
Estimates and Reserves
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an ongoing basis, we evaluate our
estimates, including those related to product returns and replacements, allowance for doubtful accounts, inventories, intangible
assets, income taxes, warranty obligations, pension and other postretirement benefits, long-term contracts, environmental,
workers’ compensation and general liability, employee dental and medical benefits and other contingencies and litigation. We
51
base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the
circumstances at the time, the results of which form the basis for making our judgments. Actual results may differ materially
from these estimates under different assumptions or conditions. In some cases, such differences may be material. See also
Critical Accounting Policies.
The following table reflects significant reserves and valuation accounts, which are estimates and based on judgments as
described above, at January 1, 2017, and January 3, 2016 (in millions):
Reserves and Valuation Accounts: (a)
Allowance for doubtful accounts
Reduction to LIFO cost basis
Other inventory reserves
Workers’ compensation and general liability reserves(b)
Warranty reserves(b)
Environmental reserves(b)
Other accrued liability reserves(b)
2016
$
5.2
$ 13.5
$ 59.4
$
9.3
$ 18.4
$
7.0
$ 37.5
2015
$
6.3
$ 15.3
$ 58.8
$
8.3
$ 17.1
$
8.7
$ 33.9
(a) This table should be read in conjunction with the Notes to Consolidated Financial Statements.
(b) Includes both long-term and short-term reserves.
Some of the Company’s products are subject to standard warranties and the Company provides for the estimated cost of
product warranties. We regularly assess the adequacy of our pre-existing warranty liabilities and adjust amounts 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, which are typically one year. The product warranty reserve is included in current accrued
liabilities and other long-term liabilities on the balance sheet.
Warranty Reserve (in millions):
Balance at beginning of year
Accruals for product warranties charged to expense
Cost of product warranty claims
Acquisitions
Balance at year-end
Critical Accounting Policies
2016
$ 17.1
7.4
(6.7)
0.6
$ 18.4
2015
$ 18.5
6.1
(7.7)
0.2
$ 17.1
2014
$ 17.3
6.6
(5.9)
0.5
$ 18.5
The preparation of our consolidated financial statements in conformity with United States generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements
and the notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results
could differ materially from those estimates under different assumptions or conditions. Our critical accounting policies are
those that are reflective of significant judgment, complexity and uncertainty, and may potentially result in materially different
results under different assumptions and conditions. We have identified the following as critical accounting policies: revenue
recognition; accounting for pension plans; accounting for business combinations, goodwill and other long-lived assets; and
accounting for income taxes. For additional discussion of the application of these and other accounting policies, see Note 2 of
our Notes to Consolidated Financial Statements.
Revenue Recognition
Revenue is recognized when the earnings process is substantially complete and all of the following criteria are met: 1)
persuasive evidence of an arrangement exists; 2) delivery has occurred or services have been rendered; 3) our price to our
customer is fixed or determinable; and 4) collectability is reasonably assured.
We determine the appropriate method by which we recognize revenue by analyzing the terms and conditions of our
contracts or arrangements entered into with our customers. The majority of our revenue relates to product sales and is
recognized upon shipment to the customer, at fixed or determinable prices and with a reasonable assurance of collection,
passage of title to the customer and fulfillment of all significant obligations. Revenue is recognized net of estimated sales
returns and other allowances. The Company does not offer substantial sales incentives and credits to customers. The
remaining revenue is generally associated with long-term contracts to design, develop and manufacture highly engineered
products used in commercial or defense applications. Such contracts are generally accounted for using contract accounting,
percentage-of-completion (“POC”) method.
52
The Company’s standard terms of sale are FOB shipping point. For a small percentage of sales where title and risk of
loss passes at destination point, and assuming all other criteria for revenue recognition are met, the Company recognizes
revenue upon delivery to the customer. If any significant obligation to the customer with respect to a sales transaction remains
following shipment, revenue recognition is deferred until such obligations have been fulfilled. In general, our revenue
arrangements do not involve acceptance provisions based on customer specified acceptance criteria. In those circumstances
when customer specified acceptance criteria exist, and if we cannot demonstrate that the system meets those specifications
prior to the shipment, then revenue is deferred until customer acceptance is obtained.
We have a few contracts that require the Company to warehouse certain goods, for which revenue is recognized when all
risks of loss is borne by the customer and all other criteria for revenue recognition are met.
We also have a small number of multiple elements arrangements (i.e., free product, training, installation, additional parts,
etc.). If contract accounting does not apply, we allocate the contract price among the deliverables based on vendor-specific
objective evidence of fair value to each element in the arrangement. If objective and reliable evidence of fair value of any
element is not available, we use our best estimate of selling price for purposes of allocating the total arrangement consideration
among the elements. Also, extended or non-customary warranties do not represent a significant portion of our revenue;
however when our revenue arrangements include an extended or non-customary warranty provision, the revenue is deferred
and recognized ratably over the extended warranty period.
For contracts that require substantial performance over a long time period (generally one or more years), revenue is
recorded under the POC method. We record net revenue and an estimated profit as work on our contracts progresses. The POC
method for these contracts is dependent on the nature of the contract or products provided. Depending on the contract, we may
measure the extent of progress toward completion using the units-of-delivery method, cost-to-cost method or upon attainment
of scheduled performance contract milestones which could be time, event or expense driven. For example, for cost-
reimbursable contracts we use the cost-to-cost method to measure progress toward completion. Under the cost-to-cost method
of accounting, we recognize revenue and an estimated profit as allowable costs are incurred based on the proportion that the
incurred costs bear to total estimated costs. Another example, for contracts that require us to provide a substantial number of
similar items, we record revenue and an estimated profit on a POC basis using units-of-delivery as the basis to measure
progress toward completing the contract. Occasionally, it is appropriate to combine individual customer orders and treat them
as one arrangement when the underlying agreement was reached with the customer for a single large project.
Accounting for contracts using the POC method requires management judgment relative to assessing risks, estimating
contract revenue and cost, and making assumptions for schedule and technical issues. Contract revenue may include estimated
amounts not contractually agreed to by the customer, including price redetermination, cost or performance incentives (such as
award and incentives fees), un-priced change orders, claims and requests for equitable adjustment. The POC method requires
management’s judgment to make reasonably dependable cost estimates generally over a long time period. Since certain
contracts extend over a long period of time, the impact of revisions in cost and revenue estimates during the progress of work
may adjust the current period earnings on 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 generally reviewed and reassessed at least quarterly.
(dollars in millions)
Percent of revenue - POC Method
Favorable changes in estimate
Unfavorable changes in estimate
Net change - income/(expense)
2016
2015
2014
30.5%
31.2%
28.7%
$
$
27.7
(29.6)
(1.9)
$
$
38.6
(35.5)
3.1
$
$
22.9
(25.9)
(3.0)
We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in contract
estimates for 2016, 2015 or 2014 was material to the consolidated statements of income for such annual periods.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede
most current revenue recognition guidance. For a discussion of this new accounting standard see Note 2 of our Notes to the
Consolidated Financial Statements.
53
Pension Plans
Teledyne has a domestic qualified defined benefit pension plan covering substantially all U.S. employees hired before
January 1, 2004, or approximately 16% of Teledyne’s active employees. As of January 1, 2004, new U.S. hires participate in a
defined contribution plan only. The Company also has several smaller domestic and foreign-based defined benefit pension
plans. At January 1, 2017, the benefit obligation for the domestic defined benefit pension plans totaled $810.9 million and the
fair value of the net qualified plan assets totaled $857.1 million. At January 1, 2017, the benefit obligation for the foreign-
based pension plans totaled $51.4 million and the fair value of the net plan assets totaled $42.1 million. The Company’s
accounting for its defined benefit pension plans requires that amounts recognized in financial statements be determined on an
actuarial basis, rather than as contributions are made to the plan. In consultation with our actuaries, we determine the
appropriate assumptions for use in determining the liability for future pension benefits. Net actuarial gains or losses are
amortized to expense on a plan-by-plan basis when they exceed the accounting corridor. The accounting corridor is a defined
range within which amortization of net gains and losses is not required and is equal to 10 percent of the greater of the market
related value of assets or benefit obligations. Gains or losses outside of the corridor are subject to amortization over our average
employee future service period of approximately nine years. Significant assumptions used in determining the Company’s
pension income or expense is the expected long-term rate of return on plan assets, participant mortality estimates, expected
rates of increase in future compensation levels, employee turnover, as well as the assumed discount rate on pension obligations.
The Company has assumed, based upon the types of securities the domestic qualified pension plan assets are invested in and
the long-term historical returns of these investments, that the long-term expected return on the domestic qualified pension plan
assets will be 8.0% in 2017 and the assumed discount rate for determining benefit obligations will be 4.54% in 2017. The
Company’s long-term expected return on the domestic qualified pension assets used in 2016 was 8.0% and the assumed
discount rate used in 2016 was 4.91%. The actual rate of return on the domestic qualified pension plan assets was 7.09% in
2016 and a negative return of 1.1% in 2015 for its domestic qualified pension plan. If the actual rate of return on pension assets
is below the expected rate of return, the Company may be required to make additional contributions to the pension trust. At
January 1, 2017, the domestic qualified pension plan is over-funded and contributions are not required. The Company did not
make any cash contributions to its domestic qualified pension plan since 2013 when it made a voluntary pretax cash
contribution of $83.0 million, before recovery from the U.S. Government. Each year beginning with 2014, the Society of
Actuaries released revised mortality tables, which updated life expectancy assumptions. In consideration of these tables, we
updated the mortality assumptions used in determining our pension obligations. The net impact of these new mortality
assumptions has resulted in an increase to our pension obligation and an increase in future pension expense. Our plan remains
over-funded after the impact of the new mortality assumptions, as well as from changes to other relevant assumptions. At year-
end 2016, the Company has a $249.6 million non-cash reduction to stockholders’ equity and a long-term additional liability of
$396.9 million related to its pension plans. At year-end 2015, the Company had a $232.3 million non-cash reduction to
stockholders’ equity and a long-term additional liability of $370.4 million related to its pension plans.
Differences in the discount rate and expected long-term rate of return on assets within the indicated range would have had
the following impact on 2016 pension expense (in millions):
Increase (decrease) to pension expense resulting from:
Change in discount rate
Change in long-term rate of return on plan assets
0.25 Percentage
Point Increase
0.25 Percentage
Point Decrease
$
$
(1.4) $
(2.3) $
1.5
2.3
See Note 11 of our Notes to Consolidated Financial Statements for additional pension disclosures.
Business Combinations, Goodwill and Acquired Intangible Assets
The results for all acquisitions are included in the Company’s consolidated financial statements from the date of each
respective acquisition. Business acquisitions are accounted for under the acquisition method by assigning the purchase price to
tangible and intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded at their fair
values and the excess of the purchase price over the amounts assigned is recorded as goodwill. We determine the fair value of
such assets and liabilities, generally in consultation with third-party valuation advisors. Acquired intangible assets with finite
lives are amortized over their estimated useful lives. Adjustments to fair value assessments are recorded to goodwill over the
purchase price allocation period.
Goodwill and acquired intangible assets with indefinite lives are not amortized. We review goodwill and acquired
indefinite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of these assets may not be recoverable. The Company also performs an annual impairment test in the fourth quarter of each
year. We would test goodwill and acquired indefinite-lived intangible assets for impairment between annual tests if events
occur or circumstances change that would more likely than not reduce our enterprise fair value below its book value. These
events or circumstances could include a significant change in the business climate, including a significant sustained decline in
54
an entity’s market value, legal factors, operating performance indicators, competition, sale or disposition of a significant
portion of the business, or other factors. Based on an annual impairment test completed in 2016, there was no impairment to
acquired intangible assets. Based on a quarterly impairment test completed in 2016, the Company recorded a $1.0 million
impairment to acquired intangible assets. Based on a quarterly impairment test completed in 2015, the Company recorded a
$0.5 million impairment to acquired intangible assets. No impairment of goodwill was indicated in 2016 or 2015, based on the
annual impairment test completed in the fourth quarter of each year.
For goodwill impairment testing, the Company estimates the fair value of the reporting units, using a discounted cash
flow model based on our best estimate of amounts and timing of future revenues and cash flows and our most recent business
and strategic plans, and compares the estimated fair value to the carrying value of the reporting unit, including goodwill. The
discounted cash flow model requires judgmental assumptions about projected revenue growth, future operating margins,
discount rates and terminal values over a multi-year period. There are inherent uncertainties related to these assumptions and
management’s judgment in applying them to the analysis of goodwill impairment. While the Company believes it has made
reasonable estimates and assumptions to calculate the fair value of its reporting units, it is possible a material change could
occur. If actual results are not consistent with management’s estimates and assumptions, goodwill may be overstated and a
charge would need to be taken against net earnings.
As of January 1, 2017, the Company had 17 reporting units for goodwill impairment testing. The carrying value of
goodwill included in the Company’s individual reporting units ranges from $1.0 million to $422.5 million. The Company’s
analysis in 2016 indicated that in all instances, the fair value of the Company’s reporting units exceeded their carrying values
and consequently did not result in an impairment charge. The excess of the estimated fair value over the carrying value
(expressed as a percentage of carrying value of the respective reporting unit) for each of the Company’s reporting units as of
the fourth quarter of 2016, the annual testing date, ranged from approximately 19% to 4873%.
Changes in these projections could affect the estimated fair value of certain of the Company’s reporting units and could
result in a goodwill impairment charge in a future period. In order to evaluate the sensitivity of the fair value calculations used
in the goodwill impairment test, the Company applied a hypothetical 10% decrease to the fair values of each reporting unit and
compared those values to the reporting unit carrying values. Based on this sensitivity analysis, the Company did not identify
any goodwill impairment. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative
size of our recorded goodwill, differences in assumptions may have a material effect on the results of our impairment analysis.
The impairment test for indefinite-lived intangibles other than goodwill (primarily trademarks and trade names) consists
of a comparison of the fair value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment
testing date. The Company estimates the fair value of its indefinite-lived intangibles using a discounted cash flow model based
on our best estimate of amounts and timing of future revenues from our most recent business and strategic plans, and compares
the estimated fair value to the carrying value of the asset. Without exception, the estimated fair values exceed the carrying
value for each of the Company’s indefinite-lived intangible assets as of the fourth quarter of 2016, the annual testing date.
Income Taxes
Income tax expense and deferred tax assets and liabilities reflect management’s assessment of actual future taxes to be
paid on items reflected in the financial statements. Significant judgment is required in evaluating our tax positions and
determining our provision for income taxes. Uncertainty exists regarding tax positions taken in previously filed tax returns still
under examination and positions expected to be taken in the current year and future returns. Deferred tax assets and liabilities
arise due to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and tax carryforwards. Although we believe our income tax expense and deferred tax assets and
liabilities are reasonable, no assurance can be given that the final tax outcome will not be different from that which is reflected
in our historical income tax provisions and accruals. To the extent that the final tax outcome is different than the amounts
recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The
provision for income taxes includes the impact of uncertain tax benefits that are considered appropriate, as well as the related
net interest.
Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing
the need for a valuation allowance, we consider all available evidence including past operating results, estimates of future
taxable income and the feasibility of tax planning strategies. In the event that we change our determination as to the amount of
deferred tax assets that can be realized, we will adjust our valuation allowance with a corresponding impact to the provision for
income taxes in the period in which such determination is made.
We record uncertain tax benefits on the basis of a two-step process whereby (1) we determine whether it is more likely
than not that the tax positions will be sustained on the basis of the technical merits of the positions and (2) for those tax
positions that meet the “more-likely-than-not” recognition threshold, we recognize the largest amount of tax benefit that is
more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
55
An increase of 100 basis point increase in our nominal tax rate would have resulted in additional income tax provision for
the fiscal year ended January 1, 2017, of $2.4 million. For a description of the Company’s tax accounting policies, refer to Note
2 and Note 10 of our Notes to the Consolidated Financial Statements.
Recent Accounting Standards
For a discussion of recent accounting standards see Note 2 of our Notes to the Consolidated Financial Statements.
Safe Harbor Cautionary Statement Regarding Forward-Looking Information
This Management’s Discussion and Analysis of Financial Condition and Results of Operation contains forward-looking
statements, as defined in the Private Securities Litigation Reform Act of 1995, directly and indirectly relating to earnings,
growth opportunities, acquisitions and divestitures, product sales, capital expenditures, pension matters, stock option
compensation expense, the credit facility, interest expense, severance and relocation costs, environmental remediation cost,
stock repurchases, taxes, exchange rate fluctuations and strategic plans. All statements made in this Management’s Discussion
and Analysis of Financial Condition and Results of Operation that are not historical in nature should be considered forward-
looking. Actual results could differ materially from these forward-looking statements.
Many factors could change the anticipated results, including: disruptions in the global economy; changes in demand for
products sold to the defense electronics, instrumentation, digital imaging, energy exploration and production, commercial
aviation, semiconductor and communications markets; funding, continuation and award of government programs; and cuts to
defense spending resulting from existing and future deficit reduction measures; risks associated with our pending acquisition of
e2v, including the failure to satisfy closing conditions and the failure to successfully integrate the business; impacts from the
United Kingdom’s decision to exit the European Union; uncertainties related to the policies of the new U.S. Presidential
administration; and threats to the security of our confidential and proprietary information, including cyber security threats.
Continued lower oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, and new
regulations or restrictions relating to energy production, including with respect to hydraulic fracturing could further negatively
affect our businesses that supply the oil and gas industry. Increasing fuel costs could negatively affect the markets of our
commercial aviation businesses. In addition, financial market fluctuations affect the value of our pension assets. Changes in
the policies of U.S. and foreign governments could result, over time, in reductions or realignment in defense or other
government spending and further changes in programs in which the Company participates.
While Teledyne’s growth strategy includes possible acquisitions, including the pending e2v transaction, we cannot
provide any assurance as to when, if or on what terms any acquisitions will be made. Acquisitions involve various inherent
risks, such as, among others, our ability to integrate acquired businesses, retain customers and achieve identified financial and
operating synergies. There are additional risks associated with acquiring, owning and operating businesses outside of the
United States, including those arising from U.S. and foreign government policy changes or actions and exchange rate
fluctuations.
We continue to take action to assure compliance with the internal controls, disclosure controls and other requirements of
the Sarbanes-Oxley Act of 2002. While we believe our control systems are effective, there are inherent limitations in all
control systems, and misstatements due to error or fraud may occur and may not be detected.
Additional information concerning factors that could cause actual results to differ materially from those projected in the
forward-looking statements is contained beginning on page 13 of this Form 10-K under the caption “Risk Factors; Cautionary
Statement as to Forward-Looking Statements.” Forward-looking statements are generally accompanied by words such as
“estimate”, “project”, “predict”, “believes” or “expect”, that convey the uncertainty of future events or outcomes. We assume
no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or otherwise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included in this Report on page 50 under the caption “Other Matters - Hedging
Activities; Market Risk Disclosures” of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.”
Item 8.
Financial Statements and Supplementary Data
The information required by this item is included in this Report on pages 60 through 102. See the “Index to Financial
Statements and Related Information” on page 59.
56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls
Teledyne’s disclosure controls and procedures are designed to ensure that information required to be disclosed in reports
that it files or submits, under the Securities Exchange Act of 1934, was recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange Commission and to provide reasonable
assurance that information required to be disclosed by us in such reports is accumulated and communicated to the Company’s
management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure. The Company’s Chairman, President and Chief Executive Officer and Senior Vice President and
Chief Financial Officer, with the participation and assistance of other members of management, have evaluated the
effectiveness, as of January 1, 2017, of the Company’s “disclosure controls and procedures,” as that term is defined in
Rule 13a-15(e) under the Securities and Exchange Act of 1934, as amended (“the Exchange Act”). Based upon that evaluation,
our Chief Executive Officer and our Chief Financial Officer concluded that the disclosure controls and procedures as of
January 1, 2017, are effective.
Internal Controls
See Management Statement on page 60 for management’s annual report on internal control over financial reporting. See
Report of Independent Registered Public Accounting Firm on page 61 for Deloitte & Touche LLP’s attestation report on
management’s assessment of internal control over financial reporting.
There was no change in the Company’s “internal control over financial reporting” (as such term is defined in Rule 13a-15
(f) under the Exchange Act) that occurred during the quarter ended January 1, 2017, that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over financial reporting. There also were no material
weaknesses identified for which corrective action needed to be taken.
Sarbanes-Oxley Disclosure Committee
The Company’s Sarbanes-Oxley Disclosure Committee includes the following members:
Carl W. Adams, Vice President, Business Risk Assurance
Cynthia Belak, Vice President and Controller
Stephen F. Blackwood, Vice President and Treasurer
Melanie S. Cibik, Senior Vice President, General Counsel, Chief Compliance Officer and Secretary
Michael C. Lee, Director, Global Income Tax Accounting
Brian A. Levan, Senior Director of Financial Reporting and Assistant Controller
Susan L. Main, Senior Vice President and Chief Financial Officer
S. Paul Sassalos, Associate General Counsel and Assistant Secretary
Caleb B. Standafer, Senior Director Taxation and Associate Treasurer
Jason VanWees, Senior Vice President, Strategy and Mergers & Acquisitions
Tyler Vernon, Senior Manager, SEC/GAAP Compliance & External Reporting
Among its tasks, the Sarbanes-Oxley Disclosure Committee discusses and reviews disclosure issues to help us fulfill our
disclosure obligations on a timely basis in accordance with SEC rules and regulations and is intended to be used as an
additional resource for employees to raise questions regarding accounting, auditing, internal controls and disclosure matters.
Our toll-free Ethics Help Line (1-877-666-6968) continues to be an alternative means to communicate concerns to the
Company’s management.
Item 9B. Other Information
None.
57
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
In addition to the information set forth under the caption “Executive Management” beginning on page 10 in Part I of this
Report, the information required by this item is set forth in the 2017 Proxy Statement under the captions “Item 1 on Proxy
Card - Election of Directors,” “Board Composition and Practices,” “Corporate Governance,” “Committees of Our Board of
Directors - Audit Committee” and “Report of the Audit Committee” and “Stock Ownership - Sections 16(a) Beneficial
Ownership Reporting Compliance.” This information is incorporated herein by reference.
Item 11. Executive Compensation.
The information required by this item is set forth in the 2017 Proxy Statement under the captions “Executive and Director
Compensation” “Compensation Committee Interlocks and Insider Participation” and “Personnel and Compensation Committee
Report.” This information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is set forth in the 2017 Proxy Statement under the caption “Stock Ownership
Information” and under Item 2 “Approval of Amended and Restated Teledyne Technologies Incorporated 2014 Incentive Award
Plan” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is set forth in the 2017 Proxy Statement under the captions “Corporate
Governance” and “Certain Transactions” and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item is set forth in the 2017 Proxy Statement under the captions “Fees Billed by
Independent Registered Public Accounting Firm” and “Audit Committee Pre-Approval Policies” under “Item 3 on Proxy Card -
Ratification of Appointment of Independent Registered Public Accounting Firm” and is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules
(a) Exhibits and Financial Statement Schedules:
(1) Financial Statements
PART IV
See the “Index to Financial Statements and Related Information” on page 60 of this Report, which is incorporated herein by
reference.
(2) Financial Statement Schedules
See Schedule II captioned “Valuation and Qualifying Accounts” on page 102 of this Report, which is incorporated herein by
reference.
(3) Exhibits
A list of exhibits filed with this Form 10-K or incorporated by reference is found in the Exhibit Index immediately following
the certifications of this Report and incorporated herein by reference.
(b) Exhibits:
See Item 15(a)(3) above.
(c) Financial Schedules:
See Item 15(a)(2) above.
58
INDEX TO FINANCIAL STATEMENTS AND RELATED INFORMATION
Financial Statements and Related Information:
Management Statement
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Page
60
61
62
63
64
64
65
66
67
68
102
59
MANAGEMENT STATEMENT
RESPONSIBILITY FOR PREPARATION OF THE FINANCIAL STATEMENTS AND ESTABLISHING AND
MAINTAINING ADEQUATE INTERNAL CONTROL OVER FINANCIAL REPORTING
We are responsible for the preparation of the financial statements included in this Annual Report. The financial statements
were prepared in accordance with accounting principles generally accepted in the United States of America and include
amounts that are based on the best estimates and judgments of management. The other financial information contained in this
Annual Report is consistent with the financial statements.
Our internal control system is designed to provide reasonable assurance concerning the reliability of the financial data
used in the preparation of Teledyne financial statements, as well as to safeguard the Company’s assets from unauthorized use
or disposition.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement presentation.
REPORT OF MANAGEMENT ON TELEDYNE TECHNOLOGIES INCORPORATED’S INTERNAL CONTROL OVER
FINANCIAL REPORTING
We are also responsible for establishing and maintaining adequate internal control over financial reporting. We conducted
an evaluation of the effectiveness of the Company’s internal control over financial reporting as of January 1, 2017. In making
this evaluation, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 Framework) (the COSO criteria) in Internal Control - Integrated Framework. Our evaluation included reviewing the
documentation of our controls, evaluating the design effectiveness of our controls and testing their operating effectiveness. Our
evaluation did not include assessing the effectiveness of internal control over financial reporting for the CARIS, Quantum Data,
Frontline, IN USA and Hanson Research acquisitions in 2016. These acquisitions, which are included in the 2016 consolidated
financial statements of the Company, constituted less than 4% of total assets and less than 2% of both total revenues and net
income of the Company as of and for the year ended January 1, 2017. We did not assess the effectiveness of internal control
over financial reporting at these newly acquired entities due to the insufficient time between the date acquired and year-end and
the complexity associated with assessing internal controls during integration efforts making the process impractical. Based on
this evaluation we believe that, as of January 1, 2017, the Company’s internal controls over financial reporting were effective.
Deloitte and Touche LLP, our independent registered public accounting firm, has issued its report on the effectiveness of
Teledyne’s internal control over financial reporting. Their report appears on page 61 of this Annual Report.
Date: March 2, 2017
Date: March 2, 2017
/s/ ROBERT MEHRABIAN
Robert Mehrabian
Chairman, President and Chief Executive Officer
/s/ SUSAN L. MAIN
Susan L. Main
Senior Vice President and Chief Financial Officer
60
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Teledyne Technologies Incorporated
Thousand Oaks, California
We have audited the internal control over financial reporting of Teledyne Technologies Incorporated and subsidiaries (the
“Company”) as of January 1, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. As described in the Report of Management on
Teledyne Technologies Incorporated’s Internal Control Over Financial Reporting, management excluded from its assessment
the internal control over financial reporting for CARIS, Inc., Frontline Test Equipment, Inc., Quantum Data, Inc., IN USA, Inc.,
and Hanson Research Corporation (“the 2016 acquisitions”), which were acquired in April, May, November, and December,
respectively, and whose financial statements constitute less than 4% of total assets and less than 2% of both total revenues and
net income of the consolidated financial statement amounts as of and for the year ended January 1, 2017. Accordingly, our
audit did not include the internal control over financial reporting for the 2016 acquisitions. The Company’s management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Report of Management on Teledyne Technologies
Incorporated’s Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
January 1, 2017, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended January 1, 2017 of
the Company and our report dated March 2, 2017 expressed an unqualified opinion on those financial statements and financial
statement schedule.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 2, 2017
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Teledyne Technologies Incorporated
Thousand Oaks, California
We have audited the accompanying consolidated balance sheets of Teledyne Technologies Incorporated and subsidiaries
(the “Company”) as of January 1, 2017 and January 3, 2016, and the related consolidated statements of income, comprehensive
income, stockholders’ equity, and cash flows for the years ended January 1, 2017 and January 3, 2016. Our audits also included
the financial statement schedule as of and for the years ended January 1, 2017 and January 3, 2016 listed in the Index at Item
15. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements as of and for the years ended January 1, 2017 and January 3, 2016,
present fairly, in all material respects, the financial position of Teledyne Technologies Incorporated and subsidiaries as of
January 1, 2017 and January 3, 2016, and the results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial
statement schedule as of and for the years ended January 1, 2017 and January 3, 2016, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of January 1, 2017, based on the criteria established in
Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 2, 2017 expressed an unqualified opinion on the Company’s internal control over
financial reporting.
/s/ Deloitte & Touche LLP
Los Angeles, California
March 2, 2017
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Teledyne Technologies Incorporated
We have audited the accompanying consolidated statements of income, comprehensive income, stockholders’ equity, and
cash flows of Teledyne Technologies Incorporated for the period ended December 28, 2014. Our audit also included the
financial statement schedule listed in the index at Item 15(a)(2) for the year ended December 28, 2014. These financial
statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of
operations and cash flows of Teledyne Technologies Incorporated for the year ended December 28, 2014, in conformity with
U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth
therein for the year ended December 28, 2014.
/s/ Ernst & Young LLP
Los Angeles, California
February 26, 2015
63
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per-share amounts)
Net Sales
Costs and expenses
Cost of sales
Selling, general and administrative expenses
Total costs and expenses
Operating income
Interest and debt expense, net
Other income, net
Income before income taxes
Provision for income taxes
Net income
Noncontrolling interest
Net income attributable to Teledyne
Basic earnings per common share
Weighted average common shares outstanding
Diluted earnings per common share
Weighted average diluted common shares outstanding
The accompanying notes are an integral part of these financial statements.
2016
2,149.9
$
2015
2,298.1
$
2014
2,394.0
$
1,318.0
578.1
1,896.1
253.8
(23.2)
10.7
241.3
50.4
190.9
—
190.9
5.52
34.6
5.37
35.5
$
$
$
1,427.8
588.6
2,016.4
281.7
(23.9)
0.4
258.2
62.7
195.5
0.3
195.8
5.55
35.3
5.44
36.0
$
$
$
1,487.1
612.4
2,099.5
294.5
(19.0)
6.6
282.1
66.5
215.6
2.1
217.7
5.87
37.1
5.75
37.9
$
$
$
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
Net income
Other comprehensive income (loss):
Foreign exchange translation adjustment
Hedge activity, net of tax
Pension and postretirement benefit adjustments, net of tax
Other comprehensive loss(a)
Comprehensive income
Noncontrolling interest
2016
2015
2014
$
190.9
$
195.5
$
215.6
(24.6)
3.9
(17.3)
(38.0)
152.9
—
152.9
$
(83.6)
(1.4)
(5.0)
(90.0)
105.5
0.3
105.8
(58.2)
(2.0)
(97.5)
(157.7)
57.9
2.1
60.0
$
Comprehensive income attributable to Teledyne, net of tax
$
(a) Net of income tax benefit of $8.0 million in 2016, income tax benefit of $3.5 million for 2015 and income tax expense of $22.6 million for 2014.
The accompanying notes are an integral part of these financial statements.
64
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
Assets
Current Assets
Cash
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Goodwill, net
Acquired intangibles, net
Prepaid pension assets
Other assets, net
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable
Accrued liabilities
Current portion of long-term debt, capital leases and other debt
Total current liabilities
Long-term debt and capital leases
Other long-term liabilities
Total Liabilities
Commitments and contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value; outstanding shares-none
Common stock, $0.01 par value; authorized 125 million shares;
Issued shares: 37,697,865 at January 1, 2017, and 37,697,865 at January 3, 2016; outstanding
shares: 35,110,762 at January 1, 2017, and 34,514,599 at January 3, 2016
Additional paid-in capital
Retained earnings
Treasury stock, 2,587,103 at January 1, 2017 and 3,183,266 at January 3, 2016
Accumulated other comprehensive loss
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
The accompanying notes are an integral part of these financial statements.
2016
2015
$
98.6
383.7
314.2
49.7
846.2
340.8
1,193.5
234.6
88.5
70.8
$ 2,774.4
$
85.1
373.0
309.2
59.5
826.8
321.3
1,140.2
243.3
111.0
74.5
$ 2,717.1
$
138.8
261.0
102.0
501.8
515.8
202.4
1,220.0
$
136.5
238.0
19.1
393.6
761.5
217.9
1,373.0
—
—
0.4
335.7
1,912.4
(242.9)
(451.2)
1,554.4
$ 2,774.4
0.4
345.3
1,721.5
(309.9)
(413.2)
1,344.1
$ 2,717.1
65
TELEDYNE TECHNOLOGIES INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions)
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Teledyne
Technologies
Incorporated
Stockholders’
Equity
Noncontrolling
Interest
Total
Equity
Balance, December 29, 2013
$
0.4
$ 328.8
$
— $ 1,308.0
$
(165.5) $ 1,471.7
$
47.0
$ 1,518.7
Net income (loss)
Other comprehensive loss, net of tax
Foreign currency translation adjustment
- noncontrolling interest
Treasury stock purchases
Stock option compensation expense
Exercise of stock options and other
—
—
—
—
—
—
—
—
—
—
—
—
(20.0)
(102.1)
14.0
3.7
—
—
217.7
—
217.7
—
—
—
—
—
(157.7)
(157.7)
—
—
—
—
—
(122.1)
14.0
3.7
Balance, December 28, 2014
0.4
326.5
(102.1)
1,525.7
(323.2)
1,427.3
Net income (loss)
Other comprehensive loss, net of tax
Purchase of noncontrolling interest
Foreign currency translation adjustment
- noncontrolling interest
Treasury stock purchases
Stock-based compensation
Exercise of stock options and other
—
—
—
—
—
—
—
—
—
17.6
—
—
—
—
—
(36.0)
(207.8)
13.9
23.3
—
—
195.8
—
—
—
—
—
—
—
(90.0)
—
—
—
—
—
195.8
(90.0)
17.6
—
(243.8)
13.9
23.3
Balance, January 3, 2016
0.4
345.3
(309.9)
1,721.5
(413.2)
1,344.1
$
Net income
Other comprehensive loss, net of tax
Treasury stock issued
Stock-based compensation
Exercise of stock options and other
—
—
—
—
—
—
—
—
—
(67.0)
67.0
21.3
36.1
—
—
190.9
—
—
—
—
—
(38.0)
—
—
—
190.9
(38.0)
—
21.3
36.1
(2.1)
—
(3.7)
—
—
—
41.2
(0.3)
—
(39.6)
(1.3)
—
—
—
—
—
—
—
—
—
215.6
(157.7)
(3.7)
(122.1)
14.0
3.7
1,468.5
195.5
(90.0)
(22.0)
(1.3)
(243.8)
13.9
23.3
1,344.1
190.9
(38.0)
—
21.3
36.1
Balance, January 1, 2017
$
0.4
$ 335.7
$ (242.9) $ 1,912.4
$
(451.2) $ 1,554.4
$
— $ 1,554.4
The accompanying notes are an integral part of these financial statements.
66
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Deferred income taxes
Stock option expense
Change in fair value of derivative instruments
Noncontrolling interest
Gain on sale of facility
Excess tax benefits from stock options exercised
Changes in operating assets and liabilities, excluding the effect of businesses acquired:
Accounts receivable
Inventories
Prepaid expenses and other assets
Accounts payable
Accrued liabilities
Income taxes payable, net
Long-term assets
Other long-term liabilities
Pension benefits
Postretirement benefits
Other operating, net
Net cash provided by operating activities
Investing Activities
Purchases of property, plant and equipment
Purchase of businesses and other investments, net of cash acquired
Proceeds from the sale of businesses and disposal of fixed assets
Sales proceeds transferred to escrow as restricted cash
Sales proceeds transferred from escrow to cash
Net cash used in investing activities
Financing Activities
Net proceeds (payments) on credit facility
Proceeds from other debt
Payments on other debt
Proceeds from issuance of senior notes
Purchase of treasury stock
Proceeds from stock options exercised
Excess tax benefits from stock options exercised
Issuance of cash flow hedges
Purchase of option contract
Other financing
Net cash provided (used) by financing activities
Effect of exchange rate changes on cash
Increase (decrease) in cash
Cash—beginning of period
Cash—end of period
The accompanying notes are an integral part of these financial statements.
67
2016
2015
2014
$
190.9
$
195.5
$
215.6
87.3
(7.9)
11.6
5.5
—
(17.9)
—
(11.4)
(9.1)
(1.7)
2.1
26.8
23.8
1.0
11.4
4.0
(0.9)
1.5
317.0
(87.6)
(93.4)
30.0
(19.5)
19.5
(151.0)
(147.0)
6.1
(22.2)
—
—
36.1
—
—
(11.6)
(6.4)
(145.0)
(7.5)
13.5
85.1
98.6
$
90.3
(7.9)
12.2
—
(0.3)
—
(4.3)
21.9
(6.4)
(1.3)
(26.8)
(41.1)
(21.3)
3.7
(5.0)
3.3
(2.0)
(0.3)
210.2
(47.0)
(66.7)
3.8
—
—
(109.9)
45.5
9.7
(102.8)
125.0
(243.8)
19.0
4.3
(0.5)
—
(1.4)
(145.0)
(11.6)
(56.3)
141.4
85.1
$
94.3
(57.0)
14.0
—
(2.1)
—
(6.2)
(18.9)
(5.7)
(2.8)
13.4
8.6
(7.5)
(1.5)
4.4
44.4
1.2
(6.3)
287.9
(43.5)
(195.8)
0.6
—
—
(238.7)
—
29.5
—
125.0
(146.6)
18.3
6.2
(2.0)
—
—
30.4
(4.2)
75.4
66.0
141.4
$
TELEDYNE TECHNOLOGIES INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 1, 2017
Note 1. Description of Business
Teledyne Technologies Incorporated (“Teledyne” or the “Company”) became an independent, public company effective
November 29, 1999. Teledyne provides enabling technologies for industrial growth markets that require advanced technology
and high reliability. These markets include deepwater oil and gas exploration and production, oceanographic research, air and
water quality environmental monitoring, electronics design and development, factory automation and medical imaging. The
products include monitoring and control instrumentation for marine and environmental applications, harsh environment
interconnects, electronic test and measurement equipment, digital imaging sensors and cameras, aircraft information
management systems, and defense electronics and satellite communication subsystems. Teledyne also supplies engineered
systems for defense, space, environmental and energy applications. Teledyne differentiates itself from many of its direct
competitors by having a customer and company sponsored applied research center that augments our product development
expertise.
Teledyne consists of the Instrumentation segment with principal operations in the United States, the United Kingdom and
Denmark; the Digital Imaging segment with principal operations in the United States, Canada and the Netherlands: the
Aerospace and Defense Electronics segment with principal operations in the United States and the United Kingdom; and the
Engineered Systems segment with principal operations in the United States and the United Kingdom.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Teledyne and all wholly-owned and majority-owned
domestic and foreign subsidiaries. Intercompany accounts and transactions have been eliminated.
Fiscal Year
The Company operates on a 52- or 53-week fiscal year convention ending on the Sunday nearest to December 31.
Fiscal year 2016 was a 52-week fiscal year and ended on January 1, 2017. Fiscal year 2015 was a 53-week fiscal year and
ended on January 3, 2016. Fiscal year 2014 was a 52-week fiscal year and ended on December 28, 2014. References to the
years 2016, 2015 and 2014 are intended to refer to the respective fiscal year unless otherwise noted.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent liabilities. On an ongoing basis, the Company evaluates its estimates, including those
related to product returns and replacements, allowance for doubtful accounts, inventories, goodwill, intangible assets, asset
valuations, income taxes, warranty obligations, pension and other postretirement benefits, long-term contracts,
environmental, workers’ compensation and general liability, employee benefits and other contingencies and litigation. The
Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances at the time, the results of which form the basis for making its judgments. Actual results may differ
materially from these estimates under different assumptions or conditions. Management believes that the estimates are
reasonable.
68
Accumulated Other Comprehensive Income/(Loss)
The following table summarizes the changes in accumulated balances of other comprehensive income/(loss)
(“AOCI”) for the fiscal years ended January 1, 2017, and January 3, 2016 (in millions):
Balances as of December 28, 2014
Other comprehensive loss before reclassifications
Amounts reclassified from AOCI
Net other comprehensive loss
Balance as of January 3, 2016
Other comprehensive income (loss) before reclassifications
Amounts reclassified from AOCI
Net other comprehensive income (loss)
Balance as of January 1, 2017
$
Foreign
Currency
Translation
$
Cash Flow
Hedges and
other
Pension and
Postretirement
Benefits
Total
(90.6) $
(5.3) $
(227.3) $ (323.2)
(83.6)
—
(83.6)
(174.2)
(24.6)
—
(24.6)
(198.8) $
(8.2)
6.8
(1.4)
(6.7)
1.8
2.1
3.9
(2.8) $
—
(5.0)
(5.0)
(232.3)
(91.8)
1.8
(90.0)
(413.2)
(22.8)
—
(15.2)
(17.3)
(17.3)
(38.0)
(249.6) $ (451.2)
The reclassification out of AOCI for the fiscal years ended January 1, 2017, and January 3, 2016, are as follows (in
millions):
January 1,
2017
Amount
reclassified
from AOCI
January 3,
2016
Amount
reclassified
from AOCI
Financial
Statement
Presentation
Loss on cash hedges:
Loss recognized in income on derivatives
Income tax impact
Total
$
$
Amortization of defined benefit pension and postretirement plan items:
Amortization of prior service cost
Amortization of net actuarial loss
Pension adjustments
Total before tax
Tax effect
Net of tax
$
$
2.8
(0.7)
2.1
$
$
(6.1) $
27.2
(47.7)
(26.6)
9.3
(17.3) $
9.1 Cost of sales
(2.3) Income tax benefit
6.8
(6.0) See Note 11
34.0 See Note 11
(36.0) See Note 11
(8.0)
3.0
(5.0)
Revenue Recognition
Revenue is recognized when the earnings process is substantially complete and all of the following criteria are met:
1) persuasive evidence of an arrangement exists; 2) delivery has occurred or services have been rendered; 3) our price to
our customer is fixed or determinable; and 4) collectability is reasonably assured.
We determine the appropriate method by which we recognize revenue by analyzing the terms and conditions of our
contracts or arrangements entered into with our customers. The majority of our revenue relates to product sales and is
recognized upon shipment to the customer, at fixed or determinable prices and with a reasonable assurance of collection,
passage of title to the customer and fulfillment of all significant obligations. Revenue is recognized net of estimated sales
returns and other allowances. The Company does not offer substantial sales incentives and credits to customers. The
remaining revenue is generally associated with long-term contracts to design, develop and manufacture highly engineered
products used in commercial or defense applications. Such contracts are generally accounted for using contract
accounting, percentage-of-completion (“POC”) method.
69
The Company’s standard terms of sale are FOB shipping point. For a small percentage of sales where title and risk
of loss passes at destination point, and assuming all other criteria for revenue recognition are met, the Company recognizes
revenue upon delivery to the customer. If any significant obligation to the customer with respect to a sales transaction
remains following shipment, revenue recognition is deferred until such obligations have been fulfilled. In general, our
revenue arrangements do not involve acceptance provisions based on customer specified acceptance criteria. In those
circumstances when customer specified acceptance criteria exist, and if we cannot demonstrate that the product meets
those specifications prior to the shipment, then revenue is deferred until customer acceptance is obtained.
We have a few contracts that require the Company to warehouse certain goods, for which revenue is recognized when
all risks of loss are borne by the customer and all other criteria for revenue recognition are met.
We also have a small number of multiple elements arrangements (i.e., free product, training, installation, additional
parts, etc.). If contract accounting does not apply, we allocate the contract price among the deliverables based on vendor-
specific objective evidence of fair value to each element in the arrangement. If objective and reliable evidence of fair value
of any element is not available, we use our best estimate of selling price for purposes of allocating the total arrangement
consideration among the elements. Also, extended or non-customary warranties do not represent a significant portion of
our revenue; however when our revenue arrangements include an extended or non-customary warranty provision, the
revenue is deferred and recognized ratably over the extended warranty period.
For contracts that require substantial performance over a long time period (generally one or more years), revenue is
recorded under the POC method. We record net revenue and an estimated profit as work on our contracts progresses. The
POC method for these contracts is dependent on the nature of the contract or products provided. Depending on the
contract, we may measure the extent of progress toward completion using the units-of-delivery method, cost-to-cost
method or upon attainment of scheduled performance contract milestones which could be time, event or expense driven.
For example, for cost-reimbursable contracts we use the cost-to-cost method to measure progress toward completion.
Under the cost-to-cost method of accounting, we recognize revenue and an estimated profit as allowable costs are incurred
based on the proportion that the incurred costs bear to total estimated costs. Another example, for contracts that require us
to provide a substantial number of similar items, we record revenue and an estimated profit on a POC basis using units-of-
delivery as the basis to measure progress toward completing the contract. Occasionally, it is appropriate to combine
individual customer orders and treat them as one arrangement when the underlying agreement was reached with the
customer for a single large project.
Accounting for contracts using the POC method requires management judgment relative to assessing risks,
estimating contract revenue and cost, and making assumptions for schedule and technical issues. Contract revenue may
include estimated amounts not contractually agreed to by the customer, including price redetermination, cost or
performance incentives (such as award and incentives fees), un-priced change orders, claims and requests for equitable
adjustment. The POC method requires management’s judgment to make reasonably dependable cost estimates generally
over a long time period. Since certain contracts extend over a long period of time, the impact of revisions in cost and
revenue estimates during the progress of work may adjust the current period earnings on 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 generally reviewed and reassessed quarterly.
(dollars in millions)
Percent of revenue - POC Method
Favorable changes in estimate
Unfavorable changes in estimate
Net change - income/(expense)
2016
30.5%
2015
2014
31.2%
28.7%
$
$
27.7
(29.6)
(1.9)
$
$
38.6
(35.5)
3.1
$
$
22.9
(25.9)
(3.0)
We do not believe that any discrete event or adjustment to an individual contract within the aggregate changes in
contract estimates for 2016, 2015 or 2014 was material to the consolidated statements of income for such annual periods.
70
Shipping and Handling
Shipping and handling fees reimbursed by customers are classified as revenue while shipping and handling costs
incurred by Teledyne are classified as cost of sales in the accompanying consolidated statements of income.
Product Warranty Costs
Some of the Company’s products are subject to standard warranties and the Company reserves for the estimated cost
of product warranties on a product-specific basis. Facts and circumstances related to a product warranty matter and cost
estimates to return, repair and/or replace the product are considered when establishing a product warranty reserve. The
adequacy of the preexisting warranty liabilities 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, which are typically one year. The product warranty reserve is included in current accrued liabilities
and long-term liabilities on the balance sheet.
Warranty Reserve (in millions):
Balance at beginning of year
Accruals for product warranties charged to expense
Cost of product warranty claims
Acquisitions
Balance at end of period
Research and Development
2016
$ 17.1
7.4
(6.7)
0.6
$ 18.4
2015
$ 18.5
6.1
(7.7)
0.2
$ 17.1
2014
$ 17.3
6.6
(5.9)
0.5
$ 18.5
Selling, general and administrative expenses include Company-funded research and development and bid and
proposal costs which are expensed as incurred and were $167.7 million in 2016, $163.7 million in 2015 and $166.9 million
in 2014.
Income Taxes
We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and
liabilities are recognized for temporary differences between the tax basis of assets and liabilities and their reported amount
in the financial statements, which will result in taxable or deductible amounts in the future. In evaluating our ability to
recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and
negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning
strategies, and results of recent operations. In projecting future taxable income, we begin with historical results adjusted
for the results of discontinued operations and incorporate assumptions about the amount of future state, federal and foreign
pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable
income require significant judgment and are consistent with the plans and estimates we are using to manage the underlying
businesses. In evaluating the objective evidence that historical results provide, we consider three years of cumulative
operating income. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets
will not be realized.
Income tax positions must meet a more-likely-than-not recognition in order to be recognized in the financial
statements. We recognize potential accrued interest and penalties related to unrecognized tax benefits within operations as
income tax expense. As new information becomes available, the assessment of the recognition threshold and the
measurement of the associated tax benefit of uncertain tax positions may result in financial statement recognition or
derecognition.
71
Net Income Per Common Share
Basic and diluted earnings per share were computed based on net earnings. The weighted average number of common
shares outstanding during the period was used in the calculation of basic earnings per share. This number of shares was
increased by contingent shares that could be issued under various compensation plans as well as by the dilutive effect of
stock options based on the treasury stock method in the calculation of diluted earnings per share.
The following table sets forth the computations of basic and diluted earnings per share (amounts in millions, except per
share data):
Net Income Per Common Share:
Net income attributable to Teledyne
Basic earnings per common share:
Weighted average common shares outstanding
Basic earnings per common share
Diluted earnings per share:
Weighted average common shares outstanding
Effect of diluted securities
Weighted average diluted common shares outstanding
2016
2015
2014
$
190.9
$
195.8
$
217.7
34.6
35.3
37.1
$
5.52
$
5.55
$
5.87
34.6
0.9
35.5
35.3
0.7
36.0
37.1
0.8
37.9
Diluted earnings per common share
$
5.37
$
5.44
$
5.75
For 2016, 2015 and 2014 no stock options were excluded in the computation of diluted earnings per share.
For 2016, 2015 and 2014, stock options to purchase 2.2 million, 2.4 million and 2.9 million shares of common stock,
respectively, had exercise prices that were less than the average market price of the Company’s common stock during the
respective periods and are included in the computation of diluted earnings per share.
In addition, no contingent shares of the Company’s common stock under the restricted stock or performance share
compensation plans were excluded from fully diluted shares outstanding for 2016 or 2014. In 2015, 3,997 contingent
shares of the Company’s common stock under the restricted stock or performance share compensation plans were excluded
from fully diluted shares outstanding.
Accounts Receivable
Receivables are presented net of an allowance for doubtful accounts of $5.2 million at January 1, 2017, and $6.3
million at January 3, 2016. Expense recorded for the allowance for doubtful accounts was $0.7 million, $0.9 million and
$3.6 million for 2016, 2015 and 2014, respectively. An allowance for doubtful accounts is established for losses expected
to be incurred on accounts receivable balances. Judgment is required in the estimation of the allowance and is based upon
specific identification, collection history and creditworthiness of the debtor. Trade credit is extended based upon
evaluations of each customer’s ability to perform its obligations, which are updated periodically.
Cash
Cash totaled $98.6 million at January 1, 2017, of which $95.2 million was held by foreign subsidiaries of Teledyne.
Inventories
Inventories are stated at the lower of cost or market, less progress payments. The majority of inventory values are
valued on an average cost, or first-in, first-out method, while the remainder are stated at cost based on the last-in, first-out
method. Costs include direct material, direct labor, applicable manufacturing and engineering overhead, and other direct
costs. Additionally, certain inventory costs are also reflective of the estimates used in applying the percentage-of-
completion revenue recognition method. Judgment is required when establishing reserves to reduce the carrying amount of
inventory to market or net realizable value. Inventory reserves are recorded when inventory is considered to be excess or
obsolete based upon an analysis of actual on-hand quantities on a part-level basis to forecasted product demand and
historical usage.
72
Property, Plant and Equipment
Property, plant and equipment is capitalized at cost. Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are determined using a combination of accelerated and
straight-line methods over the estimated useful lives of the various asset classes. Buildings and building improvements are
depreciated over periods not exceeding 45 years, equipment over 5 to 18 years, computer hardware and software over 3 to
7 years and leasehold improvements over the shorter of the estimated remaining lives or lease terms. Significant
improvements are capitalized while maintenance and repairs are charged to expense as incurred. Depreciation expense on
property, plant and equipment, including assets under capital leases, was $57.6 million in 2016, $58.3 million in 2015 and
$62.3 million in 2014. Other income for 2016 included a gain of $17.9 million on the sale of a former operating facility in
California.
Goodwill and Other Intangible Assets
Business acquisitions are accounted for under the acquisition method by assigning the purchase price to tangible and
intangible assets acquired and liabilities assumed. Assets acquired and liabilities assumed are recorded at their fair values
and the excess of the purchase price over the amounts assigned is recorded as goodwill.
Goodwill and intangible assets with indefinite lives are not amortized, but tested at least annually for impairment.
The Company performs an annual impairment test for goodwill and other acquired intangible assets in the fourth quarter of
each year, or more often as circumstances require. The two-step impairment test is used to first identify potential goodwill
impairment and then measure the amount of goodwill impairment loss, if any. When it is determined that an impairment
has occurred, an appropriate charge to operations is recorded. No impairment of goodwill was indicated in 2016, 2015 or
2014, based on the annual impairment test completed in the fourth quarter of each year. The Company recorded a $1.0
million asset impairment related to acquired intangible assets in 2016. The Company recorded a $0.5 million impairment
to acquired intangible assets in 2015 and in 2014, the Company recorded a $0.7 million impairment to acquired intangible
assets. Acquired intangible assets with finite lives are amortized and reflected in the segments operating income over their
estimated useful lives.
We review intangible assets subject to amortization for impairment whenever events or circumstances indicate that
the carrying value of the asset may not be recoverable. We assess the recoverability of the carrying value of assets held for
use based on a review of projected undiscounted cash flows. Impairment losses, where identified, are determined as the
excess of the carrying value over the estimated fair value of the long-lived asset.
Deferred Compensation Plan
The Company has a non-qualified executive deferred compensation plan that provides supplemental retirement
income benefits for a select group of management. This plan permits eligible employees to make salary and bonus deferrals
that are 100% vested. We have an unsecured obligation to pay in the future the value of the deferred compensation adjusted
to reflect the performance, whether positive or negative, of selected investment measurement options chosen by each
participant during the deferral period. As of January 1, 2017 and January 3, 2016, $47.4 million and $43.9 million,
respectively, is included in other long-term liabilities related to these deferred compensation liabilities. Additionally, the
Company purchased life insurance policies on certain participants to potentially offset these unsecured obligations. These
policies are recorded at their cash surrender value as determined by the insurance carrier. The cash surrender value of these
policies was $48.5 million and $47.9 million, as of January 1, 2017 and January 3, 2016, respectively, and are recorded in
other non-current assets.
Environmental
Costs that mitigate or prevent future environmental contamination or extend the life, increase the capacity or improve
the safety or efficiency of property utilized in current operations are capitalized. Other costs that relate to current
operations or an existing condition caused by past operations are expensed. Environmental liabilities are recorded when the
Company’s liability is probable and the costs are reasonably estimable, which is generally not later than the completion of
the feasibility study or the Company’s recommendation of a remedy or commitment to an appropriate plan of action. The
accruals are reviewed periodically and, as investigations and remediations proceed, adjustments are made as necessary.
Accruals for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated
expenditures are not discounted to their present value. The accruals are not reduced by possible recoveries from insurance
carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal
Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their
obligations at such sites. The measurement of environmental liabilities by the Company is based on currently available
facts, present laws and regulations, and current technology. Such estimates take into consideration the Company’s prior
experience in site investigation and remediation, the data concerning cleanup costs available from other companies and
regulatory authorities, and the professional judgment of the Company’s environmental personnel in consultation with
73
outside environmental specialists, when necessary. The Company’s reserves for environmental remediation obligations
totaled $7.0 million and $8.7 million at January 1, 2017 and January 3, 2016, respectively.
Foreign Currency Translation
The Company’s foreign entities’ accounts are generally measured using local currency as the functional currency.
Assets and liabilities of these entities are translated at the exchange rate in effect at year-end. Revenues and expenses are
translated at average month end rates of exchange prevailing during the year. Unrealized translation gains and losses
arising from differences in exchange rates from period to period are included as a component of accumulated other
comprehensive loss in stockholders’ equity.
Hedging Activities/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 objective is to protect the
United States dollar value of future cash flows and minimize the volatility of reported earnings. The Company utilizes
foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenue and
expenses denominated in Canadian dollars for our Canadian companies. These contracts are designated and qualify as
cash flow hedges.
The effectiveness of the cash flow hedge contracts, excluding time value, is assessed prospectively and
retrospectively on a monthly basis using regression analysis, as well as using other timing and probability criteria. To
receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges and
must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash
flow hedge 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 cost of sales in our consolidated
statements of income. Net deferred losses recorded in AOCI, net of tax, for contracts that will mature in the next 12 months
total $0.8 million. These losses are expected to be offset by anticipated gains in the value of the forecasted underlying
hedged item.
In the event that the gains or losses in AOCI are deemed to be ineffective, the ineffective portion of gains or losses
resulting from changes in fair value, if any, is reclassified to other income and expense. In the event that the underlying
forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains
or losses on the related cash flow hedges will be reclassified from AOCI to other income and expense. During the current
reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other
income and expense. As of January 1, 2017, Teledyne had foreign currency forward contracts designated as cash flow
hedges to buy Canadian dollars and to sell U.S. dollars totaling $56.8 million and these contracts had a negative fair value
of $1.1 million. These foreign currency forward contracts have maturities ranging from March 2017 to February 2018.
In addition, the Company utilizes foreign currency forward contracts which are not designated as hedging
instruments for accounting purposes to mitigate foreign exchange rate risk associated with foreign currency denominated
monetary assets and liabilities, including intercompany receivables and payables. As of January 1, 2017, Teledyne had
foreign currency contracts of this type in the following pairs (in millions):
Contracts to Buy
Contracts to Sell
Currency
Canadian Dollars
Euros
Great Britain Pounds
Great Britain Pounds
Canadian Dollars
U.S. Dollars
Singapore Dollars
Amount
C$
£
£
C$
US$
S$
32.1
10.4
1.4
41.3
15.9
0.9
1.8
Currency
U.S. Dollars
U.S. Dollars
Australian Dollars
U.S. Dollars
Euros
Japanese Yen
U.S. Dollars
Amount
US$
US$
A$
US$
¥
US$
24.2
11.1
2.4
52.0
10.6
110.0
1.3
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.
74
€
€
The Company entered into a short-term option contract to purchase £600.0 million in December 2016. This option
was purchased to protect against increases in the U.S. dollar equivalent cost of the pending e2v acquisition from adverse
currency movements. The option contract was not designated as a hedging instrument for accounting purposes.
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. Teledyne does not use foreign currency forward contracts for speculative or trading purposes.
The effect of derivative instruments designated as cash flow hedges for 2016 and 2015 was as follows (in millions):
Net gain (loss) recognized in AOCI (a)
Net loss reclassified from AOCI into cost of sales (a)
Net foreign exchange gain (loss) recognized in other income and expense (b)
(a) Effective portion
(b) Amount excluded from effectiveness testing
$
$
$
2016
2015
$ (11.0)
(9.1)
0.5
2.3
(2.8) $
(0.1) $
The effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for
2016 and 2015 was a loss of $9.6 million and $10.6 million, respectively.
The fair values of the Company’s derivative financial instruments are presented below. All fair values for these
derivatives were measured using Level 2 information as defined by the accounting standard hierarchy (in millions):
Asset/(Liability) Derivatives
Derivatives designated as hedging instruments:
Cash flow forward contracts
Cash flow forward contracts
Total derivatives designated as hedging instruments
Balance sheet location
January 1, 2017
January 3, 2016
Accrued liabilities
$
(1.0) $
Other long-term
liabilities
Derivatives not designated as hedging instruments:
Non-designated forward contracts
Non-designated forward contracts
Total derivatives not designated as hedging instruments
Other current assets
Accrued liabilities
Total asset/(liability) derivatives
$
(0.1)
(1.1)
6.4
(1.0)
5.4
4.3
$
(4.7)
(1.3)
(6.0)
0.2
(6.0)
(5.8)
(11.8)
Supplemental Cash Flow Information
Cash payments for federal, foreign and state income taxes were $24.6 million for 2016, which are net of $1.4 million
in tax refunds. Cash payments for federal, foreign and state income taxes were $86.5 million for 2015, which are net of
$4.8 million in tax refunds. Cash payments for federal, foreign and state income taxes were $72.7 million for 2014, which
are net of $2.3 million in tax refunds. Cash payments for interest and credit facility fees totaled $23.6 million, $24.2
million and $17.6 million for 2016, 2015 and 2014, respectively.
Fair Value Measurements
When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair
value, the Company considers the principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. The Company uses the following three levels of inputs in determining the fair
value of the Company’s assets and liabilities, focusing on the most observable inputs when available:
•
•
•
Level 1-Quoted prices in active markets for identical assets or liabilities.
Level 2-Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived
valuations in which all significant inputs are observable or can be derived principally from or corroborated by
observable market data for substantially the full term of the assets or liabilities.
Level 3-Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of
assets or liabilities.
75
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the
determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within
which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair
value measurement.
Related Party Transactions
The Company had no related party transactions that are required to be disclosed for all periods presented.
Recent Accounting Standards
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-09, Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment
Accounting. The ASU is intended to simplify several aspects of the accounting for employee share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15,
2016, and interim periods within those annual periods, with early adoption permitted for any entity in any interim or annual
period. Teledyne elected to adopt early this ASU in the third quarter of 2016, therefore Teledyne is required to report the
material impacts of this standard as though the ASU had been adopted at the beginning of the fiscal year. Accordingly,
Teledyne recognized additional income tax benefits as an increase to net income of $8.5 million for 2016. Teledyne has
elected to record forfeitures as they occur, which did not have a material impact on the condensed consolidated financial
results. The new guidance did not impact any periods prior to our 2016 fiscal year, as the changes were applied on a
prospective basis.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides a single
comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will
supersede most current revenue recognition guidance. The new standard, as subsequently amended, is effective for
Teledyne for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted for
interim and annual reporting periods beginning after December 15, 2016. The new standard can be adopted either
retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption.
Under the new standard, an entity recognizes revenue when or as it satisfies a performance obligation by transferring
a good or service to the customer, either at a point in time or over time. Teledyne expects to recognize revenue over time on
most of its contracts that are covered by contract accounting standards using cost inputs to measure progress toward
completion of its performance obligations, which is similar to the POC cost-to-cost method currently used on certain of
these contracts today. The percentage of Teledyne revenue recognized using the POC method was 30.5%,
31.2% in 2015, and 28.7% in 2014. Depending on the contract, we currently measure the extent of progress toward
completion using the units-of-delivery method, cost-to-cost method or upon attainment of scheduled performance contract
milestones which could be time, event or expense driven.
While the Company is currently evaluating the expected impact of the adoption of this standard on its consolidated
financial statements, related disclosures and the transition alternatives available, Teledyne will adopt the standard in the
first quarter of fiscal year 2018. Furthermore, Teledyne expects to determine the transition method and the effect of this
standard on our consolidated financial statements in the second quarter of 2017.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new guidance will require lessees to
recognize almost all 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. The new guidance is effective for fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years, with early adoption permitted. The new guidance must be adopted using a
modified retrospective transition, requiring application at the beginning of the earliest comparative period presented. The
Company is currently evaluating the impact this guidance will have on the consolidated financial statements and footnote
disclosures.
In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities That Calculate Net
Asset Value per Share (or Its Equivalent). Under the new guidance, investments for which fair value is measured at net
asset value per share (or its equivalent) using the practical expedient will no longer be categorized in the fair value
hierarchy. It is effective for interim and annual reporting periods beginning after December 15, 2015. The Company
adoption of the guidance, effective January 4, 2016, did not impact on our consolidated financial position, results of
operations, or cash flows but did impact the disclosures related to certain investments related to our domestic pension plan
which are contained in Note 11 to our Consolidated Financial Statements.
76
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 new
standard, will be effective for the Company prospectively for interim and annual reporting periods beginning after
December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing
dates after January 1, 2017. We expect the adoption of this standard will reduce the complexity surrounding the evaluation
of goodwill for impairment. The impact of this new standard for the Company will depend on the outcomes of future
goodwill impairment tests.
Note 3. Business Acquisitions, Goodwill and Acquired Intangible Assets
The Company spent $93.4 million, $66.7 million and $195.8 million on acquisitions and other investments in 2016, 2015
and 2014, respectively.
On December 6, 2016, Teledyne Instruments, Inc. acquired Hanson Research Corporation (“Hanson Research”) for $25.0
million in cash. Hanson Research, headquartered in Chatsworth, California, specializes in analytical instrumentation for the
pharmaceutical industry.
On November 2, 2016, Teledyne Instruments, Inc. acquired assets of IN USA, Inc. (“IN USA”) for $10.2 million in cash.
IN USA, headquartered in Norwood, Massachusetts, manufactures a range of ozone generators, ozone analyzers and other gas
monitoring instruments utilizing ultraviolet and infrared based technologies. Teledyne intends to relocate and consolidate
manufacturing into the new, owned facility of Teledyne Advanced Pollution Instrumentation in San Diego, California.
On May 3, 2016, Teledyne DALSA, Inc., a Canadian-based subsidiary, acquired the assets and business of CARIS, Inc.
(“CARIS”) for an initial cash payment of $26.2 million, net of cash acquired. Based in Fredericton, New Brunswick, Canada,
CARIS is a leading developer of geospatial software designed for the hydrographic and marine community.
On April 15, 2016, Teledyne LeCroy, Inc., a U.S.-based subsidiary, acquired assets of Quantum Data, Inc. (“Quantum
Data”) for $17.3 million in cash. Based in Elgin, Illinois, Quantum Data provides electronic test and measurement
instrumentation and is a market leader in video protocol analysis test tools. On April 6, 2016, Teledyne LeCroy, Inc. also
acquired Frontline Test Equipment, Inc. (“Frontline”) for $13.7 million in cash. Based in Charlottesville, Virginia, Frontline
provides electronic test and measurement instrumentation and is a market leader in wireless protocol analysis test tools. Each
of the 2016 acquisitions are part of the Instrumentation segment except for CARIS which is part of the Digital Imaging
segment.
On June 5, 2015, Teledyne DALSA BV, a Netherlands-based subsidiary, acquired ICM for $21.8 million, net of cash
acquired. In December 2016, an additional $2.5 million was paid by Teledyne related to an indemnification holdback. Based
in Liège, Belgium, ICM is a supplier of portable X-ray generators for non-destructive testing applications, as well as complete
X-ray imaging systems for on-site security screening and is part of the Digital Imaging segment.
On April 29, 2015, Teledyne DALSA, Inc. acquired the remaining 49% noncontrolling interest in the parent company of
Optech for $22.0 million in cash. As a result of the purchase, the difference between the cash paid and the balance of
noncontrolling interest was recorded to additional paid in capital. The balance of the noncontrolling interest of $41.2 million at
December 28, 2014 decreased by $0.3 million for the net loss and $1.3 million in translation adjustments prior to the purchase
which eliminated the remaining balance. The balance of the noncontrolling interest of $47.0 million at December 29, 2013
decreased by $2.1 million for the net loss and $3.7 million in translation adjustments, resulting in a balance of $41.2 million at
December 28, 2014. Teledyne no longer has any noncontrolling interests. Optech is part of the Digital Imaging segment.
On February 2, 2015, Teledyne acquired Bowtech through a U.K.-based subsidiary for $18.9 million in cash, net of cash
acquired and including an estimated working capital adjustment. Based in Aberdeen, Scotland, Bowtech designs and
manufactures harsh underwater environment vision systems and is part of the Instrumentation segment. Also in 2015, Teledyne
made an additional investment in Ocean Aero.
Teledyne funded the purchases from borrowings under its credit facility and cash on hand. The ICM, Bowtech and Optech
acquisitions were funded with cash held by foreign subsidiaries. The results of the acquisitions have been included in
Teledyne’s results since the dates of the respective acquisition.
During 2014, Teledyne made four acquisitions, the largest of which was Bolt in November 2014.
On November 18, 2014, Teledyne acquired all of the outstanding common shares of Bolt for $22.00 per share payable in
cash. The aggregate value for the transaction was $171.0 million, excluding transaction costs and taking into account Bolt’s
stock options, other liabilities and net cash on hand. Bolt is a developer and manufacturer of marine seismic data acquisition
equipment used for offshore oil and natural gas exploration. Bolt is also a developer and manufacturer of remotely operated
robotic vehicles systems used for a variety of underwater tasks. Bolt had sales of $67.5 million for its fiscal year ended June
30, 2014. In addition to the acquisition of Bolt in 2014, the Company completed the acquisition of three businesses and
invested in Ocean Aero for a total of $24.8 million.
All of the 2014 acquisitions are part of the Instrumentation segment.
77
The results of these acquisitions have been included in Teledyne’s results since the dates of their respective acquisition.
The primary reasons for the above acquisitions were to strengthen and expand our core businesses through adding
complementary product and service offerings, allowing greater integrated products and services, enhancing our technical
capabilities or increasing our addressable markets. The significant factors that resulted in recognition of goodwill were: (a) the
purchase price was based on cash flow and return on capital projections assuming integration with our businesses and (b) the
calculation of the fair value of tangible and intangible assets acquired that qualified for recognition. Teledyne funded the
purchases primarily from borrowings under its credit facility and cash on hand.
On December 12, 2016, Teledyne and e2v technologies plc (“e2v”) reached agreement on the terms of a recommended
cash acquisition to be made by Teledyne for the ordinary share capital of e2v by means of a Scheme of Arrangement (the
“Offer”). Under the terms of the Offer, e2v’s ordinary shareholders will receive 275 pence in cash for each e2v share valuing
the entire issued and to be issued ordinary share capital of e2v at approximately £619.6 million on a fully diluted basis. It is
expected that, subject to the satisfaction or waiver of all relevant conditions, the acquisition will be completed in the first half
of calendar 2017.
For the machine vision market, e2v provides high performance image sensors and custom camera solutions and
application specific standard products. In addition, e2v provides high performance space qualified imaging sensors and arrays
for space science and astronomy. e2v also produces components and subsystems that deliver high reliability radio frequency
power generation for healthcare, industrial and defense applications. Finally, the company provides high reliability
semiconductors and board-level solutions for use in aerospace, space and radio frequency communications applications. At
announcement, the aggregate enterprise value for the transaction is expected be approximately £627.1 million (or
approximately $788.9 million) taking into account e2v stock options and net debt. For the year ended March 31, 2016, e2v had
sales of approximately £236.4 million.
Teledyne’s Offer will be made in accordance with the relevant requirements of the UK City Code on Takeovers and
Mergers (“Takeover Code”) (including customary closing conditions) and be governed by English law. Teledyne expects to
fund the acquisition from cash on hand and its credit facility.
Teledyne’s goodwill was $1,193.5 million at January 1, 2017, and $1,140.2 million at January 3, 2016. The increase in
the balance of goodwill in 2016 resulted from the goodwill from current year acquisitions, partially offset by the impact of
exchange rate changes. Teledyne’s net acquired intangible assets were $234.6 million at January 1, 2017, and $243.3 million at
January 3, 2016. The decrease in the balance of acquired intangible assets in 2016 primarily resulted from amortization,
partially offset by acquired intangible assets from current year acquisitions. The Company’s cost to acquire the 2016
acquisitions has been allocated to the assets acquired and liabilities assumed based upon their respective fair values as of the
date of the completion of the acquisition. The differences between the fair value of the consideration paid and the estimated
fair value of the assets and liabilities acquired has been recorded as goodwill. The Company is still in the process of
specifically identifying the amount to be assigned to certain assets, including acquired intangible assets, and liabilities and the
related impact on taxes and goodwill for the IN USA and Hanson Research acquisitions. The Company made preliminary
estimates as of January 1, 2017, since there was insufficient time between the acquisition date and the end of the period to
finalize the analysis. The Company has completed the allocation of all other 2016 acquisitions.
The following tables show the purchase price (net of cash acquired), goodwill acquired and intangible assets acquired for the
acquisitions made in 2016 and 2015 (in millions):
Acquisition
Frontline
Quantum Data
CARIS
IN USA
Hanson Research
Other Investments
(a) net of any cash acquired.
Acquisition Date
April 6, 2016
April 15, 2016
May 3, 2016
November 2, 2016
December 6, 2016
2016
Cash
Paid (a)
13.7
$
17.3
26.2
10.2
25.0
1.0
93.4
$
Goodwill
Acquired
11.3
$
10.7
22.2
6.3
13.5
—
64.0
$
Acquired
Intangible
Assets
$
$
2.3
5.4
3.6
3.0
8.4
—
22.7
78
Acquisition
Bowtech
ICM
Purchase of remaining interest of Optech
Other investments
(a) net of any cash acquired.
Acquisition Date
February 2, 2015
June 5, 2015
April 29, 2015
2015
Cash
Paid (a)
18.9
$
21.8
22.0
4.0
66.7
$
Goodwill
Acquired
7.0
$
19.2
—
1.4
27.6
$
Acquired
Intangible
Assets
$
$
4.3
5.8
—
0.9
11.0
Fair values allocated to the assets acquired and liabilities assumed (in millions):
Current assets, excluding cash acquired
Property, plant and equipment
Goodwill
Acquired intangible assets
Other long-term assets
Total assets acquired
Current liabilities
Long-term liabilities
Total liabilities assumed
Noncontrolling interests (a)
Cash paid, net of cash acquired
(a) relates to the purchase of the remaining interest in Optech.
2016
$ 11.9
3.9
64.0
22.7
1.2
103.7
(9.9)
(0.4)
(10.3)
—
$ 93.4
2015
$
8.5
9.8
27.6
11.0
1.9
58.8
(5.1)
(9.0)
(14.1)
22.0
$ 66.7
The following table is a summary at the acquisition date of the acquired intangible assets and weighted average useful life
in years for the acquisitions made in 2016 and 2015 (dollars in millions):
Intangibles subject to amortization:
Proprietary technology
Customer list/relationships
Backlog
Trademarks
Total intangibles subject to amortization
Intangibles not subject to amortization:
Trademarks
Total acquired intangible assets
Goodwill
2016
2015
Weighted
average
useful life
in years
Intangible
Assets
Intangible
Assets
$
$
$
10.4
8.9
0.3
0.5
20.1
2.6
22.7
64.0
9.4
13.2
0.3
3.0
10.8
n/a
n/a
n/a
$
$
$
5.7
3.0
—
—
8.7
2.3
11.0
27.6
Weighted
average
useful life
in years
9.9
8.3
n/a
—
9.4
n/a
n/a
n/a
Goodwill resulting from the acquisitions of Frontline, Quantum Data, IN USA and CARIS made in 2016 will be
deductible for tax purposes. Goodwill resulting from the 2016 acquisition of Hanson Research and the 2015 acquisitions of
Bowtech and ICM will not be deductible for tax purposes.
79
Digital
Imaging
$
Goodwill (in millions):
Balance at December 28, 2014
Current and prior year acquisitions (a)
Foreign currency changes
Balance at January 3, 2016
Current year acquisitions
Foreign currency changes
Balance at January 1, 2017
(a) Includes $3.4 million related to the completion of the Bolt purchase price allocation in 2015.
Instrumentation
680.1
11.8
(11.1)
680.8
41.8
(9.3)
713.3
$
$
$
$
$
302.2
19.2
(28.9)
292.5
22.2
2.7
317.4
Aerospace
and Defense
Electronics
144.5
$
—
(1.0)
143.5
—
(4.1)
139.4
$
$
Engineered
Systems
$
$
$
23.8
—
(0.4)
23.4
—
—
23.4
Total
$ 1,150.6
31.0
(41.4)
$ 1,140.2
64.0
(10.7)
$ 1,193.5
Other acquired intangible assets (in
millions):
Proprietary technology
Customer list/relationships
Patents
Non-compete agreements
Trademarks
Backlog
Other acquired intangible assets subject
to amortization
Other acquired intangible assets not
subject to amortization:
Trademarks
Total other acquired intangible assets
2016
2015
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount
$
$ 207.2
121.9
0.7
0.9
3.8
12.7
$
130.1
68.3
0.6
0.9
2.4
12.6
$
77.1
53.6
0.1
—
1.4
0.1
$
198.6
114.3
0.7
0.9
3.4
12.5
114.2
58.8
0.6
0.9
2.1
12.5
$
84.4
55.5
0.1
—
1.3
—
347.2
214.9
132.3
330.4
189.1
141.3
102.3
$ 449.5
$
—
214.9
102.3
234.6
$
102.0
432.4
$
$
—
189.1
102.0
$ 243.3
Amortizable other intangible assets are amortized on a straight-line basis over their estimated useful lives ranging from
one to 15 years. Consistent with Teledyne’s growth strategy, we seek to acquire companies in markets characterized by high
barriers to entry and that include specialized products not likely to be commoditized. Given our markets and highly engineered
nature of our products, the rates of new technology development and customer acquisition and/or attrition are often not volatile.
As such, we believe the value of acquired intangible assets decline in a linear, as opposed to an accelerated fashion, and we
believe amortization on a straight-line basis is appropriate.
The Company recorded $28.3 million, $30.6 million and $32.0 million in amortization expense in 2016, 2015 and 2014,
respectively, for other acquired intangible assets. The expected future amortization expense for the next five years is as follows
(in millions): 2017 - $27.3; 2018 - $24.2; 2019 - $17.1; 2020 - $15.2; 2021 - $14.3.
The estimated remaining useful lives by asset category as of January 1, 2017, are as follows:
Intangibles subject to amortization
Proprietary technology
Customer list/relationships
Patents
Backlog
Trademarks
Total intangibles subject to amortization
80
Weighted average
remaining useful
life in years
4.6
5.3
4.3
0.3
4.9
4.8
Note 4. Financial Instruments
The Company had no cash equivalents at January 1, 2017 or January 3, 2016. The Company has categorized its cash
equivalents, if any, as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical
assets. The fair value of the Company’s forward currency contracts as of January 1, 2017 and January 3, 2016, are disclosed in
Note 2, “Hedging Activities/Derivative Instruments,” of the Notes to the Consolidated Financial Statements below and are
based on Level 2 inputs. The fair value of the Company’s senior unsecured notes as described in Note 9, “Long-Term Debt,” of
the Notes to the Consolidated Financial Statements approximated the carrying value based upon Level 2 inputs at January 1,
2017 and January 3, 2016. The fair value of the Company’s credit facility, term loans and other debt, also described in Note 9,
at January 1, 2017 and January 3, 2016, approximates the carrying value due to the variable market rate used to calculate
interest payments. The Company does not have any other significant financial assets or liabilities that are measured at fair
value. The carrying value of other on-balance-sheet financial instruments approximates fair value, and the cost, if any, to
terminate off-balance sheet financial instruments (primarily letters of credit) is not significant.
Note 5. Accounts Receivable
Accounts receivable (in millions):
Commercial and other receivables
U.S. Government and prime contractors contract receivables:
Billed receivables
Unbilled receivables
Allowance for doubtful accounts
Total accounts receivable, net
Balance at year-end
2016
2015
$
329.1
$
325.5
19.2
40.6
388.9
(5.2)
383.7
$
19.9
33.9
379.3
(6.3)
373.0
$
The billed contract receivables from the U.S. Government and prime contractors contain $10.6 million and $12.9 million
at January 1, 2017, and January 3, 2016, respectively, due to long-term contracts. The unbilled contract receivables from the
U.S. Government and prime contractors contain $36.9 million and $33.8 million at January 1, 2017, and January 3, 2016,
respectively, due to long-term contracts.
Unbilled contract receivables represent accumulated costs and profits earned but not yet billed to customers. The
Company believes that substantially all such amounts will be billed and collected within one year.
Note 6. Inventories
Inventories (in millions)
Raw materials and supplies
Work in process
Finished goods
Progress payments
Reduction to LIFO cost basis
Total inventories, net
Balance at year-end
2016
2015
$
$
146.0
147.8
43.0
336.8
(9.1)
(13.5)
314.2
$
$
141.6
149.4
45.8
336.8
(12.3)
(15.3)
309.2
Inventories at cost determined on the LIFO method were $68.4 million at January 1, 2017, and $96.6 million at January 3,
2016. The remainder of the inventories using average cost or the FIFO methods, were $268.4 million at January 1, 2017, and
$240.2 million at January 3, 2016. Certain inventory costs are also reflective of the estimates used in applying the percentage-
of-completion revenue recognition method.
The Company recorded $0.7 million in LIFO income in 2016, $1.2 million in LIFO income in 2015 and less than $0.1
million of LIFO income in 2014.
Total inventories at current cost were net of reserves for excess, slow moving and obsolete inventory of $59.4 million and
$58.8 million at January 1, 2017, and January 3, 2016, respectively. Judgment is required when establishing reserves to reduce
the carrying amount of inventory to market or net realizable value. Inventory reserves are recorded when inventory is
considered to be excess or obsolete based upon an analysis of actual on-hand quantities on a part-level basis to forecasted
product demand and historical usage.
Inventories, before progress payments, related to long-term contracts were $87.2 million and $73.8 million at January 1,
2017, and January 3, 2016, respectively. Progress payments related to long-term contracts were $9.1 million and $12.3 million
at January 1, 2017, and January 3, 2016, respectively. Under the contractual arrangements by which progress payments are
81
received, the customer has an ownership right in the inventories associated with specific contracts.
Note 7. Supplemental Balance Sheet Information
Property, plant and equipment (in millions):
Land
Buildings
Equipment and software
Accumulated depreciation and amortization
Total property, plant and equipment, net
Balance at year-end
2016
2015
$
$
37.5
204.3
567.5
809.3
(468.5)
340.8
$
$
32.9
182.0
561.2
776.1
(454.8)
321.3
The following table presents the balance of selected components of Teledyne’s balance sheet (in millions):
Balance sheet items
Income tax receivable
Deferred compensation assets
Salaries and wages
Customer related accruals, deposits
and credits
Product warranty reserves
Accrued pension obligation
Accrued postretirement benefits
Deferred tax liabilities
Deferred compensation liabilities
Note 8. Stockholders’ Equity
Balance sheet location
Prepaid expenses and other current assets
Other assets long-term
Accrued liabilities
Accrued liabilities
Accrued liabilities
Other long-term liabilities
Other long-term liabilities
Other long-term liabilities
Other long-term liabilities
Common stock and treasury stock activity:
Balance, December 29, 2013
Acquired
Issued
Balance, December 28, 2014
Acquired
Issued
Balance, January 3, 2016
Acquired
Issued
Balance, January 1, 2017
January 1, 2017
January 3, 2016
$
$
$
$
$
$
$
$
$
5.4
48.5
90.1
72.4
12.5
44.0
8.7
26.8
47.4
$
$
$
$
$
$
$
$
$
28.8
47.9
89.5
47.9
14.0
46.7
9.6
37.9
43.9
Treasury
Stock
Stock
37,571,182
126,683
37,697,865
—
— 1,396,290
(354,009)
1,042,281
— 2,561,815
(420,830)
—
3,183,266
37,697,865
138,831
—
(734,994)
—
2,587,103
37,697,865
Shares issued include stock options exercised as well as shares issued under certain compensation plans.
Treasury Stock
In October 2011, the Company’s Board of Directors authorized a stock repurchase program to repurchase up to 2,500,000
shares of the Company’s common stock. In 2014, the Company purchased 469,290 shares of common stock in open market
purchases for $45.0 million. Following the open market purchases, in September 2014, the Company entered into a $101.6
million accelerated share repurchase (“ASR”) agreement with a financial institution (“ASR Counterparty”) in a privately
negotiated transaction for 1,030,000 shares of the Company’s common stock. Pursuant to the ASR agreement, in September
2014, the Company advanced $101.6 million to the ASR counterparty and received 927,000 shares of common stock, which
used $91.4 million of the $101.6 million advanced, representing 90% of the estimated shares to be repurchased under the ASR
agreement. In May 2015, the September 2014 ASR agreement was settled and Teledyne received 78,522 shares of common
stock on June 3, 2015.
On January 27, 2015, the Company’s Board of Directors authorized an additional stock repurchase program authorizing
the Company to repurchase up to an additional 2,500,000 shares of its common stock. In February 2015, the Company entered
into a $142.0 million ASR agreement with a financial institution in a privately negotiated transaction for 1,500,000 shares of
the Company's common stock. Pursuant to the ASR agreement, in February 2015, the Company advanced $142.0 million to
82
the ASR counterparty and received 1,425,000 shares of common stock, which used $134.9 million of the $142.0 million
advanced, representing 95% of the estimated shares to be repurchased under the ASR agreement. In November 2015, the
February 2015 ASR was settled with the Company making a payment of $1.2 million. In November 2015, the Company
entered into a $100.5 million ASR agreement with a financial institution in a privately negotiated transaction for 1,100,000
shares of the Company's common stock. Pursuant to the ASR agreement, the Company advanced $100.5 million to the ASR
counterparty and received 1,045,000 shares of common stock, which used $95.5 million of the $100.5 million advanced,
representing 95% of the estimated shares to be repurchased under the ASR agreement. In February 2016, the November 2015
ASR was settled and Teledyne received 135,374 shares of common stock.
The up-front payments were accounted for as a reduction to stockholders’ equity in the Company’s Consolidated Balance
Sheet in the period the payments were made. The total number of shares of common stock repurchased under each ASR is
based on the average of the daily volume-weighted average prices of the common stock during the term of the respective ASR,
less a discount. At settlement, the ASR Counterparty may be required to deliver additional shares of the Company’s common
stock to the Company or, under certain circumstances, the Company may be required to deliver shares of its common stock or
make a cash payment to the ASR Counterparty. The Company has treated the ASRs as a treasury share repurchase of common
stock in the period the shares were delivered for purposes of calculating earnings per share and as a forward contract indexed to
its own common stock. The ASRs meet all of the applicable criteria for equity classification, and, therefore, is not accounted
for as a derivative instrument.
In 2015, the Company spent $243.8 million to repurchase a total of 2,561,815 shares of its common stock. In 2014, the
Company spent $146.6 million to repurchase a total of 1,396,290 shares of its common stock under the ASR agreement, as well
as the open market purchases. Teledyne has 2,587,103 shares of treasury stock at January 1, 2017.
On January 26, 2016, the Company’s Board of Directors authorized an additional stock repurchase program authorizing
the Company to repurchase up to an additional 3,000,000 shares of its common stock. The 2015 and 2016 stock repurchase
authorizations are expected to remain open continuously, with respect to the shares remaining thereunder, and the number of
shares repurchased will depend on a variety of factors, such as share price, levels of cash and borrowing capacity available,
alternative investment opportunities available immediately or longer-term, and other regulatory, market or economic
conditions. Future repurchases are expected to be funded with cash on hand and borrowings under the Company’s credit
facility. No repurchases were made in 2016.
Preferred Stock
Authorized preferred stock may be issued with designations, powers and preferences designated by the Board of
Directors. There were no shares of preferred stock issued or outstanding in 2016, 2015 or 2014.
Stock Incentive Plan
Teledyne has long-term incentive plans which provide its Board of Directors the flexibility to grant restricted stock,
restricted stock units, performance shares, non-qualified stock options, incentive stock options and stock appreciation rights to
officers and employees of Teledyne. Employee stock options become exercisable in one-third increments on the first, second
and third anniversary of the grant and have a maximum 10-year life.
Until January 1, 2015, Teledyne also sponsored a stock plan for non-employee directors pursuant to which non-employee
directors received annual stock options and received stock or stock options in lieu of their respective retainer and meeting fees.
The stock options became exercisable one year after issuance and have a maximum 10-year life.
No stock options were granted in 2015. Stock option compensation expense is recorded on a straight line basis over the
appropriate vesting period, generally three years. The Company recorded $11.6 million, $12.2 million, and $14.0 million for
stock option expense, for 2016, 2015 and 2014, respectively. The Company issues shares of common stock upon the exercise of
stock options. On January 24, 2017, the Company granted 544,530 stock options to its employees at an exercise price of
$123.38 per share.
The total pretax intrinsic value of options exercised during 2016 and 2015 (which is the amount by which the stock price
exceeded the exercise price of the options on the date of exercise) was $36.6 million and $19.3 million, respectively. At
January 1, 2017, the intrinsic value of stock options outstanding was $114.3 million and the intrinsic value of stock options
exercisable was $88.0 million. During 2016 and 2015, the amount of cash received from the exercise of stock options was
$36.1 million and $19.0 million, respectively.
At January 1, 2017, there was $11.9 million of total unrecognized compensation cost related to non-vested stock option
awards which is expected to be recognized over a weighted-average period of 1.3 years.
83
The fair value of stock options is determined by using a lattice-based option pricing model. The Company uses a
combination of its historical stock price volatility and the volatility of exchange traded options, if any, on the Company stock to
compute the expected volatility for purposes of valuing stock options granted. The period used for the historical stock price
corresponded to the expected term of the options. The period used for the exchange traded options, if any, included the longest-
dated options publicly available, generally three months. The expected dividend yield is based on Teledyne’s practice of not
paying dividends. The risk-free rate of return is based on the yield of U.S. Treasury Strips with terms equal to the expected life
of the options as of the grant date. The expected life in years is based on historical actual stock option exercise experience.
Stock option valuation assumptions:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life in years
2016
—
2014
—
32.7% 30.7%
1.7%
1.5%
7.4
7.2
Based on the assumptions used in the valuation of stock options, the grant date weighted average fair value of stock
options granted in 2016 and 2014 was $29.95 and $36.19, respectively.
Stock option transactions for Teledyne’s stock option plans are summarized as follows:
2016
2015
2014
Beginning balance
Granted
Exercised
Canceled or expired
Ending balance
Options exercisable at end of period
Weighted
Average
Exercise
Price
63.74
78.46
52.54
82.49
70.44
65.52
Shares
2,383,870
$
$
520,310
(687,018) $
(41,720) $
$
$
2,175,442
1,530,847
Weighted
Average
Exercise
Price
Shares
2,850,877
$
— $
(386,679) $
(80,328) $
$
$
2,383,870
1,907,126
Shares
2,743,753
$
$
612,018
(424,255) $
(80,639) $
$
$
2,850,877
1,787,364
62.37
—
49.13
85.26
63.74
57.61
Weighted
Average
Exercise
Price
52.74
93.85
43.18
74.70
62.37
49.30
The following table provides certain information with respect to stock options outstanding and stock options exercisable
at January 1, 2017, under the stock option plans:
Range of Exercise Prices
$15.53-$20.00
$20.01-$30.00
$30.01-$40.00
$40.01-$50.00
$50.01-$60.00
$60.01-$70.00
$70.01-$90.00
$90.01-$95.74
Stock Options Outstanding
Stock Options Exercisable
Weighted
Average
Exercise Price
15.53
$
26.03
$
35.60
$
45.20
$
51.60
$
64.67
$
77.02
$
94.24
$
70.44
$
Shares
966
19,085
61,666
388,319
112,973
267,123
872,768
452,542
2,175,442
Remaining
life in
years
2.2
3.2
1.8
3.8
1.5
5.4
7.9
7.3
6.2
Weighted
Average
Exercise Price
15.53
$
26.03
$
35.60
$
45.20
$
51.60
$
64.67
$
75.21
$
94.24
$
65.52
$
Shares
966
19,085
61,666
388,319
112,973
267,123
378,408
302,307
1,530,847
84
Performance Shares
Teledyne’s Performance Share Plan (“PSP”) provides grants of performance share units, which key officers and
executives may earn if Teledyne meets specified performance objectives over a three-year period. Awards are payable in cash
and to the extent available, shares of Teledyne common stock. Awards are generally paid to the participants in three annual
installments after the end of the performance cycle so long as they remain employed by Teledyne (with an exception for
retirement). Participants in the performance share program may elect to pay taxes due with respect to an installment payment
with awarded cash, by reducing the number of awarded shares, or a combination thereof.
In January 2009, the performance cycle for the three-year period ending January 1, 2012, was set. Based on the
performance over the three-year period, at January 1, 2012, up to 109,557 shares were calculated to be issued in three equal
installments during 2012, 2013 and 2014. The first installment in 2012 was paid entirely in cash based upon the then current
market price of $55.58 per share multiplied by 36,531 shares that would have been issued. In 2013, the Company issued
23,519 shares for the second installment. For the third and final installment in 2014, the Company issued 19,742 shares.
In February 2012, the performance cycle for the three-year period ending December 31, 2014, was set. Under the plan,
and based on actual performance, the number of shares that could be issued in three equal installments in 2015, 2016 and 2017,
was 22,981. This amount has been reduced by forfeitures to 7,921. In 2015, the Company issued 1,944 shares. In 2016, the
Company issued 864 shares and a maximum of 1,883 remain to be issued at January 1, 2017.
In February 2015, the performance cycle for the three-year period ending December 31, 2017, was set. Under the plan,
the target number of shares that could be issued in three equal installments in 2018, 2019 and 2020, is 46,821. The maximum
number of shares that could be issued in three equal installments in 2018, 2019 and 2020, is 93,642.
The calculated expense for each plan year was based on the expected cash payout and the expected shares to be issued,
valued at the share price at the inception of the performance cycle, except for the shares that can be issued based on a market
comparison. The expected expense for these shares was calculated using a Monte-Carlo type simulation which takes into
consideration several factors including volatility, risk free interest rates and correlation of Teledyne’s stock price with the
comparator, the Russell 2000 Index. No adjustment to the calculated expense for the shares issued based on a market based
comparison will be made regardless of the actual performance. The Company recorded $2.1 million, $2.3 million and $6.2
million in compensation expense related to the PSP program for fiscal years 2016, 2015 and 2014, respectively.
Restricted Stock
Under Teledyne’s restricted stock award program selected officers and key executives receive a grant of stock equal to a
specified percentage of the participant’s annual base salary at the date of grant. The restricted stock is subject to transfer and
forfeiture restrictions during an applicable “restricted period”. The restrictions have both time-based and performance-based
components. The restricted period expires (and the restrictions lapse) on the third anniversary of the date of grant, subject to the
achievement of stated performance objectives over a specified three-year performance period. If employment is terminated
(other than by death, retirement or disability) during the restricted period, stock is forfeited.
The calculated expense for restricted stock awards to employees is based on a Monte-Carlo type simulation which takes
into consideration several factors including volatility, risk free interest rates and the correlation of Teledyne’s stock price with
the comparator, the Russell 2000 Index. No adjustment to the calculated expense will be made regardless of actual
performance. The Company recorded $2.7 million, $2.6 million and $2.8 million in compensation expense related to restricted
stock awards, for fiscal years 2016, 2015 and 2014, respectively. At January 1, 2017, there was $2.6 million of total estimated
unrecognized compensation cost related to non-vested awards which is expected to be recognized over a weighted-average
period of approximately 1.3 years.
85
The following table shows restricted stock award activity for grants made to employees:
Restricted stock:
Balance, December 29, 2013
Granted
Issued
Forfeited/Canceled
Balance, December 28, 2014
Granted
Issued
Forfeited/Canceled
Balance, January 3, 2016
Granted
Issued
Forfeited/Canceled
Balance, January 1, 2017
Weighted
average fair
value per
share
Shares
$
129,283
37,688
$
(40,197) $
(18,048) $
$
108,726
34,054
$
(29,642) $
(13,502) $
$
99,636
35,364
$
(39,357) $
(339) $
$
95,304
52.31
88.05
37.22
56.68
69.55
92.74
51.38
82.33
81.15
72.91
67.15
79.93
83.87
Beginning with the 2015 Annual Meeting, non-employee directors each receive restricted stock units valued at $110,000
(or valued at $55,000 for a person who becomes a director for the first time after the date of the Annual Meeting). The
restricted stock units generally vest one year following the date of grant and are settled in shares of common stock on the date
of vesting unless a director has elected to defer settlement of the award until his or her separation from Board service. In 2016,
we issued 10,305 restricted stock units to non-employee directors. In 2015, we issued 9,534 restricted stock units to non-
employee directors. The expense related to non-employee restricted stock grants was approximately $1.0 million for both 2016
and 2015.
From time to time, Teledyne also grants restricted stock units to employees, with immaterial grants prior to fiscal year
fiscal year 2016. In December 2016, Teledyne granted 16,045 restricted stock units with a grant date fair value of $2.0 million
to Teledyne’s Chief Executive Officer, which vest in equal annual installments over three years. The calculated expense for
restricted stock units is based on the market price of a share of Teledyne common stock at the period end date, which is
recognized over the vesting period. At January 1, 2017, there are 31,350 restricted stock units outstanding.
Note 9. Long-Term Debt
At January 1, 2017, Teledyne had $509.7 million in long-term debt outstanding. At January 3, 2016, Teledyne had
$754.1 million in long-term debt outstanding.
In December 2016, the Company entered into an amendment relating to term loans of $182.5 million in aggregate
principal amount (the “Term Loans”) to extend the maturity date of the Term Loans from March 1, 2019 to January 31, 2022
and extending the date on which amortization of principal begins; and generally lowering the applicable rate for base rate and
Eurocurrency loans. The other material terms of the Term Loans, including covenants, remain unchanged. In November 2015,
the Company issued $125.0 million in aggregate principal amount of senior unsecured notes. The notes consisted of $25.0
million of 2.81% senior unsecured notes due in November 2020, and $100.0 million of 3.28% senior unsecured notes due in
November 2022. In December 2015, the Company amended the $750.0 million credit facility (“credit facility”) to extend the
maturity from March 2018 to December 2020. The other material terms of the credit facility, including covenants, remain
unchanged. Excluding interest and fees, no payments are due under the credit facility until it matures. The credit agreements
require the Company to comply with various financial and operating covenants, including maintaining certain consolidated
leverage and interest coverage ratios. Borrowings under our credit facility and term loans are at variable rates which are, at our
option, tied to a Eurocurrency rate equal to LIBOR (London Interbank Offered Rate) plus an applicable rate or a base rate as
defined in our credit agreements. Eurocurrency rate loans may be denominated in U.S. dollars or an alternative currency as
defined in the agreement. Eurocurrency or LIBOR-based loans under the facility typically have terms of one, two, three or six
months and the interest rate for each such loan is subject to change if the loan is continued or converted following the
applicable maturity date. The Company has not drawn any loans with a term longer than three months under the credit facility.
Base rate loans have interest rates that primarily fluctuate with changes in the prime rate. Interest rates are also subject to
change based on our consolidated leverage ratio as defined in the credit agreement. The credit agreement also provides for
facility fees that vary between 0.12% and 0.25% of the credit line, depending on our consolidated leverage ratio as calculated
from time to time.
86
Teledyne also has a $5.0 million uncommitted credit line which permits credit extensions up to $5.0 million plus an
incremental $2.0 million solely for standby letters of credit. This credit line is utilized, as needed, for periodic cash needs.
There was $3.5 million in outstanding funding advances under the uncommitted credit line at January 1, 2017 and no amounts
outstanding at January 3, 2016. The Company also has $7.4 million outstanding under capital leases, of which $1.3 million is
current. At year-end 2016, Teledyne had $15.5 million in outstanding letters of credit.
Available borrowing capacity under the $750.0 million credit facility, which is reduced by borrowings and certain
outstanding letters of credit, was $735.5 million at January 1, 2017; noting, however, that Teledyne has committed to have
remain available for borrowing up to $410.0 million under this facility to fund the pending e2v acquisition. The credit
agreement and term loans requires the Company to comply with various financial and operating covenants and at January 1,
2017, the Company was in compliance with these covenants. In connection with the agreement to acquire e2v, in December
2016, Teledyne, together with certain of its subsidiaries as guarantors, has entered into a £625.0 million bridge credit facility
(the “Bridge Facility”) to fund the acquisition and related transaction costs, in order to meet the requirement under the U.K.
City Code on Takeovers and Mergers that we have sufficient and certain resources available to fund the consideration for the
acquisition.. The lenders under the Bridge Facility are committed to lend up to £345.0 million to fund the acquisition, No
amounts have been drawn against the Bridge Facility to date.
Total interest expense including credit facility fees and other bank charges was $23.6 million in 2016, $24.0 million in
2015 and $19.1 million in 2014.
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 was 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 January 1, 2017, and January 3, 2016,
approximated the carrying value.
Long-Term Debt (in millions):
January 1, 2017
January 3, 2016
$750.0 million revolving credit facility, due December 2020, weighted
average rate of 1.67% at January 3, 2016
Term Loans due through January 2022, weighted average rate of 1.90% at
January 1, 2017, and 1.55% at January 3, 2016
4.74% Fixed Rate Senior Notes due September 2017
2.61% Fixed Rate Senior Notes due December 2019
5.30% Fixed Rate Senior Notes due September 2020
2.81% Fixed Rate Senior Notes due November 2020
3.09% Fixed Rate Senior Notes due December 2021
3.28% Fixed Rate Senior Notes due November 2022
Other debt
Total long-debt
Current portion of long-term debt and debt issue costs
Total long-term debt, net of current portion
$
$
— $
182.5
100.0
30.0
75.0
25.0
95.0
100.0
4.2
611.7
(102.0)
509.7
$
150.5
190.0
100.0
30.0
75.0
25.0
95.0
100.0
—
765.5
(11.4)
754.1
No minimum principal payments on the $750.0 million revolving credit facility are required until December 2020. The
Company began making quarterly minimum principal payments on the $200.0 million term loans in 2015. Future minimum
principal payments on long-term debt are as follows: 2017 - $100.7 million; - 2018 - $1.1 million; 2019 - $34.6 million; 2020 -
$108.6 million; 2021 - $102.4 million; 2022 and beyond - $264.3 million. The Company has no sinking fund requirements.
87
Note 10. Income Taxes
Income before income taxes included income from domestic operations of $195.2 million for 2016, $213.8 million for
2015 and $221.4 million for 2014. Income before taxes included income from foreign operations of $46.1 million for 2016,
$44.4 million for 2015 and $60.7 million for 2014.
Income tax provision (benefit) - in millions:
Current
Federal
State
Foreign
Total current
Deferred
Federal
State
Foreign
Total deferred
Provision for income taxes
2016
2015
2014
$ 43.0
3.9
3.4
50.3
$ 54.4
5.3
4.0
63.7
$ 57.4
(1.1)
9.3
65.6
4.3
(4.8)
0.6
0.1
$ 50.4
3.5
(2.5)
(2.0)
(1.0)
$ 62.7
(0.2)
1.0
0.1
0.9
$ 66.5
The following is a reconciliation of the statutory federal income tax rate to the actual effective income tax rate:
Tax rate reconciliation:
U.S. federal statutory tax rate
State and local taxes, net of federal benefit
Research and development tax credits
Investment tax credits
Qualified production activity deduction
Foreign rate differential
Net reversals for unrecognized tax benefits
Stock-based compensation (ASU 2016-09)
Other
Effective income tax rate
2016
2015
2014
35.0% 35.0% 35.0%
1.6
2.5
1.9
(2.0)
(3.3)
(3.4)
(1.8)
(1.9)
(1.2)
(1.6)
(2.0)
(2.2)
(2.7)
(3.7)
(2.1)
(1.5)
(1.4)
(2.1)
(3.5)
—
—
(2.6)
(1.6)
(1.6)
20.9% 24.3% 23.6%
Deferred income taxes result from temporary differences in the recognition of income and expense for financial and
income tax reporting purposes, and differences between the fair value of assets acquired in business combinations accounted
for as purchases for financial reporting purposes and their corresponding tax bases. Deferred income taxes represent future tax
benefits or costs to be recognized when those temporary differences reverse.
88
The categories of assets and liabilities that have resulted in differences in the timing of the recognition of income and
expense were as follows (in millions):
Deferred income tax assets:
Long-term:
Accrued liabilities
Inventory valuation
Accrued vacation
Deferred compensation and other benefit plans
Postretirement benefits other than pensions
Tax credit and net operating loss carryforward
Valuation allowance
Total deferred income tax assets
Deferred income tax liabilities:
Long-term:
Property, plant and equipment differences
Intangible amortization
Other
Total deferred income tax liabilities
Net deferred income tax liabilities
2016
2015
$ 36.4
17.7
10.7
24.5
4.6
47.7
(16.9)
124.7
$ 31.3
17.3
10.5
16.8
4.8
49.1
(18.8)
111.0
30.6
110.7
4.8
146.1
$ 21.4
26.5
111.6
3.3
141.4
$ 30.4
We intend to indefinitely reinvest the earnings of our material foreign subsidiaries in our operations outside of the United
States. The cash that the Company’s foreign subsidiaries hold for indefinite reinvestment is generally used to finance foreign
operations and investments, including acquisitions. We estimate that future domestic cash generation will be sufficient to meet
future domestic cash requirements. At January 1, 2017, the amount of undistributed foreign earnings was $226.6 million, of
which we have not recorded a deferred tax liability of approximately $59.0 million. Should we decide to repatriate the foreign
earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be
indefinitely invested outside the United States.
In assessing the need for a valuation allowance, we consider all positive and negative evidence, including recent financial
performance, scheduled reversals of temporary differences, projected future taxable income, availability of taxable income in
carryback periods and tax planning strategies. Based on a review of such information, management believes that it is possible
that some portion of deferred tax assets will not be realized as a future benefit and therefore has recorded a valuation
allowance. The valuation allowance for deferred tax assets decreased by $1.9 million in 2016, primarily related to the
utilization of investment tax credit and net operating loss carryforward and evidence for future utilization of the remaining
investment tax credit and net operating loss carryforwards.
At January 1, 2017, the Company had approximately $49.9 million of net operating loss carryforward from foreign
entities primarily from the Company’s Danish entity, which has no expiration date. The Company had foreign capital loss
carryforward in the amount of $4.0 million which has no expiration date. Also the Company had aggregate Canadian federal
and provincial investment tax credits of $26.1 million, which have expiration dates of 2029 to 2037. In addition, the Company
had domestic federal and state net operating loss carryforward of $5.0 million and $112.8 million, respectively. Generally,
federal net operating loss carryforward amounts are limited in their use by earnings of certain acquired subsidiaries, and have
expiration dates ranging from 2030 to 2036 and the state net operating loss carryforward amounts have expiration dates ranging
from 2017 to 2036. Finally, the Company had federal research and development credit carryforward in the amount of $1.4
million which will expire between 2032 and 2035 and state tax credits of $9.9 million, of which $8.1 million have no expiration
date and $1.8 million have expiration dates ranging from 2017 to 2032. The Company also had foreign tax credit carryforward
in the amount of $0.4 million with an expiration date of 2022.
89
Unrecognized tax benefits (in millions):
Beginning of year
Increase in prior year tax positions (a)
Increase for tax positions taken during the current period
Reduction related to settlements with taxing authorities
Reduction related to lapse of the statute of limitations
Impact of exchange rate changes
End of year
a) Includes the impact of acquisitions in all years.
2016
$ 28.8
1.6
1.6
—
(7.5)
—
$ 24.5
2015
$ 32.3
2.1
1.6
(1.5)
(5.0)
(0.7)
$ 28.8
2014
$ 35.4
4.3
0.9
(2.8)
(4.8)
(0.7)
$ 32.3
The Company anticipates the total unrecognized tax benefit for various federal, state and foreign tax items may be
reduced by $8.3 million due to the expiration of statutes of limitation for various federal, state and foreign tax issues in the next
12 months.
We recognized net tax benefits for interest and penalties related to unrecognized tax benefits within the provision for
income taxes in our statements of operations of $0.2 million, $0.6 million and $0.2 million, for 2016, 2015 and 2014,
respectively. Interest and penalties in the amount of $1.9 million, $2.1 million and $2.9 million were recognized in the 2016,
2015 and 2014 statement of financial position, respectively. Substantially all of the unrecognized tax benefits as of January 1,
2017, if recognized would affect our effective tax rate.
We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. The
Company has substantially concluded on all U.S. federal income tax matters for all years through 2012, California income tax
matters for all years through 2011 and Canadian income tax matters for all years through 2008.
Note 11. Pension Plans and Postretirement Benefits
Pension Plans
Teledyne has a defined benefit pension plan covering substantially all U.S. employees hired before January 1, 2004, or
approximately 16% of Teledyne’s active employees. As of January 1, 2004, new hires participate in a defined contribution
plan only. The Company also has several smaller domestic qualified and foreign-based defined benefit pension plans.
Teledyne’s domestic pension income was $3.0 million in 2016, compared with pension expense of $2.0 million in 2015
and pension income of $1.7 million in 2014. In the first quarter of 2015, Teledyne froze its non-qualified pension plan for
top executives which resulted in a one-time gain of $1.2 million. In accordance with U.S. Government Cost Accounting
Standards (“CAS”), $13.8 million was recoverable from certain government contracts, for each of 2016, 2015 and 2014.
Teledyne did not make any cash contributions to its domestic qualified pension plan since 2013. In 2017, we are not
required, and are not planning, to make any cash contributions to the domestic qualified pension plan.
In June and December 2016, the Company’s U.S. domestic qualified pension plan purchased group annuity contracts
from two insurance companies and paid a total annuity premium of $27.2 million. These annuity contracts transfer the
obligation to these insurance companies to guarantee the full payment of all annuity payments to approximately 1,193
existing retired pension plan participants or their surviving beneficiaries. These annuity contracts assume all investment risk
associated with the assets that were delivered as the annuity contract premiums.
In 2014, the Company offered lump-sum payments out of the domestic qualified pension plan to certain plan
participants whose employment with Teledyne had terminated. Additionally, the domestic qualified pension plan was
amended in 2015 to allow participants who retire in the future to elect a lump-sum payment. In 2016 and 2015, the Company
made lump sum payments of approximately $14.6 million and $10.5 million, respectively, from the domestic qualified
pension plan assets to certain participants in the plan as a result of these lump sum offers. Each year beginning with 2014,
the Society of Actuaries released revised mortality tables, which updated life expectancy assumptions. In consideration of
these tables, we updated the mortality assumptions used in determining our pension and post-retirement obligations. The
impact of these mortality assumptions increased our pension obligation and increased future pension expense.
The Company’s contributions associated with its 401(k) plans were $9.3 million, $10.1 million and $9.5 million, for
2016, 2015 and 2014, respectively.
90
Net periodic benefit (income) expense - in millions:
Service cost - benefits earned during the period
Interest cost on benefit obligation
Expected return on plan assets
Amortization of prior service cost
Amortization of actuarial loss
Curtailment
Net periodic benefit (income) expense
Domestic
2015
$ 12.4
37.8
(74.4)
(6.0)
33.4
(1.2)
$ (3.0) $ 2.0
2016
$ 10.4
38.9
(72.9)
(6.0)
26.6
—
2014
$ 11.7
40.3
(73.7)
(4.6)
24.6
—
2016
$ 0.8
1.6
(2.2)
—
0.6
—
$ (1.7) $ 0.8
Foreign
2015
$ 0.9
1.7
(2.2)
—
0.6
—
$ 1.0
2014
$ 0.8
2.2
(2.6)
—
—
—
$ 0.4
The expected long-term rate of return on plan assets is reviewed annually, taking into consideration the Company’s
asset allocation, historical returns on the types of assets held, and the current economic environment. We determined the
discount rate based on a model which matches the timing and amount of expected benefit payments to maturities of high-
quality corporate bonds priced as of the pension plan measurement date. The yields on the bonds are used to derive a
discount rate for the obligation.
The following assumptions were used to measure the net benefit income/cost within each respective year:
Pension Plan Assumptions:
Domestic plan - 2016
Domestic plan - 2015
Domestic plan - 2014
Foreign plans 2016
Foreign plans 2015
Foreign plans 2014
Weighted
average discount
rate
Weighted average
increase in future
compensation
levels
Expected
weighted-
average long-
term rate of
return
4.91%
4.50%
5.40%
2.75%
2.75%
2.75%
8.00%
8.25%
8.25%
0.90% - 3.60%
1.20% - 3.50%
2.10% - 4.30%
1.00% - 2.43%
1.30% - 2.40%
1.75% - 2.50%
1.40% - 6.50%
1.80% - 6.40%
3.00% - 6.40%
For its domestic pension plans the Company is projecting a long-term rate of return on plan assets of 8.00% in 2017.
For its foreign based pension plans the Company is projecting a long-term rate of return on plan assets will range from 1.00%
to 5.90% in 2017.
Changes in benefit obligation (in millions):
Benefit obligation - beginning of year
Service cost - benefits earned during the year
Interest cost on projected benefit obligation
Actuarial (gain) loss
Benefits paid(a)
Plan amendments(b)
Settlements/curtailments
Other - including foreign currency
Benefit obligation - end of year
Accumulated benefit obligation - end of year
Domestic
Foreign
2016
2015
2016
2015
$ 820.4
10.4
38.9
29.5
(88.3)
—
—
—
$ 810.9
$ 878.4
12.4
37.8
(33.8)
(57.2)
(17.0)
—
(0.2)
$ 820.4
$ 56.6
0.8
1.6
6.2
(1.8)
(0.3)
(4.6)
(7.1)
$ 51.4
$ 61.1
0.9
1.7
(0.9)
(2.8)
(0.2)
—
(3.2)
$ 56.6
$ 807.3
$ 817.8
$ 49.1
$ 53.7
(a) The 2016 and 2015 amounts include lump sum payments to certain participants of $14.6 million and $10.5 million, respectively. In addition, in
2016, the Company’s U.S. domestic qualified pension plan purchased group annuity contracts from two insurance companies and paid a total annuity
premium of $27.2 million.
(b) The $17.0 million amount reflects the impact of actions taken in 2015 whereby Teledyne amended the domestic qualified pension plan to allow
participants to elect a lump-sum payment form upon retirement.
91
The key assumptions used to measure the benefit obligation at each respective year-end were:
Key assumptions:
Domestic Plan
Foreign Plans
Discount rate
Salary growth rate
2016
2015
2014
2016
2015
2014
4.54%
2.75%
4.91%
2.75%
4.50% 0.60% - 2.50%
0.90% - 3.60% 1.20% - 3.50%
2.75% 1.00% - 2.30%
1.00% - 2.40% 1.70% - 2.40%
Changes in plan assets (in millions):
Fair value of net plan assets - beginning of year
Actual return on plan assets
Employer contribution - other benefit plan
Foreign currency changes
Benefits paid
Other
Fair value of net plan assets - end of year
Domestic
Foreign
2016
2015
2016
2015
$ 890.4
52.9
2.1
—
(88.3)
—
$ 857.1
$ 957.5
(12.1)
2.2
—
(57.2)
—
$ 890.4
$
$
43.8
5.8
3.4
(5.9)
(1.8)
(3.2)
42.1
$
$
47.6
0.7
0.7
(2.4)
(2.8)
—
43.8
The measurement date for the Company’s pension plans is December 31.
The following table sets forth the funded status and amounts recognized in the consolidated balance sheets at year-end
2016 and 2015 for the domestic qualified and nonqualified pension plans and the foreign-based pension plans for benefits
provided to certain employees (in millions):
Funded status
Amounts recognized in the consolidated balance sheets:
Prepaid pension asset long-term
Accrued pension obligation long-term
Accrued pension obligation short-term
Other long-term liabilities
Net amount recognized
Domestic
Foreign
2016
2015
2016
2015
$
46.2
$
70.0
$
(9.3) $ (12.8)
$
$
88.5
(34.5)
(2.6)
(5.2)
46.2
$ 111.0
(33.8)
(2.2)
(5.0)
70.0
$
$ — $ —
(12.8)
—
—
(9.3) $ (12.8)
(9.3)
—
—
$
Amounts recognized in accumulated other comprehensive loss:
Prior service credit
Net loss
Net amount recognized, before tax effect
$ (30.7) $ (36.7) $
421.5
$ 390.8
398.6
$ 361.9
$
(0.5) $
10.3
9.8
$
(0.3)
13.0
12.7
Amounts for pension plans with accumulated benefit obligations in excess of fair value of plan assets are as follows (in
millions):
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2016
2015
$
$
$
93.7 $
91.4 $
42.1 $
97.6
94.7
43.8
At year-end 2016 and 2015 the Company had an accumulated non-cash reduction to stockholders’ equity of $249.6
million and $232.3 million, respectively, related to its pension and postretirement plans. The accumulated non-cash
reductions to stockholders’ equity did not affect net income and were recorded net of accumulated deferred taxes of $147.3
million at year end 2016 and $138.0 million at year end 2015.
At January 1, 2017, the estimated amounts of the minimum liability adjustment that are expected to be recognized as
components of net periodic benefit cost during 2017 for the pension plans are: net loss $29.2 million and net prior service
credit $6.1 million.
92
Estimated future pension plan benefit payments (in millions):
2017
2018
2019
2020
2021
2022-2026
Total
Domestic Foreign
2.2
56.9 $
$
2.0
57.7
1.8
58.0
2.0
57.8
1.8
58.6
10.5
295.9
20.3
584.9 $
$
The following table sets forth the percentage of year-end market value by asset class for the pension plans:
Market value by asset class:
Equity instruments
Fixed income instruments
Alternatives and other
Total
Domestic
Plan Assets
% to Total
Foreign
Plan Assets
% to Total
2016
2015
2016
2015
57%
30
13
100%
59%
29
12
100%
75%
15
10
100%
75%
15
10
100%
The Company has an active management policy for a portion of the pension assets in the domestic pension plan. The
long term asset allocation target for the domestic plan consists of 70% in equity instruments including a portion in
alternatives and 30% in fixed income instruments. The balance in equity instruments for the domestic plan can range from
45% to 75% before rebalancing is required under the Company’s policy.
The pension plan’s investments are stated at fair value. Plan investments that are considered a level 1 fair value
hierarchy and are valued at quoted market prices in active markets. Plan investments that are considered a level 2 fair value
hierarchy and are valued based on observable market data. Plan investments that would be considered a level 3 fair value
hierarchy are valued based on management’s own assumption about the assumptions that market participants would use in
pricing the asset or liability (including assumptions about risk).
Certain investments measured at fair value using net asset values as a practical expedient are not required to be
categorized in the fair value hierarchy table listed below. As such, the total fair value of these net asset values based
investments has been included in the table below to permit reconciliation to the plan asset amounts previously disclosed.
The fair values of the Company’s net pension assets, by fair value hierarchy, for both the U.S. and foreign pension plans
as of January 1, 2017, by asset category are as follows (in millions):
Asset category:(a)
Cash and cash equivalents (b)
Equity securities
U.S. government securities and futures
Corporate bonds
Insurance contracts related to foreign plans
Fair value of net plan assets at the end of the year
Level 1
$ — $
152.0
46.2
—
—
$ 198.2
Level 2
39.5
78.2
0.1
84.8
12.7
$ 215.3
Level 3
$ — $
—
—
—
—
Total
39.5
230.2
46.3
84.8
12.7
$ — $ 413.5
Investments measured at net asset value:
Equity securities
Alternatives
Mutual funds (c)
Corporate bonds
Senior secured loans
Mortgage-backed securities
High yield bonds
Fair value of net plan assets at the end of the year
a) There were no transfers of plan assets between the three levels of the fair value hierarchy during the year.
b) Reflects cash and cash equivalents held in overnight cash investments.
c) 29% of mutual funds invest in fixed income types of securities; 71% invest in equity securities.
93
$ 147.2
148.5
136.4
19.4
4.4
16.5
13.2
$ 485.6
The fair values of the Company’s net pension assets, by fair value hierarchy, for both the U.S. and foreign pension plans
as of January 3, 2016, by asset category are as follows (in millions):
Asset category: (a)
Cash and cash equivalents (b)
Equity securities
U.S. government securities and futures
Corporate bonds
Insurance contracts related to foreign plans
Fair value of net plan assets at the end of the year
Level 1 Level 2 Level 3
$ — $ 30.3
69.4
0.1
81.4
14.8
$ 196.0
Total
$ — $ 30.3
254.9
73.7
81.4
14.8
$ — $ 455.1
185.5
73.6
—
—
$ 259.1
—
—
—
—
Investments measured at net asset value:
Equity securities
Alternatives
Mutual funds (c)
Corporate bonds
Senior secured loans
Mortgage-backed securities
High yield bonds
Fair value of net plan assets at the end of the year
(a) There were $15.3 million of transfers of plan assets between the three levels of the fair value hierarchy during the year.
(b) Reflects cash and cash equivalents held in overnight cash investments.
(c) 18% of mutual funds invest in fixed income types of securities; 82% invest in equity securities.
$ 180.9
110.9
135.2
20.4
4.0
15.9
11.7
$ 479.0
U.S. equities are valued at the closing price reported in an active market on which the individual securities are traded.
U.S. equities and non-U.S. equities are also valued at the net asset value provided by the independent administrator or
custodian of the commingled fund. The net asset value is based on the value of the underlying equities, which are traded on
an active market. Corporate bonds are valued using inputs such as the closing price reported, if traded on an active market,
values derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach
that utilizes observable inputs, such as current yields of similar instruments. Fixed income investments are also valued at the
net asset value provided by the independent administrator or custodian of the fund. The net asset value is based on the
underlying assets, which are valued using inputs such as the closing price reported, if traded on an active market, values
derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that
utilizes observable inputs, such as current yields of similar instruments. Alternative investments are primarily valued at the
net asset value as determined by the independent administrator or custodian of the fund. The net asset value is based on the
underlying investments, which are valued using inputs such as quoted market prices of identical instruments or values
derived from comparable securities of issuers with similar credit ratings, or under a discounted cash flow approach that
utilizes observable inputs, such as current yields of similar instruments.
Postretirement Plans
The Company sponsors several postretirement defined benefit plans covering certain salaried and hourly employees.
The plans provide health care and life insurance benefits for certain eligible retirees.
Net period postretirement benefit cost (income) - in millions:
Service cost - benefits earned during the period
Interest cost on benefit obligation
Amortization of prior service cost
Amortization of actuarial gain
Net periodic benefit (income) expense
94
2016
2014
2015
$ — $ — $ —
0.6
(0.2)
(0.5)
$ (0.1)
0.5
—
(0.2)
0.3
0.5
—
(0.4)
0.1
$
$
Changes in benefit obligation (in millions):
Benefit obligation - beginning of year
Interest cost on projected benefit obligation
Actuarial gain
Benefits paid
Benefit obligation - end of year
The measurement date for the Company’s postretirement plans is December 31.
Future postretirement plan benefit payments (in millions):
2017
2018
2019
2020
2021
2022-2026
Total
2016
2015
$
$
10.7
0.5
0.1
(1.5)
9.8
$
$
12.8
0.5
(1.3)
(1.3)
10.7
$
$
1.1
1.0
1.0
0.9
0.9
3.5
8.4
The following table sets forth the funded status and amounts recognized in Teledyne’s consolidated balance sheets for
the postretirement plans at year-end 2016 and 2015 (in millions):
Funded status:
Funded status
Unrecognized net gain
Accrued benefit cost
Amounts recognized in the consolidated balance sheets:
Accrued postretirement benefits (long-term)
Accrued postretirement benefits (short-term)
Accumulated other comprehensive income
Net amount recognized
2016
2015
$
$
$
$
(9.8) $
(3.8)
(13.6) $
(8.7) $
(1.1)
(3.8)
(13.6) $
(10.7)
(4.2)
(14.9)
(9.6)
(1.1)
(4.2)
(14.9)
At January 1, 2017, the amounts in the AOCI that have not yet been recognized as components of net periodic benefit
income for the retiree medical plans are: net gain $3.8 million and net prior service credit of less than $0.1 million. At
January 1, 2017, the estimated amortization from AOCI expected to be recognized as components of net periodic benefit
income during 2017 for the retiree medical plans are: net gain $0.4 million and net prior service cost of less than $0.1 million.
The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health
care plans is 6.5% in 2017 and was assumed to decrease to 5.0% by the year 2023 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one
percentage point increase in the assumed health care cost trend rates would result in an increase in the annual service and
interest costs by less than $0.1 million for 2016 and would result in an increase in the postretirement benefit obligation by
$0.3 million at January 1, 2017. A one percentage point decrease in the assumed health care cost trend rates would result in a
decrease in the annual service and interest costs by less than $0.1 million for 2016 and would result in a decrease in the
postretirement benefit obligation by $0.3 million at January 1, 2017.
95
Note 12. Business Segments
The Company has four reportable segments: Instrumentation; Digital Imaging; Aerospace and Defense Electronics; and
Engineered Systems. The Company manages, evaluates and aggregates its operating segments for segment reporting purposes
primarily on the basis of product and service type, production process, distribution methods, type of customer, management
organization, sales growth potential and long-term profitability. The Instrumentation segment provides monitoring and control
instruments for marine, environmental, industrial and other applications, electronic test and measurement equipment and harsh
environment interconnect products. The Digital Imaging segment includes high-performance sensors, cameras and systems,
within the visible, infrared and X-ray spectra, for use in industrial, government and medical applications, as well as micro
electro-mechanical systems (“MEMS”). It also includes our sponsored and centralized research laboratories benefiting
government programs and businesses. The Aerospace and Defense Electronics segment provides sophisticated electronic
components and subsystems and communications products, including defense electronics, harsh environment interconnects,
data acquisition and communications equipment for aircraft and components and subsystems for wireless and satellite
communications, as well as general aviation batteries. In the third quarter of 2016, Teledyne completed the disposition of the
net assets of its PCT business for $9.3 million in cash resulting in no gain or loss. PCT, which was part of the Aerospace and
Defense Electronics segment, had sales of $10.1 million, $16.6 million and $18.8 million for 2016, 2015 and 2014,
respectively. For 2016, PCT reported a pretax loss of $3.1 million, compared with a pretax loss of $3.9 million in 2015 and
pretax income of $1.1 million in 2014. The Engineered Systems segment provides innovative systems engineering and
integration, advanced technology application, software development and manufacturing solutions for defense, space,
environmental and energy applications. The Engineered Systems segment also designs and manufactures electrochemical
energy systems and small turbine engines.
Segment results include net sales and operating income by segment but excludes noncontrolling interest, 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 not allocated to our segments.
As part of a continuing effort to reduce costs and improve operating performance the Company took actions to
consolidate and relocate certain facilities and reduce headcount across various businesses, reducing our exposure to weak end
markets and high cost locations.
The following pre-tax charges were incurred related to severance and facility consolidations (in millions):
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total
At January 1, 2017, $3.7 million remains to be paid related to these actions.
Information on the Company’s business segments was as follows (in millions):
Net sales:
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Total net sales
Operating income:
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Corporate expense
Total operating income
96
2016
2015
2014
$
$
10.6
2.0
4.6
0.1
17.3
$
$
3.9
3.2
1.2
0.1
8.4
$
$
1.0
2.7
0.9
(0.2)
4.4
2016
2015
2014
$
876.7
398.7
615.9
258.6
$ 2,149.9
$ 1,051.1
379.0
593.4
274.6
$ 2,298.1
$ 1,115.5
403.6
603.0
271.9
$ 2,394.0
$
2016
2015
2014
$
$
109.8
45.9
112.1
32.1
(46.1)
253.8
171.0
40.0
84.8
26.1
(40.2)
281.7
181.6
37.1
88.3
31.4
(43.9)
294.5
Depreciation and amortization:
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Corporate
Total depreciation and amortization
Capital expenditures:
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Corporate
Total capital expenditures
2016
2015
2014
$
$
$
$
37.3
26.2
14.4
4.1
5.3
87.3
2016
50.9
12.5
12.6
5.9
5.7
87.6
$
$
$
$
41.2
26.1
15.0
3.5
4.5
90.3
2015
20.9
9.2
9.1
5.7
2.1
47.0
$
$
$
$
41.1
29.6
15.9
3.7
4.0
94.3
2014
17.0
10.3
8.8
4.3
3.1
43.5
Identifiable assets are those assets used in the operations of the segments. Corporate assets primarily consist of cash and
cash equivalents, deferred taxes, net pension assets/liabilities and other assets.
Identifiable assets:
Instrumentation
Digital Imaging
Aerospace and Defense Electronics
Engineered Systems
Corporate (a)
Total identifiable assets
(a) The amount for 2016, 2015 and 2014 includes $88.5 million, $111.0 million and $86.3 million prepaid pension asset, respectively.
2016
$ 1,361.0
671.1
449.4
93.9
199.0
$ 2,774.4
2015
$ 1,339.6
634.9
451.6
92.2
198.8
$ 2,717.1
2014
$ 1,415.4
708.4
462.5
84.9
191.0
$ 2,862.2
Information on the Company’s sales by country of origin and long-lived assets by major geographic area was as follows
(in millions):
Sales by country:
United States
Canada
United Kingdom
All other countries
Total sales
Long-lived assets:
United States
Canada
United Kingdom
All other countries
Total long-lived assets
2016
$ 1,653.6
209.2
109.6
177.5
$ 2,149.9
2016
$ 1,408.1
273.5
103.3
138.1
$ 1,923.0
2015
$ 1,805.4
208.8
124.6
159.3
$ 2,298.1
2015
$ 1,332.5
249.9
127.3
139.3
$ 1,849.0
2014
$ 1,852.0
230.1
139.8
172.1
$ 2,394.0
2014
$ 1,364.7
310.5
120.6
128.2
$ 1,924.0
Long-lived assets consist of property, plant and equipment, goodwill, acquired intangible assets, prepaid pension assets
and other long-term assets including deferred compensation assets but excluding any deferred tax assets. The all other
countries category primarily consists of Teledyne’s operations in Europe.
97
Product Lines
The Instrumentation segment includes three product lines: Environmental Instrumentation, Marine Instrumentation and
Test and Measurement Instrumentation. All other segments each contain one product line.
The tables below provide a summary of the sales by product line for the Instrumentation segment (in millions):
Instrumentation:
Environmental Instrumentation
Marine Instrumentation
Test and Measurement Instrumentation
Total
2016
$ 270.1
418.7
187.9
$ 876.7
2015
$ 268.7
614.0
168.4
$ 1,051.1
2014
$ 268.4
654.8
192.3
$ 1,115.5
Sales to the U.S. Government included sales to the U.S. Department of Defense of $449.4 million in 2016, $447.2 million
in 2015, and $472.8 million in 2014. Total sales to international customers were $919.4 million in 2016, $1,020.4 million in
2015, and $1,069.3 million in 2014. Of these amounts, sales by operations in the United States to customers in other countries
were $539.4 million in 2016, $628.2 million in 2015, and $624.0 million in 2014. There were no sales to individual countries
outside of the United States in excess of 10 percent of the Company’s sales. Sales between business segments generally were
priced at prevailing market prices and were $20.2 million, $19.4 million and $20.1 million for 2016, 2015 and 2014,
respectively.
Note 13. Lease Commitments
Operating lease agreements, which include leases for manufacturing facilities and office space frequently include renewal
options and 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 January 1, 2017, future minimum lease payments for capital leases and for operating leases with non-cancelable terms
of more than one year were as follows (in millions):
Lease Commitments:
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Less:
Imputed interest
Current portion
Present value of minimum capital lease payments, net of current portion
$
Capital Operating
18.1
$
17.1
14.6
13.4
12.3
55.9
131.4
1.3
1.3
1.4
1.1
1.1
2.2
8.4
$
(1.0)
(1.3)
6.1
$
The 2016 property, plant and equipment accounts included $10.1 million of property leased under capital leases and $5.2
million of related accumulated depreciation. The 2015 property, plant and equipment accounts included $11.8 million of
property leased under capital leases and $6.4 million of related accumulated depreciation. Rental expense under operating
leases, net of immaterial sublease income, was $28.1 million in 2016, $24.5 million in 2015 and $25.5 million in 2014.
Note 14. Commitments and Contingencies
The Company is subject to federal, state and local environmental laws and regulations which require that it investigate
and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including
sites at which the Company has been identified as a potentially responsible party under the federal Superfund laws and
comparable state laws.
In accordance with the Company’s accounting policy disclosed in Note 2, environmental liabilities are recorded when the
Company’s liability is probable and the costs are reasonably estimable. In many cases, however, investigations are not yet at a
stage where the Company has been able to determine whether it is liable or, if liability is probable, to reasonably estimate the
loss or range of loss, or certain components thereof. Estimates of the Company’s liability are further subject to uncertainties
regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation
98
standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the
extent of corrective actions that may be required, and the number and financial condition of other potentially responsible
parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these
sites proceeds, it is likely that adjustments in the Company’s accruals will be necessary to reflect new information. The
amounts of any such adjustments could have a material adverse effect on the Company’s results of operations in a given period,
but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on
currently available information, however, management does not believe that future environmental costs in excess of those
accrued with respect to sites with which the Company has been identified are likely to have a material adverse effect on the
Company’s financial condition or liquidity.
At January 1, 2017, the Company’s reserves for environmental remediation obligations totaled $7.0 million, of which
$3.5 million is included in current accrued liabilities. The Company periodically evaluates whether it may be able to recover a
portion of future costs for environmental liabilities from its insurance carriers and from third parties. The timing of
expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of
potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the
standards for remediation. The Company expects that it will expend present accruals over many years, and will complete
remediation of all sites with which it has been identified in up to thirty years.
Various claims (whether based on U.S. Government or Company audits and investigations or otherwise) may be asserted
against the Company related to its U.S. Government contract work, including claims based on business practices and cost
classifications and actions under the False Claims Act. Although such claims are generally resolved by detailed fact-finding and
negotiation, on those occasions when they are not so resolved, civil or criminal legal or administrative proceedings may ensue.
Depending on the circumstances and the outcome, such proceedings could result in fines, penalties, compensatory and treble
damages or the cancellation or suspension of payments under one or more U.S. Government contracts. Under government
regulations, a company, or one or more of its operating divisions or units, can also be suspended or debarred from government
contracts based on the results of investigations. However, although the outcome of these matters cannot be predicted with
certainty, management does not believe there is any audit, review or investigation currently pending against the Company of
which management is aware that is likely to result in suspension or debarment of the Company, or that is otherwise likely to
have a material adverse effect on the Company’s financial condition or liquidity, although the resolution in any reporting period
of one or more of these matters could have a material adverse effect on the Company’s results of operations for that period.
A number of other lawsuits, claims and proceedings have been or may be asserted against the Company, including those
pertaining to product liability, acquisitions, patent infringement, commercial contracts, employment and employee benefits.
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 condition.
99
Note 15. Quarterly Financial Data (Unaudited)
Fiscal Year 2016 (a) (in millions, except per-share amounts)
Net Sales
Costs and expenses
Cost of sales
Selling, general and administrative expenses
Total costs and expenses
Operating income
Interest and debt expense, net
Other income, net (b)
Income before income taxes
Provision for income taxes (c)
Net income attributable to Teledyne
Basic earnings per common share
Diluted earnings per common share
1st Quarter
$
530.5
2nd Quarter
539.7
$
3rd Quarter
$
526.8
4th Quarter
552.9
$
324.8
144.8
469.6
60.9
(5.7)
(1.3)
53.9
14.9
39.0
1.13
1.11
$
$
$
336.2
149.9
486.1
53.6
(5.9)
17.2
64.9
18.0
46.9
1.36
1.33
$
$
$
317.0
141.0
458.0
68.8
(5.6)
(0.8)
62.4
10.4
52.0
1.50
1.46
$
$
$
340.0
142.4
482.4
70.5
(6.0)
(4.4)
60.1
7.1
53.0
1.52
1.48
$
$
$
a) Fiscal year 2016 was a 52-week year, each quarter contained 13 weeks. The Company’s Form 10-Qs for the second and third quarters of 2016 classified
our Printed Circuit Technology (“PCT”) business, which was sold in July 2016, as discontinued operations. Based on further review we have determined
that the sale and impact to the Company’s operations were insignificant and therefore the results of PCT are no longer presented within discontinued
operations.
b) The second quarter includes a $17.9 million pretax gain on the sale of a former operating facility and the fourth quarter includes $5.5 million in expense
related to an option contract in connection with the pending e2v acquisition.
c) Includes $0.6 million in net discrete income tax benefits in the first quarter, $5.7 million in net discrete income tax expense in the second quarter, $6.6
million in net discrete income tax benefits the third quarter and $9.4 million in net discrete income tax benefits in the fourth quarter. The first and second
quarters of 2016 were adjusted from the amounts previously reported on Form 10-Q as a result of adopting Accounting Standards Update No. 2016-09,
Compensation - Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting. Teledyne’s first and second quarter
previously reported results now include additional income tax benefits as an increase to net income of $0.6 million and $1.2 million, respectively. See
Note 2 of our Notes to the Consolidated Financial Statements for additional information.
Fiscal Year 2016 (in millions)
Net Sales:
Instrumentation
Digital Imaging
Aerospace & Defense Electronics
Engineered Systems
Total net sales
Operating income:
Instrumentation
Digital Imaging
Aerospace & Defense Electronics
Engineered Systems
Corporate expense
Total operating income
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
$
$
223.7
89.9
152.6
64.3
530.5
31.4
8.2
24.1
8.0
(10.8)
60.9
$
$
$
$
220.1
99.4
158.0
62.2
539.7
20.1
10.7
28.0
5.6
(10.8)
53.6
$
$
$
$
208.3
98.5
153.5
66.5
526.8
28.1
11.7
31.5
8.6
(11.1)
68.8
$
$
$
$
224.6
110.9
151.8
65.6
552.9
30.2
15.3
28.5
9.9
(13.4)
70.5
100
Fiscal Year 2015 (a) (in millions, except per-share amounts)
Net Sales
Costs and expenses
Cost of sales
Selling, general and administrative expenses
Total costs and expenses
Operating income
Interest and debt expense, net
Other income, net
Income before income taxes
Provision for income taxes (b)
Net income
Noncontrolling interest
Net income attributable to Teledyne
Basic earnings per common share
Diluted earnings per common share
1st Quarter
565.0
$
2nd Quarter
577.7
$
3rd Quarter
555.4
$
4th Quarter
600.0
$
345.9
151.8
497.7
67.3
(5.9)
0.8
62.2
18.5
43.7
—
43.7
1.22
1.20
$
$
$
357.7
151.1
508.8
68.9
(6.0)
3.4
66.3
18.3
48.0
0.3
48.3
1.37
1.34
$
$
$
345.8
140.1
485.9
69.5
(6.0)
(2.1)
61.4
13.1
48.3
—
48.3
1.37
1.34
$
$
$
378.4
145.6
524.0
76.0
(6.0)
(1.7)
68.3
12.8
55.5
—
55.5
1.59
1.57
$
$
$
a) Fiscal year 2015 was a 53-week year, each quarter contained 13 weeks except the fourth quarter which contained 14 weeks.
b) Includes $0.2 million in net discrete income tax expense in the first quarter of 2015, $1.3 million in net discrete income tax benefits in the second
quarter, $7.4 million in net discrete income tax benefits in the third quarter and $1.3 million in net discrete income tax benefits in the fourth quarter.
Fiscal Year 2015 (in millions)
Net Sales:
Instrumentation
Digital Imaging
Aerospace & Defense Electronics
Engineered Systems
Total net sales
Operating income:
Instrumentation
Digital Imaging
Aerospace & Defense Electronics
Engineered Systems
Corporate expense
Total operating income
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
$
$
$
270.3
90.4
141.2
63.1
565.0
42.1
9.3
19.4
6.7
(10.2)
67.3
$
$
$
$
271.3
90.8
147.0
68.6
577.7
45.7
8.8
20.6
4.8
(11.0)
68.9
$
$
$
$
243.2
95.7
151.3
65.2
555.4
38.6
10.4
23.5
5.9
(8.9)
69.5
$
$
$
$
266.3
102.1
153.9
77.7
600.0
44.6
11.5
21.3
8.7
(10.1)
76.0
101
Schedule II VALUATION AND QUALIFYING ACCOUNTS
Schedule II
VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years Ended January 1, 2017, January 3, 2016 and December 28, 2014
(In millions)
Description
Fiscal 2016
Allowance for doubtful accounts
Environmental reserves
Fiscal 2015
Allowance for doubtful accounts
Environmental reserves
Fiscal 2014
Allowance for doubtful accounts
Environmental reserves
$
$
$
$
$
$
Additions
Balance at
beginning of
period
Charged
to costs and
expenses
Acquisitions
Deductions and
other (a)
Balance at end
of period
6.3
8.7
7.8
9.7
5.2
9.1
0.7
0.4
0.9
0.6
3.6
0.5
0.2
—
0.3
—
1.9
0.9
(2.0) $
(2.2) $
(2.7) $
(1.6) $
(2.9) $
(0.8) $
5.2
6.9
6.3
8.7
7.8
9.7
(a) Represents payments except the amounts for allowance for doubtful accounts primarily represents uncollectible accounts written-off, net of recoveries.
102
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized as of March 2, 2017.
SIGNATURES
Teledyne Technologies Incorporated (Registrant)
By:
/s/ Robert Mehrabian
Robert Mehrabian
Chairman, President and Chief Executive Officer
103
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ Robert Mehrabian
Robert Mehrabian
/s/ Susan L. Main
Susan L. Main
/s/ Cynthia Belak
Cynthia Belak
Roxanne S. Austin
Charles Crocker
Kenneth C. Dahlberg
Simon M. Lorne
Robert A. Malone
Paul D. Miller
Jane C. Sherburne
Michael T. Smith
*
*
*
*
*
*
*
*
*
Wesley W. von Schack
*By:
/s/ Melanie S. Cibik
Melanie S. Cibik
Pursuant to Power of Attorney
filed as Exhibit 24.1
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
March 2, 2017
Chairman, President and
Chief Executive Officer
(Principal Executive Officer)
and Director
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Vice President and
Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
104
Exhibit
No.
2.1
2.2
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
EXHIBIT INDEX
Description
Separation and Distribution Agreement dated as of November 29, 1999 by and among Allegheny Teledyne
Incorporated, TDY Holdings, LLC, Teledyne Industries, Inc. and Teledyne Technologies Incorporated
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated as of November 29,
1999 (File No. 1-15295))
Rule 2.7 Announcement, dated December 12, 2016 , related to the recommend cash offer for e2v technologies plc
(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated December 11, 2016
(File No. 1-15295))
Restated Certificate of Incorporation of Teledyne Technologies Incorporated (including Certificate of Designation
of Series A Junior Participating Preferred Stock) (incorporated by reference to Exhibit 3.1 to the Company’s
Annual Report on Form 10-K for the year ended January 2, 2000 (File No. 1-15295))
Amended and Restated Bylaws of Teledyne Technologies Incorporated (incorporated by reference to Exhibit 3.1
to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2014 (File No. 1-15295))
Employee Benefits Agreement between Allegheny Teledyne Incorporated and Teledyne Technologies Incorporated
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K/A (Amendment
No. 1) dated as of November 29, 1999 (File No. 1-15295))†
Teledyne Technologies Incorporated 1999 Incentive Plan (incorporated by reference to Exhibit 10.5 to the
Company’s Annual Report on Form 10-K for the year ended January 2, 2000 (File No. 1-15295))†
Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation Plan (incorporated by
reference to Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2000 (File
No. 1-15295))†
Amendment No. 1 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation
Plan (incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 1-15295)†
Amendment No. 2 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation
Plan (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year ended
December 31, 2000 (File No. 1-15295)†
Amendment No. 3 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation
Plan (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the year
ended December 29, 2002 (File No. 1-15295)†
Amendment No. 4 to Teledyne Technologies Incorporated 1999 Non-Employee Director Stock Compensation
Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the period ended
September 28, 2003) (File No. 1-15295)†
Teledyne Technologies Incorporated 2002 Stock Incentive Plan (incorporated by reference to Exhibit 10.14 to
the Company’s Annual Report on Form 10-K for the year ended December 30, 2001 (File No. 1-15295))†
Administrative Rules of the 2002 Stock Incentive Plan Related to Non-Employee Director Stock Compensation
(incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K dated January 23,
2007 (File No. 1-5295))†
10.10
Teledyne Technologies Incorporated 2008 Incentive Award Plan (incorporated by reference to Annex A of the
Company’s Definitive Proxy Statement filed March 7, 2008 (File No. 1-15295))†
105
10.11
10.12
10.13
10.14
10.15
10.16
Teledyne Technologies Incorporated Administrative Rules of the 2008 Incentive Award Plan Related to Non-
Employee Director Stock Compensation (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended March 30, 2008 (File No. 1-15295))†
Administrative Rules for the Teledyne Technologies Incorporated Restricted Stock Award Program under the
2008 Incentive Award Plan, effective as of January 20, 2009 (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated January 20, 2009 (File No. 1-15295))†
Form of Stock Option Agreement under the 2008 Incentive Award Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated January 19, 2010 (File No.1-15295))†
Summary Plan Description for the Teledyne Technologies Incorporated Performance Service Plan under the
2008 Incentive Award Plan for the 2012-2014 performance cycle (incorporated by reference to Exhibit 10.23 to
the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2012 (File No. 1-15295))†
Teledyne Technologies Incorporated Amended and Restated 2008 Incentive Award Plan (incorporated by
reference to Annex A of the Company’s Definitive Proxy Statement filed March 8, 2012 (File No. 1-15295))†
Administrative Rules of the Teledyne Technologies Incorporated Amended and Restated 2008 Incentive Award
Plan Related to Non-Employee Director Stock Compensation (incorporated by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 1, 2012 (File No. 1-15295))†
10.17
Form of Stock Option Agreement under the Teledyne Technologies Incorporated Amended and Restated 2008
Incentive Award Plan (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended April 1, 2012 (File No. 1-15295))†
10.18
Administrative Rules related to the Restricted Stock Award Program under the Teledyne Technologies
Incorporated Amended and Restated 2008 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report on Form 8-K dated January 22, 2013 (File No. 1-15295))†
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
Form of Restricted Stock Award Agreement under the Teledyne Technologies Incorporated Amended and
Restated 2008 Incentive Award Plan (incorporated by reference to Exhibit 10.35 to the Company’s Annual
Report Form 10-K for the year ended December 30, 2012) (File No. 1-15295))†
Restricted Stock Award Agreement, dated October 22, 2013, by and between Teledyne Technologies
Incorporated and Dr. Robert Mehrabian (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated October 22, 2013) (File No. 1-15295))†
Teledyne Technologies Incorporated 2014 Incentive Award Plan (incorporated by reference to Annex A of the
Company’s Definitive Proxy Statement filed March 5, 2014 (File No. 1-15295))†
Form of stock option agreement and conditions under the Teledyne Technologies Incorporated 2014 Incentive
Award Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
April 23, 2014 File No. 1-15295))†
Administrative Rules of the Teledyne Technologies Incorporated 2014 Incentive Plan Related to Non-Employee
Director Stock Compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on
Form 8-K dated April 23, 2014 (File No. 1-15295))†
Standing resolutions of the Nominating and Governance Committee related to non-employee director
compensation (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated
December 31, 2014 (File No. 1-15295))†
Administrative Rules of the 2014 Incentive Award Plan Related to Non-Employee Director Restricted Stock
Unit Awards and Fees (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
dated December 31, 2014 (File No. 1-15295))†
Administrative Rules for the Restricted Stock Award Program under the 2014 Incentive Award Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated February 17,
2015 (File No. 1-15295))†
106
10.27
10.28
10.29
Form of Restricted Stock Award Agreement under the 2014 Incentive Award Plan (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295))†
Form of Restricted Stock Unit Agreement under the 2014 Incentive Award Plan (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295))†
Restricted Stock Unit Agreement, dated December 20, 2016, by and among Teledyne Technologies Incorporated
and Robert Mehrabian (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-
K/A dated December 20, 2016 (File No. 1-15295))†
10.30
Summary Plan Description for the 2015-2017 Performance Share Program incorporated by reference to Exhibit
10.5 to the Company’s Current Report on Form 8-K dated February 17, 2015 (File No. 1-15295)†
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.40
10.41
10.42
Summary Plan Description for the 2015-2017 Performance Share Program (Canadian Participants) (incorporated
by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated October 22, 2013) (File No.
1-15295)†
Fifth Amended and Restated Employment Agreement, dated October 22, 2013, by and between Teledyne
Technologies Incorporated and Dr. Robert Mehrabian (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated October 22, 2013) (File No. 1-15295)†
Amendment One, dated as of September 28, 2015, to the Fifth Amended and Restated Employment Agreement
between Teledyne Technologies Incorporated and Robert Mehrabian. (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K dated September 28, 2015) (File No. 1-15295))†
Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between
Teledyne Technologies Incorporated and Robert Mehrabian (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated January 31, 2011 (File No. 1-15295))†
Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between
Teledyne Technologies Incorporated and Al Pichelli (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K dated January 31, 2011 (File No. 1-15295))†
Amended and Restated change in Control Severance Agreement dated January 31, 2011, by and between
Teledyne Technologies Incorporated and Susan L. Main (incorporated by reference to Exhibit 10.12 to
Company’s Annual Report on Form 10-K for the fiscal years ended December 29, 2013 (File No. 1-15295))†
Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between
Teledyne Technologies Incorporated and Melanie Cibik (incorporated by reference to Exhibit 10.13 to the
Company’s Annual Report on Form 10-K for the fiscal year end December 29, 2013 (File No. 1-15295))†
Amended and Restated Change in Control Severance Agreement, dated as of January 31, 2011, by and between
Teledyne Technologies Incorporated and Jason Vanwees (incorporated by reference to Exhibit 10.39 to the
Company’s Annual Report on Form 10-K for the fiscal year end January 3, 2016 (File No. 1-15295)†
Teledyne Technologies Incorporated Executive Deferred Compensation Plan, as originally effective as of
November 29, 1999, as amended and restated effective December 31, 2004 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2008)(File No. 1-15295)†
Teledyne Technologies Incorporated Pension Equalization/Benefit Restoration Plan, as originally effective as of
November 29, 1999, as amended and restated effective December 31, 2004 (incorporated by reference to
Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 31, 2008(File No. 1-15295))†
Teledyne Technologies Pension Equalization/Benefit Restoration Plan - Resolutions of the Plan Administration
Committee (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated
December 31, 2014 (File No. 1-15295))†
107
10.43
Form of Amendment to Stock Options, dated October 1, 2007, by and between Teledyne Technologies
Incorporated and directors Frank V. Cahouet, Charles Crocker, Simon M. Lorne, Paul D. Miller and Michael T.
Smith (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2007 (File No. 1-15295))†
10.44
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
Note Purchase Agreement, dated May 12, 2010, by and among Teledyne Technologies Incorporated and the
Purchasers identified therein (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on
Form 10-Q for the fiscal quarter ended July 4, 2010 (File No. 1-15295))
Amended and Restated Credit Agreement, dated as of March 1, 2013, by and among Teledyne Technologies
Incorporated (Teledyne), certain subsidiaries of Teledyne as Designated Borrowers, certain subsidiaries of
Teledyne as Guarantors, the Lender parties thereto and Bank of America, N.A. as Administrative Agent,
Swing-Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K dated March 1, 2013) (File No. 1-15295))
First Amendment to Amended and Restated Credit Facility, dated as of December 4, 2015, by and among
Teledyne, certain subsidiaries of Teledyne, the lender parties thereto and Bank of America, N.A. as
Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated December 4, 2015 (File No. 1-15295))
Second Amendment, dated as of January 17, 2017, to Amended and Restated Credit Agreement, dated as of
March 1, 2013, as supplemented by the First Amendment dated as of December 4, 2015, by and among
Teledyne, certain subsidiaries of Teledyne, the lender parties thereto and Bank of America, N.A. as
Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K dated January 17, 2017 (File No. 1-15295))
Loan Agreement, dated October 22, 2012, among Teledyne Technologies Incorporated, as borrower, certain of
its subsidiaries, as guarantors, and U.S. Bank National Association., as lender (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 22, 2012 (File No. 1-15295))
Amendment Agreement, dated November 21, 2013, by and among Teledyne Technologies Incorporated and
Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form
8-K dated November 21, 2013) (File No. 1-15295))
Amendment Agreement, dated November 21, 2013, by and among Teledyne Technologies Incorporated and
U.S. Bank, National Association(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated November 21, 2013) (File No. 1-15295))
Second Amendment Agreement, dated December 2, 2016, by and among Teledyne Technologies Incorporated
and Bank of America, N.A. and Wells Fargo Bank, National Association (incorporated by reference to Exhibit
10.1 to the Company’s Current Report on Form 8-K dated December 2, 2016) (File No. 1-15295))
Second Amendment Agreement, dated December 2, 2016, by and among Teledyne Technologies Incorporated
and U.S. Bank, National Association (incorporated by reference to Exhibit 10.2 to the Company’s Current
Report on Form 8-K dated December 2, 2016) (File No. 1-15295))
Note Purchase Agreement, dated September 23, 2014, by and among Teledyne Technologies Incorporated and
the Purchasers identified therein (incorporated by reference to Exhibit 99.1 to the Company’s Current Report
on Form 8-K filed on September 23, 2014 (File No. 1-15295))
Note Purchase Agreement, dated August 27, 2015, by and among Teledyne Technologies Incorporated and the
Purchasers identified therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on
Form 8-K dated August 27, 2015) (File No. 1-15295))
Credit Agreement dated December 11, 2016 with Bank of America, N.A., as administrative agent and a lender
and the other lenders parties thereto (incorporated by reference to the Company’s Current Report on Form 8-K
dated December 11, 2016 (File No. 1-15295))
108
10.56
10.57
14.1
14.2
14.3
Letter dated January 17, 2017, confirming Effectiveness of Qualifying Amendment to Credit Agreement Dated
December 11, 2016 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
dated January 17, 2017 (File No. 1-15295))
Form of Indemnification Agreement executed by each of the Company’s directors and named executive
officers (incorporated by reference to the Company’s Current Report on Form 8-K dated April 22, 2009 (File
No. 1-15295))†
Teledyne Technologies Incorporated Global Code of Ethical Conduct - this code of ethics may be accessed via
the Company’s website at www.teledyne.com/aboutus/ethics.pdf
Code of Ethics for Financial Professionals - this code of ethics may be accessed via the Company’s website at
www.teledyne.com/aboutus/ethics.asp
Directors, Code of Business Conduct and Ethics - this code of ethics may be accessed via the Company’s
website at www.teledyne.com/aboutus/ethics.asp
21
Subsidiaries of Teledyne Technologies Incorporated*
23.1
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm *
23.2
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm*
24.1
31.1
31.2
32.1
32.2
Power of Attorney - Directors*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101.INS
XBRL Instance Document**
101.SCH XBRL Taxonomy Extension Schema Document**
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB XBRL Taxonomy Extension Label Linkbase Document**
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document**
*
Submitted electronically herewith.
** Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting
Language) for the year ended January 1, 2017: (i) the Consolidated Statement of Income, (ii) the Consolidated Balance Sheet,
(iii) the Consolidated Statement of Shareholders’ Equity, (iv) the Consolidated Statement of Comprehensive Income (Loss),
(v) the Consolidated Statement of Cash Flows, (vi) Notes to Consolidated Financial Statements and (vii) Financial Schedule of
Valuation and Qualifying Accounts.
†
Denotes management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Form 10-K.
109
FORWARD-LOOKING
STATEMENTS
CAUTIONARY NOTICE
From time to time the Company makes, and this Annual
Report and the Company’s Annual Report on Form 10-K
may contain, forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, directly
and indirectly relating to earnings, growth opportunities,
acquisitions and divestitures, product sales, capital
expenditures, pension matters, stock option compensation
expense, interest expense, severance and relocation
costs, environmental remediation costs, taxes, exchange
rate fluctuations and strategic plans. All statements made
in this Annual Report and the Company’s Annual Report
on Form 10-K that are not historical in nature should be
considered forward-looking. Actual results could differ
materially from these forward-looking statements.
Many factors could change the anticipated results, including:
disruptions in the global economy; changes in demand for
products sold to the defense electronics, instrumentation,
digital imaging, energy exploration and production,
commercial aviation, semiconductor and communications
markets; funding, continuation and award of government
programs; cuts to defense spending resulting from
existing and future deficit reduction measures; risks
associated with our pending acquisition of e2v, including
the failure to satisfy closing conditions and the failure to
successfully integrate the to be acquired business; impacts
from the United Kingdom’s decision to exit the European
Union; uncertainties related to the policies of the new U.S.
Presidential Administration; and threats to the security of
our confidential and proprietary information, including
cyber security threats. Continued lower oil and natural gas
prices, as well as instability in the Middle East or other oil
producing regions, and new regulations or restrictions
relating to energy production, including with respect to
hydraulic fracturing could further negatively affect our
businesses that supply the oil and gas industry. Increasing
fuel costs could negatively affect the markets of our own
commercial aviation businesses. In addition, financial
market fluctuations affect the value of our pension assets.
Copyright © 2017 Teledyne Technologies Incorporated. All Rights Reserved.
Editor: Neil Humphrey | Design: Jiaxu Zhang & Chris McCorkindale | Printed in the U.S.A.
Changes in the policies of U.S. and foreign governments,
including economic sanctions, could result, over time, in
reductions or realignment in defense or other government
spending and further changes in programs in which the
Company participates.
While Teledyne’s growth strategy includes possible
acquisitions including the pending e2v transaction, we
cannot provide any assurance as to when, if or on what
terms any acquisitions will be made. Acquisitions involve
various inherent risks, such as, among others, our ability
to integrate acquired businesses, retain customers and
achieve identified financial and operating synergies. There
are additional risks associated with acquiring, owning
and operating businesses outside of the United States,
including those arising from U.S. and foreign government
policy changes or actions and exchange rate fluctuations.
The Company continues to take action to assure
compliance with the internal controls, disclosure controls
and other requirements of the Sarbanes-Oxley Act of
2002. While we believe our control systems are effective,
there are inherent limitations in all control systems, and
misstatements due to error or fraud may occur and may
not be detected.
Additional information concerning factors that could
cause actual results to differ materially from those
projected in the forward-looking statements is contained in
Teledyne Technologies’ periodic filings with the Securities
and Exchange Commission, including its 2016 Annual
Report on Form 10-K. Forward-looking statements are
generally accompanied by words such as “estimate”,
“project”, “predict”, “believes” or “expect”, that convey the
uncertainty of future events or outcomes. The Company
assumes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information or otherwise.
Visible image captured with e2v sensor
Infared image captured with Teledyne sensor
ABOVE: Hubble Space Telescope images of the “Pillars of Creation,” a birthplace for stars over 6,500 light years from Earth. Respective
images taken with sensors produced by e2v and Teledyne. Credits: National Aeronautics and Space Administration (NASA) and European Space Agency (ESA)
FRONT COVER: Image from the NOAA GOES-16 satellite’s Advanced Baseline Imager taken on January 15, 2017, and created using several
of the 16 spectral channels. Teledyne provided the detectors for the four longest wavelength channels. Teledyne Paradise Datacom
also provides solid state power amplifi ers for the GOES ground antenna system. Credits: National Oceanic and Atmospheric Administration (NOAA)
www.teledyne.com
1049 Camino Dos Rios, Thousand Oaks, California 91360 • 805.373.4545 • fax: 805.373.4775