Teledyne Technologies Inc 10-Q for FY2021 Q3
Teledyne Technologies Inc (TDY)
10-Q
2021-10-28
For: 2021-10-03
View Original
Added on
April 08, 2026
About this 10-Q
Teledyne Technologies Inc filed this 10-Q on October 28, 2021, covering the quarter ended October 3, 2021 (FY2021 Q3).
Headline figures
Quarter ended October 3, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.31B
- up 75.2% from $749M a year earlier
- Net income
- $134.1M
- up 42.8% from net income of $93.9M a year earlier
- Diluted EPS
- $2.81
- up 13.3% from $2.48 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
FORM 10-Q
_____________________________________
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended October 3, 2021
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
_____________________________________
(Exact name of registrant as specified in its charter)
_____________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(Registrant’s telephone number, including area code)
____________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☒ | Accelerated filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ☐ No ☒
There were 46,655,176 shares of common stock, $.01 par value per share, outstanding as of October 25, 2021.
TELEDYNE TECHNOLOGIES INCORPORATED
TABLE OF CONTENTS
| PAGE | ||||||||
Explanatory Note
On May 14, 2021, Teledyne Technologies Incorporated completed the acquisition of FLIR Systems, Inc. ( “FLIR”), and the financial results of FLIR have been included since the date of the acquisition. The financial statements of Teledyne Technologies Incorporated contained herein are as of and for the periods ended October 3, 2021, and reflect the results of the Company after giving effect to the acquisition of FLIR.
1
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
TELEDYNE TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020
(Unaudited - Amounts in millions, except per-share amounts)
| Third Quarter | Nine Months | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Acquired intangible asset amortization | |||||||||||||||||||||||
| Total costs and expenses | |||||||||||||||||||||||
Operating income | |||||||||||||||||||||||
| Interest and debt expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Non-service retirement benefit income | |||||||||||||||||||||||
| Other income (expense), net | ( | ( | ( | ||||||||||||||||||||
Income before income taxes | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| 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 condensed consolidated financial statements.
TELEDYNE TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THIRD QUARTER AND NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020
(Unaudited - Amounts in millions)
| Third Quarter | Nine Months | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| 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 income (loss) | ( | ( | ( | ||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
TELEDYNE TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - Amounts in millions, except share amounts)
| October 3, 2021 | January 3, 2021 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Unbilled receivables, net | |||||||||||
| Inventories, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, net of accumulated depreciation and amortization of $ at January 3, 2021 | |||||||||||
| Goodwill | |||||||||||
| Acquired intangibles, net | |||||||||||
| Prepaid pension assets | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Other assets, net | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current portion of long-term debt and other debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Long-term deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total Liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ Equity | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
Treasury stock, | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total Stockholders’ Equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
TELEDYNE TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In millions)
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||
| Balance, January 3, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Treasury stock issued | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, April 4, 2021 | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Common stock issued | — | — | — | ||||||||||||||||||||||||||||||||
| Treasury stock issued | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, July 4, 2021 | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Treasury stock issued | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, October 3, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||||
| Balance, December 29, 2019 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Treasury stock issued | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, March 29, 2020 | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Treasury stock issued | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, June 28, 2020 | ( | ( | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | |||||||||||||||||||||||||||||||
| Treasury stock issued | — | ( | — | — | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance, September 27, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
TELEDYNE TECHNOLOGIES INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 3, 2021 AND SEPTEMBER 27, 2020
(Unaudited - Amounts in millions)
| Nine Months | |||||||||||
| 2021 | 2020 | ||||||||||
| Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, amortization and inventory step-up expense | |||||||||||
| Stock-based compensation | |||||||||||
| Bridge financing and debt extinguishment expense | |||||||||||
| Changes in operating assets and liabilities excluding the effect of business acquired: | |||||||||||
| Accounts receivable and unbilled receivables | ( | ||||||||||
| Inventories | |||||||||||
| Accounts payable | ( | ||||||||||
| Deferred and income taxes receivable/payable, net | |||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Accrued expenses and other liabilities | ( | ||||||||||
| Other operating, net | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing Activities | |||||||||||
| Purchases of property, plant and equipment | ( | ( | |||||||||
| Purchase of businesses, net of cash acquired | ( | ( | |||||||||
| Other investing, net | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Financing Activities | |||||||||||
| Net payments on senior notes and other debt | ( | ( | |||||||||
| Proceeds from other debt | |||||||||||
| Proceeds from exercise of stock options | |||||||||||
| Payments for bridge financing and debt extinguishment | ( | ||||||||||
| Other financing, net | ( | ||||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| Effect of exchange rate changes on cash | ( | ( | |||||||||
| Change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents—beginning of period | |||||||||||
| Cash and cash equivalents—end of period | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
TELEDYNE TECHNOLOGIES INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
October 3, 2021
Note 1. General
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by Teledyne Technologies Incorporated (“Teledyne” or the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in notes to consolidated financial statements have been condensed or omitted pursuant to such rules and regulations, but resultant disclosures are in accordance with generally accepted accounting principles in the United States (“GAAP”) as they apply to interim reporting. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes in Teledyne’s Annual Report on Form 10-K for the fiscal year ended January 3, 2021 (“2020 Form 10-K”).
In the opinion of Teledyne’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, Teledyne’s consolidated financial position as of October 3, 2021 and the consolidated results of operations, consolidated comprehensive income for the third quarter and nine months ended October 3, 2021 and the consolidated cash flows for the nine months then ended. The results of operations and cash flows for the periods ended October 3, 2021 are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year. Certain prior year amounts have been reclassified to conform to the current period presentation. The Company now discloses acquired intangible asset amortization on a separate income statement line. Acquired intangible asset amortization was previously included in selling, general and administrative expenses. In addition, the Company now discloses the balance of long-term deferred tax liabilities on the face of the balance sheet. Long-term deferred tax liabilities was previously included in other long-term liabilities.
Acquisition of FLIR Systems, Inc.
On May 14, 2021, the Company completed the acquisition of FLIR Systems, Inc. (“FLIR”), and the financial results of FLIR have been included since the date of the acquisition. See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding the FLIR acquisition.
Note 2. Business Combinations, Goodwill and Acquired Intangible Assets
Acquisition of FLIR Systems, Inc.
On May 14, 2021, Teledyne acquired the outstanding stock of FLIR for approximately $8.1 billion, comprising of net cash payments of $3.7 billion, net Teledyne share issuances of $3.9 billion, and the assumption of FLIR debt of $0.5 billion. FLIR stockholders received $28.00 per share in cash and 0.0718 shares of Teledyne common stock for each FLIR share, and Teledyne issued approximately 9.5 million shares at $409.41 per share. See Note 10 to these Notes to Condensed Consolidated Financial Statements for information regarding financing activities undertaken in connection with the FLIR acquisition.
Founded in 1978, FLIR is an industrial technology company focused on intelligent sensing solutions for defense and industrial applications. FLIR offers a diversified portfolio that serves a number of applications in government and defense, industrial, and commercial markets. FLIR develops technologies that enhance perception and awareness. FLIR designs, develops, markets, and distributes solutions that detect people, objects and substances that may not be perceived by human senses and improve the way people interact with the world around them. FLIR technologies include thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and advanced threat-detection solutions. FLIR is part of the Digital Imaging segment.
The primary reasons for the FLIR acquisition were as follows:
•the synergies in merging with a business that has the same core business model based on proprietary sensor technologies, but with different products and markets;
•the opportunity to add new and complementary products with FLIR’s products based on different semiconductor technologies for imaging across different wavelengths than Teledyne products, and the opportunity to serve different customers and applications, with minimal overlapping technologies and markets;
6
•the expectation of combining two businesses that both provide sensors, cameras and sensor systems to customers and both business portfolios being balanced among commercial and government markets and geographies, but with Teledyne primarily producing extremely high-performance infrared detectors used for astronomy and space-based imaging applications compared to FLIR’s products focused on helicopters to soldiers to firefighters throughout commercial tomography and automotive advanced driver systems;
•the opportunity to add FLIR’s suite of imaging sensor products based on different semiconductor technologies for different wavelengths to Teledyne’s offerings;
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. Goodwill resulting from the FLIR acquisition will not be deductible for tax purposes.
The following table presents the preliminary purchase price allocation for FLIR. We are accounting for the FLIR acquisition under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree at the fair values on the closing date. The Company made an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. As of October 3, 2021, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the FLIR acquisition are subject to adjustment until the end of the respective measurement period. The Company is in the process of specifically identifying the amounts assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the FLIR acquisition. The Company is in the process of obtaining a third-party valuation of certain intangible assets and tangible assets of FLIR. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. The amounts recorded as of October 3, 2021 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.
| Fair values allocated to the assets acquired and liabilities assumed - FLIR (in millions): | ||||||||
| Cash and cash equivalents | $ | |||||||
| Accounts receivables, net | ||||||||
| Unbilled receivables, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment | ||||||||
| Goodwill | ||||||||
| Acquired intangible assets | ||||||||
| Other long-term assets | ||||||||
| Total assets acquired | $ | |||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Total current liabilities assumed | ||||||||
| Long-term debt, net | ||||||||
| Long-term deferred tax liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities assumed | ||||||||
| Consideration transferred | $ | |||||||
| Consideration transferred, net of cash acquired (a) | $ | |||||||
(a) The consideration transferred included approximately $3.9 billion of Teledyne shares issued to existing shareholders of the acquired company. This $3.9 billion of equity consideration is a non-cash transaction. An immaterial portion of the cash consideration for certain vested FLIR restricted stock awards was deferred at the election of the award holder and will be paid out in future periods.
7
During fiscal year 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of FLIR’s non-operating subsidiaries in Sweden. The total taxes, penalties and interest levied by the STA totals SEK 3.1 billion ($351.5 million USD). The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and the reassessment levied significant taxes and penalties. In March 2020, FLIR received an adverse judgment from the First Instance Court of Sweden regarding the STA’s reassessment. FLIR appealed the decision to the Administrative Court of Appeal in Stockholm, Sweden (the “ Appellate Court”). After completing an extensive analysis, including consultation with outside specialists, Teledyne recorded a liability for this uncertain tax position that reflects the most likely outcome for this tax matter under the acquisition method for business combinations in the third quarter of 2021, which is included within Accrued Liabilities on the Condensed Consolidated Balance Sheet. Subsequently, the Appellate Court hearing was held on September 15, 2021 and in the subsequent weeks ending on October 22, 2021, the STA and Teledyne submitted additional arguments in writing, including closing arguments. An adverse tax ruling by the Appellate Court related to a pre-acquisition assessment by the STA against a FLIR subsidiary would materially impact our cash flow.
The Company is in the process of reviewing and identifying acquisition accounting adjustments for a number of acquired tax positions of FLIR that may meet the definition of an acquired uncertain tax position. In addition to the STA matter described above, the Company has preliminarily recorded $51.2 million of provisional purchase accounting adjustments for the accrual of other uncertain tax positions of FLIR. These amounts are included within other Long-Term Liabilities on the Condensed Consolidated Balance Sheet. These preliminary estimates are subject to change as the Company obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period. The final acquisition accounting adjustments for these tax matter may be materially different, as Teledyne obtains additional information on this matter and as additional information is made known during the post-acquisition measurement period.
The following table is a summary at the acquisition date of the acquired intangible assets and weighted average useful life in years for the FLIR acquisition made in 2021 (dollars in millions):
| Intangibles subject to amortization:(a) | Intangible Assets | Weighted average useful life in years | ||||||||||||
| Proprietary technology | $ | |||||||||||||
| Customer list/relationships | ||||||||||||||
| Backlog | ||||||||||||||
| Total intangibles subject to amortization | ||||||||||||||
| Intangibles not subject to amortization:(a) | ||||||||||||||
| Trademarks | ||||||||||||||
| Total acquired intangible assets | $ | |||||||||||||
a) The amounts recorded as of October 3, 2021 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.
With significant operations in the United States, Europe and Canada, FLIR had sales of approximately $1,932.7 million for its fiscal year ended December 31, 2020. FLIR’s results have been included since the date of the acquisition and include $775.0 million in net sales and operating income of $56.6 million, which included $152.5 million in acquisition-related costs for the nine months ended October 3, 2021. The third quarter of 2021, includes $473.6 million in net sales and operating income of $35.2 million, which included $82.3 million in acquisition-related costs.
In connection with the FLIR acquisition, in the third quarter of 2021, Teledyne incurred pretax expenses of $82.6 million, consisting of $45.6 million in acquired intangible asset amortization expense, $35.2 million in acquired inventory step-up expense, recorded to cost of sales and $1.8 million of transaction and integration-related costs, recorded to selling, general and administrative expenses. Of these amounts, $82.3 million impacted Digital Imaging segment’s operating income. In the first nine months of 2021, Teledyne incurred pretax expenses of $259.8 million, consisting of $68.4 million in acquired intangible asset amortization expense, $58.9 million recorded to cost of sales, primarily in acquired inventory step-up expense, and $101.9 million of transaction and integration-related costs, recorded to selling, general and administrative expenses and $30.6 million was recorded to interest and debt expense. Of these amounts, $152.5 million impacted the Digital Imaging segment’s operating income and $76.7 million of transaction and integration-related costs impacted corporate expense.
The unaudited proforma information below, as required by GAAP, assumes that FLIR had been acquired at the beginning of the 2020 fiscal year and includes the effect of transaction accounting adjustments. These adjustments include the financing costs associated with debt to fund the acquisition, amortization of acquired intangible assets, depreciation of the fair value step-up of acquired property, plant and equipment, and amortization of inventory fair value step-up (assumed to be fully amortized in 2020) as well as the issuance of Teledyne common stock in connection with the acquisition. These costs are considered non-recurring costs that were necessary to complete the acquisition and are included in the unaudited pro forma condensed combined statement of operations.
8
This unaudited proforma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the 2020 fiscal year. In addition, the unaudited proforma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.
| Third Quarter (a) | Nine Months (a) | ||||||||||||||||||||||
| (unaudited - in millions, except per share amounts) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per common share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per common share | $ | $ | $ | $ | |||||||||||||||||||
| (a) The above unaudited proforma information is presented for the FLIR acquisition as it is considered a material acquisition. | |||||||||||||||||||||||
Acquisition of the OakGate Technology, Inc.
On January 5, 2020, we acquired OakGate Technology, Inc. (“OakGate”) for $28.5 million in cash, net of cash acquired. Based in Loomis, California, OakGate provides software and hardware designed to test electronic data storage devices from development through manufacturing and end-use applications. OakGate is part of the Test and Measurement product line of the Instrumentation segment. Teledyne funded the acquisition with cash on hand. The results of the OakGate acquisition have been included in Teledyne’s results since the date of the acquisition. Goodwill resulting from the acquisition of OakGate is not deductible for tax purposes.
Goodwill and Acquired Intangible Assets
Teledyne’s goodwill was $7,899.5 million at October 3, 2021 and $2,150.0 million at January 3, 2021. The increase in the balance of goodwill in 2021 related primarily to goodwill recognized in the FLIR acquisition. Teledyne’s net acquired intangible assets were $2,705.2 million at October 3, 2021 and $409.7 million at January 3, 2021. The increase in the balance of net acquired intangible assets primarily reflected the acquired intangible assets acquired in the FLIR acquisition.
| October 3, 2021 | January 3, 2021 | |||||||||||||||||||||||||||||||||||||
Acquired intangible assets (in millions): | Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||||||||||||
| Proprietary technology | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Customer list/relationships | ||||||||||||||||||||||||||||||||||||||
| Patents | ||||||||||||||||||||||||||||||||||||||
| Non-compete agreements | ||||||||||||||||||||||||||||||||||||||
| Trademarks | ||||||||||||||||||||||||||||||||||||||
| Backlog | ||||||||||||||||||||||||||||||||||||||
| Total intangibles subject to amortization | ||||||||||||||||||||||||||||||||||||||
| Intangibles not subject to amortization: | ||||||||||||||||||||||||||||||||||||||
| Trademarks | — | — | ||||||||||||||||||||||||||||||||||||
| Total acquired intangible assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
9
Note 3. Accumulated Other Comprehensive Loss
The changes in AOCI by component, net of tax, for the third quarter and nine months ended October 3, 2021 and September 27, 2020 are as follows (in millions):
| Foreign Currency Translation | Cash Flow Hedges and Other | Pension and Postretirement Benefits | Total | ||||||||||||||||||||
| Balance as of July 4, 2021 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ( | |||||||||||||||||||||
| Net other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Balance as of October 3, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Foreign Currency Translation | Cash Flow Hedges and Other | Pension and Postretirement Benefits | Total | ||||||||||||||||||||
| Balance as of June 28, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||
| Net other comprehensive income | |||||||||||||||||||||||
| Balance as of September 27, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Foreign Currency Translation | Cash Flow Hedges and Other | Pension and Postretirement Benefits | Total | ||||||||||||||||||||
| Balance as of January 3, 2021 | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ( | |||||||||||||||||||||
| Net other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Balance as of October 3, 2021 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Foreign Currency Translation | Cash Flow Hedges and Other | Pension and Postretirement Benefits | Total | ||||||||||||||||||||
| Balance as of December 29, 2019 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive loss before reclassifications | ( | ( | ( | ||||||||||||||||||||
| Amounts reclassified from AOCI | |||||||||||||||||||||||
| Net other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Balance as of September 27, 2020 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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The reclassifications out of AOCI to net income for the third quarter and nine months ended October 3, 2021 and September 27, 2020 are as follows (in millions):
| Amount Reclassified from AOCI for the Three Months Ended | Amount Reclassified from AOCI for the Three Months Ended | Statement of Income | ||||||||||||
| October 3, 2021 | September 27, 2020 | Presentation | ||||||||||||
| (Gain) loss on cash flow hedges: | ||||||||||||||
| Gain recognized in income on derivatives | $ | ( | $ | See Note 4 | ||||||||||
| Income tax impact | ( | Provision for income taxes | ||||||||||||
| Total | $ | ( | $ | |||||||||||
| Amortization of defined benefit pension and postretirement plan items: | ||||||||||||||
| Amortization of prior service cost | $ | ( | $ | ( | Costs and expenses | |||||||||
| Amortization of net actuarial loss | Costs and expenses | |||||||||||||
| Total before tax | ||||||||||||||
| Income tax impact | ( | ( | Provision for income taxes | |||||||||||
| Total | $ | $ | ||||||||||||
Amount Reclassified from AOCI for the Nine Months Ended | Amount Reclassified from AOCI for the Nine Months Ended | Statement of Income | ||||||||||||
| October 3, 2021 | September 27, 2020 | Presentation | ||||||||||||
| (Gain) loss on cash flow hedges: | ||||||||||||||
| (Gain) loss recognized in income on derivatives | $ | ( | $ | See Note 4 | ||||||||||
| Income tax impact | ( | Provision for income taxes | ||||||||||||
| Total | $ | ( | $ | |||||||||||
| Amortization of defined benefit pension and postretirement plan items: | ||||||||||||||
| Amortization of prior service cost | ( | ( | Costs and expenses | |||||||||||
| Amortization of net actuarial loss | Costs and expenses | |||||||||||||
| Total before tax | ||||||||||||||
| Income tax impact | ( | ( | Provision for income taxes | |||||||||||
| $ | $ | |||||||||||||
Note 4. Derivative Instruments
Teledyne transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company’s primary foreign currency risk management objective is to protect the U.S. dollar value of future cash flows and minimize the volatility of reported earnings. The Company utilizes foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenues and expenses denominated in Canadian dollars for our Canadian companies, and in British pounds for our UK companies. These contracts are designated and qualify as cash flow hedges. The Company has also converted U.S. dollar denominated, variable rate and fixed rate obligations into euro fixed rate obligations using a receive float, pay fixed cross currency swap, and a receive fixed, pay fixed cross currency swap. These cross currency swaps are designated as cash flow hedges. In addition the Company has converted domestic U.S. variable rate debt to fixed rate debt using a receive variable, pay fixed interest rate swap. The interest rate swap is also designated as a cash flow hedge.
The effectiveness of the cash flow hedge forward contracts is assessed prospectively and retrospectively using regression analysis as well as using other timing and probability criteria. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges, and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash flow hedge forward contracts’ gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of AOCI in stockholders’ equity until the underlying hedged item is reflected in our condensed consolidated statements of income, at which time the effective amount in AOCI is reclassified to revenue in our condensed consolidated statements of income. Net deferred gains recorded in AOCI,
11
net of tax, for the forward contracts that will mature in the next twelve months total $0.7 million. These gains are expected to be offset by anticipated losses in the value of the forecasted underlying hedged item. Amounts related to the cross currency swaps and interest rate swap expected to be reclassified from AOCI into income in the next twelve months total $1.4 million.
In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges will be reclassified from AOCI to other income or expense. During the current reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified to other income and expense.
As of October 3, 2021, Teledyne had foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars totaling $115.9 million. These foreign currency forward contracts have maturities ranging from December 2021 to February 2023. Teledyne had foreign currency forward contracts designated as cash flow hedges to buy British pounds and to sell U.S. dollars totaling $19.2 million. These foreign currency forward contracts have maturities ranging from December 2021 to November 2022. The cross currency swaps have notional amounts of €113.0 million and $125.0 million, and €135.0 million and $150.0 million, and mature in March 2023 and October 2024, respectively. The interest rate swap has a notional amount of $125.0 million and matures in March 2023.
In addition, Teledyne manages the risk of changes in the fair value of certain monetary liabilities attributable to changes in exchange rates. Teledyne manages these risks by using currency forward contracts formally designated and effective as fair value hedges. Hedge effectiveness is generally determined by evaluating the alignment of the hedging instrument's critical terms with the critical terms of the hedged item. The forward points attributable to the hedging instruments are excluded from the assessment of effectiveness and amortized to other income or expense, net using a systematic and rational methodology. Differences between the change in the fair value of the excluded component and amounts recognized under the systematic and rational method are recognized in other comprehensive income (loss). The change in fair value of the hedging instruments attributable to the hedged risk is reported in the other income or expense, net. The change in fair value of the hedged item attributable to the hedged risk is reported as an adjustment to its carrying value and also in other income or expense, net. At October 3, 2021 Teledyne had no forward contracts designated as fair value hedges.
The effect of derivative instruments designated as cash flow hedges in the condensed consolidated financial statements for the third quarter and nine months ended October 3, 2021 and September 27, 2020 was as follows (in millions):
| Third Quarter | Nine Months | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net gain (loss) recognized in AOCI - Foreign Exchange Contracts (a) | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Net gain (loss) reclassified from AOCI into revenue - Foreign Exchange Contracts (a) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net loss recognized in AOCI - Interest Rate Contracts | $ | ( | $ | ( | ( | $ | ( | ||||||||||||||||
| Net gain (loss) reclassified from AOCI into other income and expense, net - Foreign Exchange Contracts (b) | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Net gain reclassified from AOCI into interest expense - Foreign Exchange Contracts | $ | $ | $ | $ | |||||||||||||||||||
| Net loss reclassified from AOCI into interest expense - Interest Rate Contracts | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(a) Effective portion, pre-tax
(b) Amount reclassified to offset earnings impact of liability hedged by cross currency swap
The effect of derivative instruments designated as fair value hedges in the condensed financial statements for the third quarter and nine months ended October 3, 2021 and September 27, 2020 was as follows (in millions):
| Third Quarter | Nine Months | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Net gain recognized in earnings for effective portion - other income and expense, net - Foreign Exchange Contracts | $ | $ | $ | $ | |||||||||||||||||||
| Net gain recognized in earnings for amounts excluded from effectiveness testing - other income and expense, net - Foreign Exchange Contracts | $ | $ | $ | $ | |||||||||||||||||||
12
Non-Designated Hedging Activities
In addition, the Company utilizes foreign currency forward contracts to mitigate foreign exchange rate risk associated with foreign currency denominated monetary assets and liabilities, including intercompany receivables and payables. As of October 3, 2021, Teledyne had non-designated foreign currency contracts of this type, primarily in the following pairs (in millions):
| Contracts to Buy | Contracts to Sell | |||||||||||||||||||
| Currency | Amount | Currency | Amount | |||||||||||||||||
| Canadian Dollars | $ | U.S. Dollars | US$ | |||||||||||||||||
| Canadian Dollars | $ | Euros | € | |||||||||||||||||
| Great Britain Pounds | £ | U.S. Dollars | US$ | |||||||||||||||||
| Euros | € | U.S. Dollars | US$ | |||||||||||||||||
| Danish Krone | DKR | U.S. Dollars | US$ | |||||||||||||||||
| Swedish Krona | SEK | Euros | € | |||||||||||||||||
| U.S. Dollars | US$ | Swedish Krona | SEK | |||||||||||||||||
| Norwegian Krone | kr | Swedish Krona | SEK | |||||||||||||||||
The preceding table includes non-designated hedges derived from terms contained in triggered or previously designated cash flow hedges. The gains and losses on these derivatives which are not designated as hedging instruments are intended to, at a minimum, partially offset the transaction gains and losses recognized in earnings. Teledyne does not use foreign currency forward contracts for speculative or trading purposes.
The effect of derivative instruments not designated as cash flow hedges recognized in other income and expense for the third quarter and nine months ended October 3, 2021 was expense of $11.7 million and expense of $16.5 million, respectively. The effect of derivative instruments not designated as cash flow hedges in other income and expense for the third quarter and nine months ended September 27, 2020 was income of $3.0 million and expense of $5.5 million, respectively. The income or expense was largely offset by losses or gains in the value of the underlying hedged item excluding the impact of forward points.
Fair Value of Derivative Financial Instruments
The Company has elected to use the income approach to value the derivatives, using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR and EURIBOR) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR and EURIBOR cash and swap rates, foreign currency forward rates and cross currency basis spreads). Mid-market pricing is used as a practical expedient for fair value measurements. The fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness when in an asset position and the Company’s creditworthiness when in a liability position has also been factored into the fair value measurement of the derivative instruments and did not have a material impact on the fair value of these derivative instruments. Both the counterparty and the Company are expected to continue to perform under the contractual terms of the instruments.
13
| Asset/(Liability) Derivatives | Balance sheet location | October 3, 2021 | January 3, 2021 | ||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||
| Cash flow forward contracts | Other current assets | $ | $ | ||||||||||||||
| Cash flow cross currency swap | Other current assets | ||||||||||||||||
| Cash flow forward contracts | Accrued liabilities | ( | |||||||||||||||
| Cash flow cross currency swap | Other long-term liabilities | ( | ( | ||||||||||||||
| Interest rate contracts | Other long-term liabilities | ( | ( | ||||||||||||||
| Interest rate contracts | Accrued liabilities | ( | ( | ||||||||||||||
| Total derivatives designated as hedging instruments | ( | ( | |||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Non-designated forward contracts | Other current assets | ||||||||||||||||
| Non-designated forward contracts | Accrued liabilities | ( | ( | ||||||||||||||
| Total derivatives not designated as hedging instruments | ( | ||||||||||||||||
| Total derivatives, net | $ | ( | $ | ( | |||||||||||||
Note 5. Earnings Per Share
| Third Quarter | Nine Months | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Weighted average basic common shares outstanding | |||||||||||||||||||||||
| Effect of dilutive securities (primarily stock options) | |||||||||||||||||||||||
| Weighted average diluted common shares outstanding | |||||||||||||||||||||||
Note 6. Stock-Based Compensation Plans
Teledyne has long-term incentive plans pursuant to which it has granted non-qualified stock options, restricted stock and performance shares to certain employees. The Company also has non-employee Board of Director stock compensation plans, pursuant to which common stock, stock options and restricted stock units have been issued to its directors.
Stock Incentive Plan
Stock option compensation expense was $5.8 million for the third quarter of 2021 and was $5.7 million for the third quarter of 2020. Stock option compensation expense was $13.6 million for the first nine months of 2021 and was $18.8 million for the first nine months of 2020. Employee stock option grants are charged to expense evenly over the three year vesting period except for stock options granted after 2018 to Teledyne’s current Chairman, President and Chief Executive Officer and Teledyne’s former President and Chief Executive Officer, which are expensed immediately. For 2021, the Company currently expects approximately $20.5 million in stock option compensation. This amount can be impacted by employee retirements and terminations or stock options granted during the remainder of the year. The Company issues shares of common stock upon the exercise of stock options.
14
The following assumptions were used in the valuation of the stock options granted in 2021:
| 2021 | ||||||||
| Expected volatility | % | |||||||
| Risk-free interest rate range | ||||||||
| Expected life in years | ||||||||
| Expected dividend yield | ||||||||
Based on the assumptions used in the valuation of stock options, the weighted average grant date fair value of stock options granted in the first nine months of 2021 was $135.59 per share.
| 2021 | ||||||||||||||||||||||||||
| Third Quarter | Nine Months | |||||||||||||||||||||||||
| Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | |||||||||||||||||||||||
| Beginning balance | $ | $ | ||||||||||||||||||||||||
| Granted | $ | $ | ||||||||||||||||||||||||
| Exercised | ( | $ | ( | $ | ||||||||||||||||||||||
| Canceled | ( | $ | ( | $ | ||||||||||||||||||||||
| Ending balance | $ | $ | ||||||||||||||||||||||||
| Exercisable at end of period | $ | $ | ||||||||||||||||||||||||
Performance Share Plan
In the first quarter of 2018, the performance cycle for the three-year period ending December 31, 2020, was set. Under the plan and based on actual performance, Teledyne issued 9,588 shares of its common stock in the first quarter 2021. A total of 35,033 shares remain to be issued in two equal installments in 2022 and 2023.
Restricted Stock Award Program
| Shares | Weighted average fair value per share | ||||||||||
| Balance, January 3, 2021 | $ | ||||||||||
| Granted (includes restricted stock units converted in connection with the FLIR acquisition) | $ | ||||||||||
| Vested | ( | $ | |||||||||
| Forfeited/Canceled | ( | $ | |||||||||
| Balance, October 3, 2021 | $ | ||||||||||
Note 7. Inventories
15
| Balance at | |||||||||||
| Inventories (in millions): | October 3, 2021 | January 3, 2021 | |||||||||
| Raw materials and supplies | $ | $ | |||||||||
| Work in process | |||||||||||
| Finished goods | |||||||||||
| Reduction to LIFO cost basis | ( | ( | |||||||||
| Total inventories, net | $ | $ | |||||||||
Note 8. Customer Contracts
Estimate at Completion Process
For over time contracts using the cost-to-cost method, we have an Estimate at Completion (“EAC”) process in which management reviews the progress and execution of our performance obligations. This EAC process requires management judgment relative to assessing risks, estimating contract revenue and cost, and making assumptions for schedule and technical issues. Since certain contracts extend over multiple reporting periods, the impact of revisions in cost and revenue estimates during the progress of work may adjust the current period earnings through a cumulative catch-up basis. This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters. Additionally, if the current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract cost and revenue estimates for significant contracts are reviewed and reassessed quarterly. The majority of revenue recognized over time uses an EAC process. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first nine months of 2021 was approximately $16.9 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging segment. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first nine months of 2020 was approximately $16.6 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging operating segment. None of the effects of changes in estimates on any individual contract were material to the condensed consolidated statements of income for any period presented.
Contract Liabilities
We recognize a liability for interim and advance payments in excess of revenue recognized and present it as a contract liability which is included within accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet, which represented $184.8 million and $25.4 million as of October 3, 2021, and $160.1 million and $14.0 million as of January 3, 2021, respectively. The increase in contract liabilities from the beginning of the year primarily related to contract liabilities acquired as part of the acquisition of FLIR.
The Company recognized revenue of $98.8 million during the nine months ended October 3, 2021 from contract liabilities that existed at the beginning of year. The Company recognizes the incremental costs of obtaining or fulfilling a contract as expense when incurred if the amortization period of the asset is one year or less. Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.
Remaining Performance Obligations
Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity). As of October 3, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,105.4 million. The Company expects approximately 80 % of remaining performance obligations to be recognized into revenue within the next twelve months , with the remaining 20 % recognized thereafter.
Product Warranty Costs
Some of the Company’s products are subject to specified warranties, and the Company provides for the estimated cost of product warranties. The adequacy of the warranty reserve is assessed regularly, and the reserve is adjusted as necessary based on a review of historic warranty experience with respect to the applicable business or products, as well as the length and actual terms of the warranties. The warranty reserve is included in current and long-term accrued liabilities on the Condensed
16
Consolidated Balance Sheet.
| Nine Months | |||||||||||
| Warranty Reserve (in millions): | 2021 | 2020 | |||||||||
| Balance at beginning of year | $ | $ | |||||||||
| Accruals for product warranties charged to expense and other | |||||||||||
| Cost of product warranty claims | ( | ( | |||||||||
| Acquisition | |||||||||||
| Balance at end of period | $ | $ | |||||||||
Accounts Receivable, net
Note 9. Income Taxes
The income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which the Company operates. However, losses in certain jurisdictions and discrete items, such as the resolution of uncertain tax positions, are treated separately.
The Company’s effective income tax rate for the third quarter and first nine months of 2021 was 20.1 % and 21.5 %, respectively. The Company’s effective income tax rate for the third quarter and first nine months of 2020 was 21.5 % and 17.9 %, respectively. The third quarter of 2021 includes net discrete income tax benefits of $6.3 million and the first nine months of 2021 includes net discrete income tax benefit of $8.5 million. The third quarter and nine months of 2021 net discrete income tax amounts include $3.0 million and $9.9 million, respectively, related to share-based accounting. The third quarter and nine months of 2021 net discrete income tax amounts also include income tax benefits of $4.9 11.5 million expense related to foreign tax rate changes and a $5.3 million income tax benefit related to the release of a valuation allowance. The foreign tax rate changes are a result of the United Kingdom Parliament enacting legislation to increase the corporate tax rate to 25% effective April 2023. The third quarter and first nine months of 2020 includes net discrete income tax benefits of $1.2 million and $15.8 million, respectively. The third quarter and nine months of 2020 net discrete tax benefits include $0.7 million and $15.2 million, respectively, related to share-based accounting. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.9 22.5 % for the third quarter of 2020 and 22.7 % for the first nine months of 2020.
17
Note 10. Long-Term Debt and Letters of Credit
| Balance at | |||||||||||
| Long-Term Debt (in millions): | October 3, 2021 | January 3, 2021 | |||||||||
$ | $ | $ | |||||||||
Term loan due October 2024, variable rate of | |||||||||||
Term loan due May 2026, variable rate of | |||||||||||
| Other debt | |||||||||||
| Debt discount and debt issuance costs | ( | ( | |||||||||
| Total debt, net | |||||||||||
| Less: current portion of long-term debt and other debt | ( | ||||||||||
| Total long-term debt, net of current portion | $ | $ | |||||||||
In the first quarter of 2021, Teledyne completed various financing activities related to the acquisition of FLIR and incurred related interest and debt expense totaling $33.1 million. These activities included entering into a $4.5 billion short term stand-by bridge facility on January 4, 2021, as required by the definitive agreement, resulting in debt expense of $17.2 million. In addition, on March 17, 2021 Teledyne called $493.3 million of existing fixed rate senior notes and incurred debt extinguishment expenses of $13.4 million, which is included in interest and debt expense, net. On March 22, 2021, Teledyne completed all permanent financing for the acquisition of FLIR. The permanent financing consists of $3.0 billion investment-grade bonds (the “Notes”), including $300.0 million aggregate principal amount of 0.65 % Notes due 2023, $450.0 million aggregate principal amount of 0.95 % Notes due 2024, $450.0 million aggregate principal amount of 1.60 % Notes due 2026, $700.0 million aggregate principal amount of 2.25 % Notes due 2028 and $1.1 billion aggregate principal amount of 2.75 % Notes due 2031. We may redeem the $450.0 million of 0.95 % Notes due 2024 at any time or from time to time, in whole or in part, at the Company’s option, from and after April 1, 2022, at a redemption price equal to 100 % of the principal amount of the Notes redeemed. In addition, we guaranteed FLIR’s $500.0 million, 2.50 % Fixed Rate Senior Notes due August 2030. Previously on March 4, 2021, Teledyne entered into a $1.0 billion Term Loan Credit Agreement (maturing May 2026) and an Amended and Restated Credit Agreement (maturing March 2026) with capacity of $1.15 billion. The terms of the $1.0 billion Term Loan Credit Agreement allow for prepayments, at the Company’s option, at any time or from time to time, in whole or in part without premium or penalty. As a result of the completion of the permanent debt financing, on March 22, 2021 Teledyne terminated the $4.5 billion stand-by bridge facility. Teledyne used the proceeds from the Notes together with the proceeds from the $1.0 billion Term Loan Credit Agreement and cash on hand to pay the cash portion of the consideration for the FLIR acquisition and refinance certain existing debt. In the third quarter of 2021, Teledyne repaid $300.0 million against the Term Loan Credit Agreement due May 2026. In October 2021, Teledyne amended its Amended and Restated Credit Agreement and its 2019 Term Loan due October 2024 to adopt LIBOR replacement language and to refine pricing terms under the 2019 Term Loan.
At October 3, 2021, $751.1 million was available under the $1.15 billion credit facility, after reductions of $125.0 million in borrowings and $273.9 million in outstanding letters of credit. The outstanding letters of credit include a $253.6 million letter of credit to the STA, related to a disputed 2018 tax reassessment issued to a FLIR subsidiary in Sweden.
18
Note 11. Lease Commitments
Note 12. Lawsuits, Claims, Commitments, Contingencies and Related Matters
For a further description of the Company’s commitments and contingencies, reference is made to Note 14 of the Company’s financial statements as of and for the fiscal year ended January 3, 2021, included in the 2020 Form 10-K.
At October 3, 2021, the Company’s reserves for environmental remediation obligations totaled $6.5 million, of which $1.8 million is included in current accrued liabilities. At January 3, 2021, the Company’s reserves for environmental remediation obligations totaled $6.5 million. The Company evaluates whether it may be able to recover a portion of future costs for environmental liabilities from its insurance carriers and from third parties. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years and will complete remediation of all sites with which it has been identified in up to 30 years.
On April 24, 2018, FLIR entered into a Consent Agreement with the United States Department of State’s Directorate of Defense Trade Controls (“DDTC”) to resolve allegations regarding the unauthorized export of technical data and defense services to dual and third country nationals in certain of FLIR’s facilities, the failure to properly use and manage export licenses and export authorizations, and failures to report certain payments under 22 CFR Part 130 in potential violation of ITAR. The Consent Agreement has a four-year term and provides for: (i) a civil penalty of $30.0 million with $15.0 million of this amount suspended on the condition that the funds have or will be used for Department-approved Consent Agreement remedial compliance measures, (ii) the appointment of an external Special Compliance Official to oversee compliance with the Consent Agreement and the ITAR; (iii) two external audits of our ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training. While FLIR has enhanced its trade compliance program more broadly, implemented and continues to implement remedial measures and has undergone its first external audit and just concluded its second external audit of FLIR’s ITAR compliance program, adverse disclosures and findings could materially cause incurrence of additional expenses in connection with implementation of remedial measures and result in a substantial adjustment to our revenue and net income. As of October 3, 2021, FLIR has $3.5 million remaining to be paid under the Consent Agreement. FLIR’s investments to date in remedial compliance measures have been more than sufficient to cover the $15.0 million suspension amount.
In June 2017, the Bureau of Industry and Security (“BIS”) of the United States Department of Commerce informed FLIR of additional export licensing requirements that restricted the FLIR’s ability to sell certain thermal products without a license to customers in China not identified on a list maintained by the United States Department of Commerce. This action was precipitated by concerns of sale without a license or potential diversion of some of FLIR’s products to prohibited end users and to countries subject to economic and other sanctions implemented by the United States. BIS subsequently favorably modified these restrictions to reduce the applicability of the restrictions to sales of FLIR's Tau camera cores (as opposed to finished products containing Tau camera cores) to customers in China not identified on a list maintained by the United States Department of Commerce and persons in a country other than those in the Export Administration Regulations (“EAR”) Country Group A:5 (Supplement No. 1 to Part 740 of the EAR). FLIR has identified certain shipments that potentially violate these license requirements and voluntary disclosed this matter to BIS.
In April 2021, FLIR resolved allegations of misrepresentations made to BIS, between November 2012 and December 2013, in a commodity jurisdiction request relating to newly developed Lepton uncooled focal plane arrays by an administrative settlement and fine of $0.3 million and agreeing to perform two internal audits of its EAR export compliance programs. The first internal audit has been completed and another voluntary disclosure has been filed to report potential violations.
FLIR has made other voluntary disclosures to the U.S. Department of State and U.S. Department of Commerce, including to BIS with respect to the shipments of products from non-U.S. jurisdictions which were not licensed due to incorrect de minimis calculation methodology. If FLIR is found to have violated applicable rules and regulations with respect to customers and limitations on the export and end use of its products, FLIR could be subject to substantial fines and penalties, suspension of existing licenses or other authorizations and/or loss or suspension of export privileges.
At this time, based on available information, we are unable to reasonably estimate the time it may take to resolve these matters or the amount or range of potential loss, penalty or other government action, if any, that may be incurred in connection with these matters. However, an unfavorable outcome could result in substantial fines and penalties or loss or suspension of export privileges or of particular authorizations that could be material to the Company’s financial position, results of operations or cash flows in and following the period in which such an outcome becomes estimable or known.
19
No adjustments have been made for the FLIR historical export compliance matters in Teledyne’s current preliminary estimates of its purchase price allocation. The final acquisition accounting adjustments for these matters may be materially different, as Teledyne obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period.
See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding FLIR historical tax matters that existed at the date of the acquisition, including the Swedish Tax Authority's reassessment of tax for the year ending December 31, 2012 related to one of FLIR’s non-operating subsidiaries in Sweden.
Note 13. Pension Plans and Postretirement Benefits
| Third Quarter | Nine Months | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Service cost — benefits earned during the period (in millions) | $ | $ | $ | $ | |||||||||||||||||||
| Pension non-service income (in millions): | |||||||||||||||||||||||
| Interest cost on benefit obligation | $ | $ | $ | $ | |||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of prior service cost | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of net actuarial loss | |||||||||||||||||||||||
| Curtailment/settlements | |||||||||||||||||||||||
| Pension non-service income | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Note 14. Segment Information
Teledyne is a leading provider of sophisticated digital imaging products and software, instrumentation, aerospace and defense electronics, and engineered systems. Our customers include government agencies, aerospace prime contractors, energy exploration and production companies, major industrial companies and airlines. The Company has four reportable segments: Digital Imaging; Instrumentation; Aerospace and Defense Electronics; and Engineered Systems.
Segment results includes net sales and operating income by segment but excludes non-service retirement benefit income, equity income or loss, unusual non-recurring legal matter settlements, interest income and expense, gains and losses on the disposition of assets, sublease rental income and non-revenue licensing and royalty income, domestic and foreign income taxes and corporate office expenses. Corporate expense includes various administrative expenses relating to the corporate office and certain non-operating expenses, including certain acquisition-related transaction costs, not allocated to our segments.
On May 14, 2021, the Company completed the acquisition of FLIR. The financial results of FLIR have been included since the date of the acquisition and are part of the Digital Imaging segment. See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding the FLIR acquisition.
As part of a continuing effort to reduce costs and improve operating performance, as well as to respond to the impact of COVID, beginning in 2020, the Company took actions to reduce headcount across various businesses, reducing our exposure to weak end markets, such as commercial aerospace. Teledyne incurred $1.3 million and $26.4 million in expense related to these actions, including facility consolidation expense, for the third quarter and first nine months of 2021 respectively, compared with $3.3 million and $15.1 million for the third quarter and first nine months of 2020, respectively. The third quarter and first nine months of 2021 includes $0.5 million and $23.7 million, respectively, related to FLIR. At October 3, 2021, Teledyne had a liability of less than $1.0 million included in other current liabilities related to these actions.
20
The following table presents Teledyne’s segment disclosures (dollars in millions):
| Third Quarter | % | Nine Months | % | ||||||||||||||||||||||||||||||||
| 2021 | 2020 | Change | 2021 | 2020 | Change | ||||||||||||||||||||||||||||||
| Net sales(a): | |||||||||||||||||||||||||||||||||||
| Digital Imaging (b) | $ | $ | % | $ | $ | % | |||||||||||||||||||||||||||||
| Instrumentation | % | % | |||||||||||||||||||||||||||||||||
| Aerospace and Defense Electronics | % | % | |||||||||||||||||||||||||||||||||
| Engineered Systems | % | % | |||||||||||||||||||||||||||||||||
| Total net sales | $ | $ | % | $ | $ | % | |||||||||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||||||||||||||
| Digital Imaging (b) | $ | $ | % | $ | $ | % | |||||||||||||||||||||||||||||
| Instrumentation | % | % | |||||||||||||||||||||||||||||||||
| Aerospace and Defense Electronics | % | % | |||||||||||||||||||||||||||||||||
| Engineered Systems | ( | % | % | ||||||||||||||||||||||||||||||||
| Corporate expense (c) | ( | ( | % | ( | ( | % | |||||||||||||||||||||||||||||
| Operating income | $ | $ | % | $ | $ | % | |||||||||||||||||||||||||||||
(a) Net sales excludes inter-segment sales of $ | |||||||||||||||||||||||||||||||||||
(b) On May 14, 2021, the Company completed the acquisition of FLIR, and the 2021 financial results of FLIR have been included since the date of the acquisition. The third quarter and first nine months of 2021 include $ | |||||||||||||||||||||||||||||||||||
(c) Corporate expense for the third quarter and first nine months of 2021 includes $ | |||||||||||||||||||||||||||||||||||
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 (in millions):
| Identifiable assets: | October 3, 2021 | January 3, 2021 | ||||||||||||
| Digital Imaging (a) | $ | $ | ||||||||||||
| Instrumentation | ||||||||||||||
| Aerospace and Defense Electronics | ||||||||||||||
| Engineered Systems | ||||||||||||||
| Corporate | ||||||||||||||
| Total identifiable assets | $ | $ | ||||||||||||
Product Lines
The Instrumentation segment includes three product lines: Marine Instrumentation, Environmental Instrumentation and Test and Measurement Instrumentation. Teledyne’s other three segments each contain one
| Third Quarter | Nine Months | ||||||||||||||||||||||
| Instrumentation | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Marine Instrumentation | $ | $ | $ | $ | |||||||||||||||||||
| Environmental Instrumentation | |||||||||||||||||||||||
| Test and Measurement Instrumentation | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
21
Third Quarter Ended October 3, 2021 | Nine Months Ended October 3, 2021 | |||||||||||||||||||||||||||||||||||||
| Customer Type | Customer Type | |||||||||||||||||||||||||||||||||||||
| (in millions) | United States Government (a) | Other, Primarily Commercial | Total | United States Government (a) | Other, Primarily Commercial | Total | ||||||||||||||||||||||||||||||||
| Net Sales: | ||||||||||||||||||||||||||||||||||||||
| Digital Imaging | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Instrumentation | ||||||||||||||||||||||||||||||||||||||
| Aerospace and Defense Electronics | ||||||||||||||||||||||||||||||||||||||
| Engineered Systems | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| (a) Includes sales as a prime contractor or subcontractor. | ||||||||||||||||||||||||||||||||||||||
Third Quarter Ended October 3, 2021 | Nine Months Ended October 3, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Geographic Region (a) | Geographic Region (a) | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | United States | Europe | All other | Total | United States | Europe | All other | Total | ||||||||||||||||||||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Digital Imaging | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Instrumentation | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Aerospace and Defense Electronics | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Engineered Systems | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| (a) Net sales by geographic region of origin. | ||||||||||||||||||||||||||||||||||||||||||||||||||
Third Quarter Ended September 27, 2020 | Nine Months Ended September 27, 2020 | |||||||||||||||||||||||||||||||||||||
| Customer Type | Customer Type | |||||||||||||||||||||||||||||||||||||
| (in millions) | United States Government (a) | Other, Primarily Commercial | Total | United States Government (a) | Other, Primarily Commercial | Total | ||||||||||||||||||||||||||||||||
| Net Sales: | ||||||||||||||||||||||||||||||||||||||
| Digital Imaging | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Instrumentation | ||||||||||||||||||||||||||||||||||||||
| Aerospace and Defense Electronics | ||||||||||||||||||||||||||||||||||||||
| Engineered Systems | ||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| (a) Includes sales as a prime contractor or subcontractor. | ||||||||||||||||||||||||||||||||||||||
| Third Quarter Ended September 27, 2020 | Nine Months Ended September 27, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Geographic Region (a) | Geographic Region (a) | |||||||||||||||||||||||||||||||||||||||||||||||||
| (in millions) | United States | Europe | All other | Total | United States | Europe | All other | Total | ||||||||||||||||||||||||||||||||||||||||||
| Net sales: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Digital Imaging | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Instrumentation | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Aerospace and Defense Electronics | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Engineered Systems | ||||||||||||||||||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| (a) Net sales by geographic region of origin. | ||||||||||||||||||||||||||||||||||||||||||||||||||
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Teledyne Technologies Incorporated (“Teledyne” or the “Company”) provides enabling technologies for industrial growth markets that require advanced technology and high reliability. These markets include aerospace and defense, factory automation, air and water quality environmental monitoring, electronics design and development, oceanographic research, deepwater oil and gas exploration and production, medical imaging and pharmaceutical research. Our products include digital imaging sensors, cameras and systems within the visible, infrared and X-ray spectra, monitoring and control instrumentation for marine and environmental applications, harsh environment interconnects, electronic test and measurement equipment, aircraft information management systems, and defense electronics and satellite communication subsystems. We also supply engineered systems for defense, space, environmental and energy applications. We differentiate ourselves from many of our direct competitors by having a customer and Company-sponsored applied research center that augments our product development expertise. 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.
Strategy/Overview
Our strategy continues to emphasize growth in our core markets of digital imaging, instrumentation, aerospace and defense electronics and engineered systems. Our core markets are characterized by high barriers to entry and include specialized products and services not likely to be commoditized. We intend to strengthen and expand our core businesses with targeted acquisitions and through product development. We continue to focus on balanced and disciplined capital deployment among capital expenditures, acquisitions and product development. We aggressively pursue operational excellence to continually improve our margins and earnings by emphasizing cost containment and cost reductions in all aspects of our business. At Teledyne, operational excellence includes the rapid integration of the businesses we acquire. Using complementary technology across our businesses and internal research and development, we seek to create new products to grow our Company and expand our addressable markets. We continue to evaluate our businesses to ensure that they are aligned with our strategy.
In connection with this strategy, on May 14, 2021, Teledyne completed the acquisition of FLIR Systems, Inc. (“FLIR”), our largest acquisition to date, in a cash and stock transaction valued at approximately $8.1 billion, comprising of net cash payments of $3.7 billion, $3.9 billion of Teledyne shares issued to existing FLIR shareholders, and the assumption of FLIR debt of $0.5 billion. As a combined company, we uniquely provide a full spectrum of imaging technologies and products spanning X-ray through infrared and from components to complete imaging systems. We also provide a complete range of unmanned systems and imaging payload across all domains ranging from deep sea to deep space. FLIR is part of the Digital Imaging segment. The results of the FLIR acquisition have been included in Teledyne’s results since the date of the acquisition.
FLIR Acquisition and Debt Activities
FLIR stockholders received $28.00 per share in cash and 0.0718 shares of Teledyne common stock for each FLIR share. In the first quarter of 2021, Teledyne completed various financing activities related to the acquisition of FLIR. These activities included entering into a $4.5 billion short term stand-by bridge facility on January 4, 2021, as required by the definitive agreement, resulting in debt expense of $17.2 million. In addition, on March 17, 2021 Teledyne called $493.3 million of existing fixed rate senior notes and incurred debt extinguishment expenses of $13.4 million, which is included in interest and debt expense, net. On March 22, 2021, Teledyne completed all permanent financing for the acquisition of FLIR and terminated the $4.5 billion stand-by bridge facility. The permanent financing consists of $3.0 billion investment-grade bonds (the “Notes”), including $300.0 million aggregate principal amount of 0.65% Notes due 2023, $450.0 million aggregate principal amount of 0.95% Notes due 2024, $450.0 million aggregate principal amount of 1.60% Notes due 2026, $700.0 million aggregate principal amount of 2.25% Notes due 2028 and $1.1 billion aggregate principal amount of 2.75% Notes due 2031. Teledyne may redeem the $450.0 million of 0.95% Notes due 2024 at any time or from time to time, in whole or in part, at the Company’s option, from and after April 1, 2022, at a redemption price equal to 100% of the principal amount of the Notes redeemed. In addition, we guaranteed FLIR’s $500.0 million, 2.50% Fixed Rate Senior Notes due August 2030. Previously on March 4, 2021, Teledyne entered into a $1.0 billion Term Loan Credit Agreement (maturing May 2026) and an Amended and Restated Credit Agreement (maturing March 2026) with capacity of $1.15 billion. The terms of the $1.0 billion Term Loan Credit Agreement allow for prepayments, at the Company’s option, at any time or from time to time, in whole or in part without premium or penalty. Teledyne used the proceeds from the Notes together with the proceeds from the $1.0 billion Term Loan Credit Agreement and cash on hand to pay the cash portion of the consideration for the FLIR acquisition and refinance certain existing debt. In the third quarter of 2021, Teledyne repaid $300.0 million against the Term Loan Credit Agreement due March 2026.
23
At October 3, 2021, total debt was $4,441.7 million, compared with total debt of $778.5 million at January 3, 2021. The debt balance at October 3, 2021, includes the debt incurred to fund the cash portion of the consideration for the FLIR acquisition. At October 3, 2021, $751.1 million was available under the $1.150 billion credit facility, after reductions of $125.0 million in borrowings and $273.9 million in outstanding letters of credit. The outstanding letters of credit include a $253.6 million letter of credit to the Swedish Tax Authority (“STA”), related to a disputed 2018 tax reassessment issued to a FLIR subsidiary in Sweden.
COVID and Other Challenges
The safety and health of our employees is of utmost importance to Teledyne. Since the COVID-19 vaccination was made available to the public, Teledyne has encouraged voluntary vaccination efforts for its U.S. workforce by providing paid time off to receive the vaccine and, where possible, enlisting local healthcare providers to be onsite to administer the vaccine. Some of our businesses hold U.S. Government contracts subject to a new U.S. Executive Order mandating COVID vaccinations for government contractor employees at certain covered sites. We are taking steps to comply with this mandate at applicable workplaces.
As part of a continuing effort to reduce costs and improve operating performance, as well as to respond to the impact of COVID, beginning in 2020, the Company took actions to reduce headcount across various businesses, reducing our exposure to weak end markets, such as commercial aerospace.
While no company is immune to global economic challenges, Teledyne's business portfolio is well-balanced across end markets and geographies, and includes a high degree of businesses serving critical infrastructure sectors such as the defense industrial base, water and wastewater, and healthcare and public health. However, the continuing dynamic nature of this situation, including on the global supply chain and workforces, as well as inflationary trends, the Company may not fully estimate the impacts of COVID on its financial condition, results of operations or cash flows.
We have experienced supply chain challenges, including increased lead times, as well as cost inflation for parts and components, logistics and labor due to availability constraints and high demand. We expect the inflationary and supply chain constraint trends to continue throughout the remainder of 2021 and may continue thereafter.
2020 Acquisition of OakGate Technology, Inc.
On January 5, 2020, we acquired OakGate Technology, Inc. (“OakGate”) for $28.5 million in cash, net of cash acquired. Based in Loomis, California, OakGate provides software and hardware designed to test electronic data storage devices from development through manufacturing and end-use applications. OakGate is part of the Test and Measurement product line within the Instrumentation segment. Teledyne funded the acquisition with cash on hand. The results of the OakGate acquisition have been included in Teledyne’s results since the date of the acquisition.
Results of Operations
| Third Quarter | Nine Months | ||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net sales | $ | 1,311.9 | $ | 749.0 | $ | 3,238.6 | $ | 2,276.9 | |||||||||||||||
| Costs and expenses | |||||||||||||||||||||||
| Cost of sales | 787.7 | 458.5 | 1,943.3 | 1,411.7 | |||||||||||||||||||
| Selling, general and administrative expenses (a) | 279.3 | 158.1 | 768.2 | 499.7 | |||||||||||||||||||
| Acquired intangible asset amortization (a) | 55.3 | 9.9 | 97.9 | 29.2 | |||||||||||||||||||
| Total costs and expenses | 1,122.3 | 626.5 | 2,809.4 | 1,940.6 | |||||||||||||||||||
| Operating income | 189.6 | 122.5 | 429.2 | 336.3 | |||||||||||||||||||
| Interest and debt expense, net | (23.8) | (4.1) | (80.7) | (11.9) | |||||||||||||||||||
| Non-service retirement benefit income | 2.8 | 3.2 | 8.4 | 8.9 | |||||||||||||||||||
| Other income (expense), net | (0.7) | (1.9) | 4.4 | (4.7) | |||||||||||||||||||
| Income before income taxes | 167.9 | 119.7 | 361.3 | 328.6 | |||||||||||||||||||
| Provision for income taxes | 33.8 | 25.8 | 77.8 | 58.8 | |||||||||||||||||||
| Net income | $ | 134.1 | $ | 93.9 | $ | 283.5 | $ | 269.8 | |||||||||||||||
(a) Acquired intangible asset amortization was previously included in selling, general and administrative expenses. Prior period amounts have been reclassified to conform to the current presentation.
24
| Third Quarter | % | Nine Months | % | ||||||||||||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||||
| Net sales (a): | |||||||||||||||||||||||||||||||||||
| Digital Imaging (b) | $ | 760.6 | $ | 239.7 | 217.3 | % | $ | 1,603.4 | $ | 724.0 | 121.5 | % | |||||||||||||||||||||||
| Instrumentation | 287.1 | 263.5 | 9.0 | % | 864.7 | 811.7 | 6.5 | % | |||||||||||||||||||||||||||
Aerospace and Defense Electronics | 161.8 | 144.8 | 11.7 | % | 465.4 | 444.2 | 4.8 | % | |||||||||||||||||||||||||||
| Engineered Systems | 102.4 | 101.0 | 1.4 | % | 305.1 | 297.0 | 2.7 | % | |||||||||||||||||||||||||||
| Total net sales | $ | 1,311.9 | $ | 749.0 | 75.2 | % | $ | 3,238.6 | $ | 2,276.9 | 42.2 | % | |||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||||||||||||||
| Digital Imaging (b) | $ | 94.9 | $ | 45.5 | 108.6 | % | $ | 231.5 | $ | 136.1 | 70.1 | % | |||||||||||||||||||||||
| Instrumentation | 63.0 | 50.7 | 24.3 | % | 187.0 | 150.0 | 24.7 | % | |||||||||||||||||||||||||||
Aerospace and Defense Electronics | 35.9 | 26.7 | 34.5 | % | 92.6 | 57.6 | 60.8 | % | |||||||||||||||||||||||||||
| Engineered Systems | 11.5 | 12.5 | (8.0) | % | 37.4 | 34.7 | 7.8 | % | |||||||||||||||||||||||||||
| Corporate expense (c) | (15.7) | (12.9) | 21.7 | % | (119.3) | (42.1) | 183.4 | % | |||||||||||||||||||||||||||
| Total operating income | $ | 189.6 | $ | 122.5 | 54.8 | % | $ | 429.2 | $ | 336.3 | 27.6 | % | |||||||||||||||||||||||
| (a) Net sales excludes inter-segment sales of $5.4 million and $14.7 million for the third quarter and first nine months of 2021, respectively, and $5.6 million and $18.0 million for the third quarter and nine months of 2020, respectively. | |||||||||||||||||||||||||||||||||||
(b) On May 14, 2021, the Company completed the acquisition of FLIR, and the 2021 financial results of FLIR have been included since the date of the acquisition. The third quarter and first nine months of 2021 include $473.6 million and $775.0 million, respectively in incremental net sales from FLIR. The third quarter and first nine months of 2021 includes $82.3 million and $152.5 million, respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. | |||||||||||||||||||||||||||||||||||
(c) Corporate expense for the third quarter and first nine months of 2021 includes $0.3 million and $76.7 million, respectively, in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. | |||||||||||||||||||||||||||||||||||
The table below presents net sales and cost of sales by segment and total company:
| Third Quarter | Nine Months | ||||||||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Digital Imaging | |||||||||||||||||||||||||||||
| Net sales | $ | 760.6 | $ | 239.7 | $ | 1,603.4 | $ | 724.0 | |||||||||||||||||||||
| Cost of sales | $ | 449.3 | $ | 139.0 | $ | 931.8 | $ | 420.3 | |||||||||||||||||||||
| Cost of sales as a % of net sales | 59.1 | % | 58.0 | % | 58.2 | % | 58.1 | % | |||||||||||||||||||||
| Instrumentation | |||||||||||||||||||||||||||||
| Net sales | $ | 287.1 | $ | 263.5 | $ | 864.7 | $ | 811.7 | |||||||||||||||||||||
| Cost of sales | $ | 150.7 | $ | 147.0 | $ | 460.0 | $ | 452.3 | |||||||||||||||||||||
| Cost of sales as a % of net sales | 52.5 | % | 55.8 | % | 53.2 | % | 55.7 | % | |||||||||||||||||||||
| Aerospace and Defense Electronics | |||||||||||||||||||||||||||||
| Net sales | $ | 161.8 | $ | 144.8 | $ | 465.4 | $ | 444.2 | |||||||||||||||||||||
| Cost of sales | $ | 103.1 | $ | 90.6 | $ | 302.6 | $ | 297.8 | |||||||||||||||||||||
| Cost of sales as a % of net sales | 63.7 | % | 62.6 | % | 65.0 | % | 67.0 | % | |||||||||||||||||||||
| Engineered Systems | |||||||||||||||||||||||||||||
| Net sales | $ | 102.4 | $ | 101.0 | $ | 305.1 | $ | 297.0 | |||||||||||||||||||||
| Costs of sales | $ | 84.6 | $ | 81.9 | $ | 248.9 | $ | 241.3 | |||||||||||||||||||||
| Cost of sales as a % of net sales | 82.6 | % | 81.1 | % | 81.6 | % | 81.2 | % | |||||||||||||||||||||
| Total Company | |||||||||||||||||||||||||||||
| Net sales | $ | 1,311.9 | $ | 749.0 | $ | 3,238.6 | $ | 2,276.9 | |||||||||||||||||||||
| Costs of sales | $ | 787.7 | $ | 458.5 | $ | 1,943.3 | $ | 1,411.7 | |||||||||||||||||||||
| Cost of sales as a % of net sales | 60.0 | % | 61.2 | % | 60.0 | % | 62.0 | % | |||||||||||||||||||||
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Third Quarter and First Nine Months Results
The following is a discussion of our 2021 third quarter and first nine months results compared with the third quarter and first nine months results of 2020. Comparisons are with the corresponding reporting period of 2020, unless noted otherwise. Acquired intangible asset amortization was previously included in selling, general and administrative expenses. Prior period amounts have been reclassified to conform to the current presentation.
Third quarter of 2021 compared with the third quarter of 2020
Our third quarter of 2021 net sales increased 75.2%. Net income for the third quarter of 2021 increased 42.8%. Net income per diluted share was $2.81 for the third quarter of 2021, compared with net income per diluted share of $2.48.
The third quarter of 2021 net sales included $473.6 million in incremental net sales from the acquisition of FLIR. In connection with the FLIR acquisition, Teledyne incurred pretax expenses of $82.6 million, which included $45.6 million in acquired intangible asset amortization expense, $35.2 million in acquired inventory step-up expense and $1.8 million of transaction and integration-related costs. The third quarter of 2021 also included $9.7 million of acquired intangible asset amortization expense for acquisitions completed in prior periods. The third quarter of 2020 included pretax charges of $13.8 million which included $9.9 million in acquired intangible asset amortization expense and $3.9 million in severance, facility consolidation and other costs. The third quarter of 2021 reflected net discrete income tax benefits of $6.3 million compared with net discrete income tax benefits of $1.2 million.
Net Sales
The third quarter of 2021 net sales, compared with the third quarter of 2020 net sales, reflected higher net sales in each segment. The third quarter of 2021 included $473.6 million in incremental net sales from the acquisition of FLIR in the Digital Imaging segment, as well as organic sales growth.
Cost of Sales
Cost of sales increased $329.2 million in the third quarter of 2021 and primarily reflected the increase in net sales. Cost of sales as a percentage of net sales decreased for the third quarter of 2021 to 60.0%, from 61.2%. The lower cost of sales percentage in 2021, primarily reflects the impact of the FLIR acquisition which carries a lower cost of sales percentage than the other Teledyne businesses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, including research and development expense, increased $121.2 million in the third quarter of 2021 and primarily reflected the impact of higher net sales. Selling, general and administrative expenses for the third quarter of 2021, as a percentage of net sales increased slightly to 21.3% from 21.1%. Corporate expense, which is included in selling, general and administrative expenses, was $15.7 million for the third quarter of 2021, compared with $12.9 million and reflected higher compensation and professional fees expense. Stock option compensation expense was $5.8 million for the third quarter of 2021 compared with $5.7 million.
Acquired Intangible Asset Amortization
Acquired intangible asset amortization for the third quarter of 2021 was $55.3 million, compared with $9.9 million. The third quarter of 2021 includes $45.6 million in acquired intangible asset amortization from the FLIR acquisition.
Pension Service Expense
Pension service expense is included in both cost of sales and selling general and administrative expense. For both the third quarter of 2021 and 2020, pension service expense was $2.6 million. For 2021, the weighted-average discount rate used to determine the benefit obligation for the domestic qualified pension plans was 2.64% compared with 3.41% in 2020.
Operating Income
Operating income for the third quarter of 2021 increased 54.8%. The third quarter of 2021, compared with the third quarter of 2020, reflected higher operating income in each business segment, except the Engineered Systems segment. Operating income in the third quarter of 2021 included $82.3 million of expense in the Digital Imaging segment for acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. The third quarter of 2020 included pretax charges of $13.8 million which included $9.9 million in acquired intangible asset amortization expense and $3.9 million in severance, facility consolidation and other costs. The incremental operating income included in the results for the third quarter of 2021 from the FLIR acquisition was $35.2 million, which included $82.3 million of acquisition-related transaction and purchase accounting expenses.
Interest and Debt Expense, Non-Service Retirement Benefit Income and Other Income/Expense
Interest and debt expense, net of interest income, was $23.8 million for the third quarter of 2021, compared with $4.1 million. The 2021 amount primarily reflected interest and debt expense on the debt incurred to fund the cash portion of the FLIR acquisition. Non-service retirement benefit income was $2.8 million for the third quarter of 2021, compared with $3.2 million. Other income and expense was expense of $0.7 million for the third quarter of 2021, compared with expense of $1.9 million.
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Income Taxes
The income tax provision is calculated using an estimated annual effective tax rate, based upon estimates of annual income, permanent items, statutory tax rates and planned tax strategies in the various jurisdictions in which we operate except that certain loss jurisdictions and discrete items, such as the resolution of uncertain tax positions and share-based accounting income tax benefits, are treated separately.
The Company’s effective income tax rate for the third quarter of 2021 was 20.1%, compared with 21.5%. The third quarter of 2021 included net discrete income tax benefits of $6.3 million, which included $3.0 million income tax benefit related to share-based accounting and an income tax benefit of $4.9 million primarily related to research and development and foreign tax credits. The third quarter of 2020 included net discrete tax benefits of $1.2 million, which included a $0.7 million income tax benefit related to share-based accounting. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.9% for the third quarter of 2021 and 22.5% for the third quarter of 2020. The Company’s annual effective tax rate for fiscal year 2021 is expected to be 23.9% before discrete tax items. In addition, we currently expect less discrete tax items in 2021 compared with 2020.
First nine months of 2021 compared with the first nine months of 2020
Our first nine months of 2021 net sales increased 42.2% and included $775.0 million in incremental net sales from the acquisition FLIR. Net income for the first nine months of 2021 increased 5.1%. Net income per diluted share was $6.58 for the first nine months of 2021 compared with net income per diluted share of $7.14. In connection with the FLIR acquisition, in the first nine months of 2021, Teledyne incurred pretax expenses of $259.8 million, which included $51.2 million of transaction and integration-related costs, $51.0 million for the settlement of FLIR employee and director stock awards, $68.4 million in acquired intangible asset amortization expense, $58.6 million in acquired inventory step-up expense and $30.6 million in bridge loan and debt extinguishment fees. The first nine months of 2021 also included $29.5 million of acquired intangible asset amortization expense for acquisitions completed in prior periods. The first nine months of 2020 included pretax charges of $52.1 million which included $29.2 million in acquired intangible asset amortization expense and $22.9 million in severance, facility consolidation, acquisition and certain changes in contract cost estimates and other costs. The first nine months of 2021 included net discrete income tax benefits of $8.5 million, compared with $15.8 million.
Net Sales
The first nine months of 2021 net sales, compared with the first nine months of 2020 net sales, reflected higher net sales in each segment. The first nine months of 2021 included $775.0 million in incremental net sales from the acquisition of FLIR in the Digital Imaging segment, as well as organic sales growth.
Cost of Sales
Cost of sales increased $531.6 million in the first nine months of 2021 and primarily reflected the impact of higher net sales. Cost of sales as a percentage of net sales for the nine months of 2021 decreased to 60.0%, compared with 62.0%. The lower cost of sales percentage in 2021, primarily reflects the impact of the FLIR acquisition which carries a lower cost of sales percentage than the other Teledyne businesses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, including research and development, increased by $268.5 million in the first nine months of 2021 and primarily reflected the impact of higher net sales, as well as $101.9 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. Selling, general and administrative expenses for the first nine months of 2021, as a percentage of net sales, increased to 23.7% compared with 21.9%. The higher percentage in 2021 primarily reflected the impact of acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. In the first nine months of 2021 and 2020, we recorded a total of $13.6 million and $18.8 million, respectively, in stock option compensation expense. The decrease in stock option expense in the first nine months of 2021, reflects the absence of stock option grants in the first six months of 2021.
Acquired Intangible Asset Amortization
Acquired intangible asset amortization for the first nine months of 2021 was $97.9 million, compared with $29.2 million. The first nine months of 2021 includes $68.4 million in acquired intangible asset amortization from the FLIR acquisition.
Pension Service Expense
Pension service expense for the first nine months of 2021 was $8.0 million compared with $7.8 million.
Operating Income
Operating income for the first nine months of 2021 increased 27.6%. The first nine months of 2021 compared with the first nine months of 2020, reflected higher operating income in each segment. Corporate expense was $119.3 million in the first nine months of 2021 compared with $42.1 million and included $76.7 million in acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition in 2021. The incremental operating income included in the results for the first nine months of 2021 from the FLIR acquisition was $56.6 million, which included $152.5 million of acquisition-related transaction and purchase accounting expenses.
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Interest Expense, Non-Service Retirement Benefit Income and Other Income/Expense
Interest expense, net of interest income, was $80.7 million for the first nine months of 2021, compared with $11.9 million. The 2021 amount primarily reflected interest and debt expense on the debt incurred to fund the cash portion of the FLIR acquisition. Other income and expense was income of $4.4 million for the first nine months of 2021 compared with expense of $4.7 million. The first nine months of 2021 amount included $3.3 million in foreign currency income, compared with $4.6 million in foreign currency expense in the first nine months of 2020.
Income Taxes
The Company’s effective income tax rate for the first nine months of 2021 was 21.5% compared with 17.9%. The first nine months of 2021 reflected $8.5 million in net discrete income tax benefits, which included a $9.9 million income benefit related to share-based accounting, a $5.3 million income tax benefit related to the release of a valuation allowance and an income tax benefit of $4.9 million primarily related to research and development and foreign tax credits, partially offset by $11.5 million expense related to foreign tax rate changes. The foreign tax rate changes are a result of the United Kingdom Parliament enacting legislation to increase the corporate tax rate to 25% effective April 2023. The first nine months of 2020 reflected $15.8 million in net discrete income tax benefits, which included a $15.2 million income benefit related to share-based accounting. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.9% for the first nine months of 2021 and 22.7% for the first nine months of 2020.
Segment Results
Segment results include net sales and operating income by segment but excludes non-service retirement benefit income, equity income or loss, unusual non-recurring legal matter settlements, interest income and expense, gains and losses on the disposition of assets, sublease rental income and non-revenue licensing and royalty income, domestic and foreign income taxes and corporate office expenses. Corporate expense includes various administrative expenses relating to the corporate office and certain nonoperating expenses, including certain acquisition-related transaction costs, not allocated to our segments. See Note 14 to these condensed consolidated financial statements for additional segment information.
Digital Imaging
| Third Quarter | Nine Months | ||||||||||||||||||||||
| (dollars in millions) | 2021 (a) | 2020 | 2021 (a) | 2020 | |||||||||||||||||||
| Net sales | $ | 760.6 | $ | 239.7 | $ | 1,603.4 | $ | 724.0 | |||||||||||||||
| Cost of sales | $ | 449.3 | $ | 139.0 | $ | 931.8 | $ | 420.3 | |||||||||||||||
| Selling, general and administrative expenses | $ | 166.3 | $ | 50.7 | $ | 358.0 | $ | 154.1 | |||||||||||||||
| Acquired intangible asset amortization | $ | 50.1 | $ | 4.5 | $ | 82.1 | $ | 13.5 | |||||||||||||||
| Operating income | $ | 94.9 | $ | 45.5 | $ | 231.5 | $ | 136.1 | |||||||||||||||
| Cost of sales as a % of net sales | 59.1 | % | 58.0 | % | 58.2 | % | 58.1 | % | |||||||||||||||
| Selling, general and administrative expenses as a % of net sales | 21.9 | % | 21.1 | % | 22.3 | % | 21.3 | % | |||||||||||||||
| Acquired intangible asset amortization as a % of net sales | 6.5 | % | 1.9 | % | 5.1 | % | 1.8 | % | |||||||||||||||
| Operating income as a % of net sales | 12.5 | % | 19.0 | % | 14.4 | % | 18.8 | % | |||||||||||||||
(a) On May 14, 2021, the Company completed the acquisition of FLIR, and the 2021 financial results of FLIR have been included since the date of the acquisition.
Third quarter of 2021 compared with the third quarter of 2020
The Digital Imaging segment’s third quarter of 2021 net sales increased 217.3%. Operating income for the third quarter of 2021 increased 108.6%.
The third quarter of 2021 net sales increase included $473.6 million of incremental net sales from the FLIR acquisition as well as organic sales growth from industrial and scientific sensors and cameras, x-ray products and micro-electro-mechanical systems (“MEMS”), partially offset by lower sales for geospatial imaging systems. The increase in operating income in the third quarter of 2021 reflected the contribution from FLIR, partially offset by $82.3 million of FLIR acquisition-related transaction and purchase accounting expenses, which included $45.6 million in acquired intangible asset amortization expense, $35.2 million in inventory step-up expense and $1.5 million of integration-related costs. The increase in operating income also reflected the impact of organic sales growth. The incremental operating income included in the results for the third quarter of 2021 from the FLIR acquisition was $35.2 million, which included $82.3 million of acquisition-related transaction and purchase accounting expenses.
The third quarter of 2021 cost of sales increased $310.3 million and primarily reflected the impact of higher net sales. The cost of sales percentage increased to 59.1% in the third quarter of 2021 from 58.0%. Third quarter 2021 selling, general and administrative expenses increased $115.8 million and reflected the impact of higher net sales, as well as the acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. The selling, general and administrative expense percentage increased slightly to 21.9% in the third quarter of 2021 from 21.1%. Acquired intangible asset amortization expense
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for the third quarter of 2021 was $50.1 million, compared with $4.5 million. The third quarter 2021 amount included $45.6 million in acquired intangible asset amortization expense related to the FLIR acquisition.
First nine months of 2021 compared with the first nine months of 2020
The Digital Imaging segment’s first nine months of 2021 net sales increased 121.5%. Operating income for the first nine months of 2021 increased 70.1%.
The first nine months of 2021 net sales included $775.0 million incremental net sales from the FLIR acquisition as well as organic sales growth from industrial and scientific sensors and cameras, x-ray products, MEMS and detectors for space imaging applications. The increase in operating income in the first nine months of 2021 reflected the net sales contribution from FLIR partially offset by $152.5 million of acquisition-related transaction and purchase accounting expenses related to FLIR which included $25.5 million of integration-related costs, $68.4 million in acquired intangible asset amortization expense and $58.6 million in inventory step-up expense. The increase in operating income also reflected the impact of organic sales growth. The incremental operating income included in the results for the first nine months of 2021 from the FLIR acquisition was $56.6 million, which included $152.5 million of acquisition-related transaction and purchase accounting expenses.
The first nine months of 2021 cost of sales increased $511.5 million and reflected the impact of higher sales. The cost of sales percentage increased slightly to 58.2% in the first nine months of 2021, from 58.0%. Selling, general and administrative expenses, increased $204.1 million in the first nine months of 2021 and reflected the impact of higher net sales, as well as the acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. The selling, general and administrative expense percentage increased to 22.3% in the first nine months of 2021 from 21.3%. The increase was primarily due to the impact of acquisition-related transaction and purchase accounting expenses related to the FLIR acquisition. Acquired intangible asset amortization expense for the first nine months of 2021 was $82.1 million, compared with $13.5 million. The first nine months of 2021 included $68.4 million in acquired intangible asset amortization expense related to the FLIR acquisition.
Instrumentation
| Third Quarter | Nine Months | ||||||||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
| Net sales | $ | 287.1 | $ | 263.5 | $ | 864.7 | $ | 811.7 | |||||||||||||||||||||
| Cost of sales | $ | 150.7 | $ | 147.0 | $ | 460.0 | $ | 452.3 | |||||||||||||||||||||
| Selling, general and administrative expenses | $ | 68.4 | $ | 60.7 | $ | 202.5 | $ | 194.4 | |||||||||||||||||||||
| Acquired intangible asset amortization | $ | 5.0 | $ | 5.1 | $ | 15.2 | $ | 15.0 | |||||||||||||||||||||
| Operating income | $ | 63.0 | $ | 50.7 | $ | 187.0 | $ | 150.0 | |||||||||||||||||||||
| Cost of sales as a % of net sales | 52.5 | % | 55.8 | % | 53.2 | % | 55.7 | % | |||||||||||||||||||||
| Selling, general and administrative expenses as a % of net sales | 23.8 | % | 23.1 | % | 23.4 | % | 24.0 | % | |||||||||||||||||||||
| Acquired intangible asset amortization as a % of net sales | 1.8 | % | 1.9 | % | 1.8 | % | 1.8 | % | |||||||||||||||||||||
| Operating income as a % of net sales | 21.9 | % | 19.2 | % | 21.6 | % | 18.5 | % | |||||||||||||||||||||
Third quarter of 2021 compared with the third quarter of 2020
The Instrumentation segment’s third quarter of 2021 net sales increased 9.0%. Operating income for the third quarter of 2021 increased 24.3%.
The third quarter of 2021 net sales increase resulted from higher sales of test and measurement instrumentation, environmental instrumentation and marine instrumentation. Sales of test and measurement instrumentation increased $12.8 million, environmental instrumentation increased $7.6 million and marine instrumentation increased $3.2 million. The increase in operating income reflected the impact of higher sales and improved margins across most product categories resulting from ongoing margin improvement initiatives.
The third quarter of 2021 cost of sales increased $3.7 million. The cost of sales percentage decreased to 52.5% in the third quarter of 2021 from 55.8%. Third quarter 2021 selling, general and administrative expenses increased $7.7 million, primarily as a result of higher net sales. The selling, general and administrative expense percentage increased slightly to 23.8% in the third quarter of 2021 from 23.1%.
First nine months of 2021 compared with the first nine months of 2020
The Instrumentation segment’s first nine months 2021 net sales increased 6.5%. Operating income for the first nine months of 2021 increased of 24.7%. The first nine months of 2021 net sales increase resulted from higher sales of environmental instrumentation and test and measurement instrumentation, partially offset by lower sales of marine instrumentation. Sales of environmental instrumentation and test and measurement instrumentation increased $31.6 million and $30.5 million, respectively. Sales of marine instrumentation decreased $9.1 million. The increase in operating income the first nine months of
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2021 reflected the impact of higher sales and improved margins across most product categories resulting from ongoing margin improvement initiatives.
The first nine months of 2021 cost of sales increased by $7.7 million and primarily reflected the impact of higher sales. The cost of sales percentage decreased to 53.2% in the first nine months of 2021 from 55.7%. The first nine months of 2021 selling, general and administrative expenses increased by $8.1 million. The selling, general and administrative expense percentage decreased slightly to 23.4% in the first nine months of 2021 from 24.0%.
Aerospace and Defense Electronics
| Third Quarter | Nine Months | ||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net sales | $ | 161.8 | $ | 144.8 | $ | 465.4 | $ | 444.2 | |||||||||||||||
| Cost of sales | $ | 103.1 | $ | 90.6 | $ | 302.6 | $ | 297.8 | |||||||||||||||
| Selling, general and administrative expenses | $ | 22.6 | $ | 27.2 | $ | 69.6 | $ | 88.1 | |||||||||||||||
| Acquired intangible asset amortization | $ | 0.2 | $ | 0.3 | $ | 0.6 | $ | 0.7 | |||||||||||||||
| Operating income | $ | 35.9 | $ | 26.7 | $ | 92.6 | $ | 57.6 | |||||||||||||||
| Cost of sales as a % of net sales | 63.7 | % | 62.6 | % | 65.0 | % | 67.0 | % | |||||||||||||||
| Selling, general and administrative expenses as a % of net sales | 14.0 | % | 18.8 | % | 15.0 | % | 19.8 | % | |||||||||||||||
| Acquired intangible asset amortization as a % of net sales | 0.1 | % | 0.2 | % | 0.1 | % | 0.2 | % | |||||||||||||||
| Operating income as a % of net sales | 22.2 | % | 18.4 | % | 19.9 | % | 13.0 | % | |||||||||||||||
Third quarter of 2021 compared with the third quarter of 2020
The Aerospace and Defense Electronics segment’s third quarter of 2021 net sales increased 11.7%. Operating income for the third quarter of 2021 increased 34.5%.
The third quarter of 2021 net sales reflected $9.9 million of higher sales for defense and space electronics and $7.1 million for aerospace electronics. Operating income in the third quarter of 2021 reflected the impact of higher sales and a lower cost structure due to actions taken in 2020, lower research and development costs. Research and development expense was lower by $2.8 million in the third quarter of 2021, and primarily reflected lower spending for aerospace electronics.
The third quarter of 2021 cost of sales increased $12.5 million and reflected the impact of higher sales. The cost of sales percentage increased to 63.7% for the third quarter of 2021, from 62.6%. Selling, general and administrative expenses, including research and development expense, decreased to $22.6 million in the third quarter of 2021 from $27.2 million and reflected the impact lower research and development expense, partially offset by the impact of higher net sales. The selling, general and administrative expense percentage decreased to 14.0% in the third quarter of 2021 from 18.8% and reflected the impact of lower research and development expense.
First nine months of 2021 compared with the first nine months of 2020
The Aerospace and Defense Electronics segment’s first nine months of 2021 net sales increased 4.8%. Operating income for the first nine months of 2021 increased 60.8%.
The first nine months of 2021 net sales reflected $24.9 million of higher sales for defense and space electronics, partially offset by lower sales of $3.7 million for aerospace electronics. The weakness in the commercial aerospace industry, due to COVID, has negatively affected sales of aerospace electronics. The increase in operating income in the first nine months of 2021 primarily reflected the impact of higher sales and $7.5 million of lower severance, facility consolidation cost. Research and development expense was lower by $10.7 million in the first nine months of 2021, and primarily reflected lower spending for aerospace electronics.
The first nine months of 2021 cost of sales increased by $4.8 million and reflected the impact of higher sales, partially offset by the impact of lower severance and facility consolidation costs. The cost of sales percentage decreased to 65.0% in the first nine months of 2021, from 67.0% and reflected impact of lower severance and facility consolidation costs. Selling, general and administrative expenses, including research and development expense, decreased to $69.6 million in the first nine months of 2021, compared with $88.1 million for the first nine months of 2020 and impact of lower severance, facility consolidation and lower research and development expense. The selling, general and administrative expense percentage decreased to 15.0% in the first nine months of 2021, compared with 19.8% and reflected impact of lower severance, facility consolidation and lower research and development expense.
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Engineered Systems
| Third Quarter | Nine Months | ||||||||||||||||||||||
| (dollars in millions) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Net sales | $ | 102.4 | $ | 101.0 | $ | 305.1 | $ | 297.0 | |||||||||||||||
| Cost of sales | $ | 84.6 | $ | 81.9 | $ | 248.9 | $ | 241.3 | |||||||||||||||
| Selling, general and administrative expenses | $ | 6.3 | $ | 6.6 | $ | 18.8 | $ | 21.0 | |||||||||||||||
| Operating income | $ | 11.5 | $ | 12.5 | $ | 37.4 | $ | 34.7 | |||||||||||||||
| Cost of sales as a % of net sales | 82.6 | % | 81.1 | % | 81.6 | % | 81.2 | % | |||||||||||||||
| Selling, general and administrative expenses as a % of net sales | 6.2 | % | 6.5 | % | 6.1 | % | 7.1 | % | |||||||||||||||
| Operating income as a % of net sales | 11.2 | % | 12.4 | % | 12.3 | % | 11.7 | % | |||||||||||||||
Third quarter of 2021 compared with the third quarter of 2020
The Engineered Systems segment’s third quarter of 2021 net sales increased 1.4%. Operating income for the third quarter of 2020 decreased 8.0%.
The third quarter of 2021 net sales primarily reflected higher sales of $7.8 million of engineered products, partially offset by lower sales of $6.3 million of turbine engines. The higher sales for engineered products primarily reflected increased sales from medical modeling and analysis, missile defense and marine manufacturing programs. Teledyne exited the turbine engine business in the first quarter of 2021.
The third quarter of 2021 cost of sales increased $2.7 million. The cost of sales percentage increased to 82.6% for the third quarter of 2021,from 81.1%. Selling, general and administrative expense was $6.3 million for the third quarter of 2021, compared with $6.6 million. The selling, general and administrative expense percentage decreased slightly to 6.2% for the third quarter of 2021 from 6.5%.
First nine months of 2021 compared with the first nine months of 2020
The Engineered Systems segment’s first nine months of 2021 net sales increased 2.7%. Operating income for the first nine months of 2021 increased 7.8%.
The first nine months of 2021 net sales primarily reflected higher sales of $19.5 million of engineered products and services, partially offset by lower net sales of $11.2 million for turbine engines. The higher sales for engineered products primarily reflected increased sales from missile defense, medical modeling and analysis, and marine and other manufacturing programs. Operating income in the first nine months of 2021 reflected the impact of higher sales.
The first nine months of 2021 cost of sales increased by $7.6 million and primarily reflected the impact of higher sales. The cost of sales as a percentage increased slightly to 81.6% for the first nine months of 2021,from 81.2%. Selling, general and administrative expenses, including research and development expense, decreased to $18.8 million for the first nine months of 2021, compared with $21.0 million for the first nine months of 2020. The selling, general and administrative expense percentage decreased to 6.1% for the first nine months of 2021, compared with 7.1%.
Financial Condition, Liquidity and Capital Resources
Our net cash provided by operating activities was $529.0 million for the first nine months of 2021, compared with net cash provided by operating activities of $382.5 million. The higher cash provided by operating activities in the first nine months of 2021 reflects improved working capital management, which included a focus on inventory reduction initiatives, and the cash flow contribution from FLIR, partially offset by after tax payments of $68.8 million for expenses related to the FLIR acquisition, $15.1 million in higher income tax payments and higher interest payments.
Our net cash used by investing activities was $3,790.4 million for the first nine months of 2021, compared with net cash used by investing activities of $80.9 million. The 2021 amount includes the cash portion of the purchase price for the FLIR acquisition of $3.7 billion, net of cash acquired. The first nine months of 2020 included $29.0 million for the OakGate acquisition acquired on January 5, 2020. Capital expenditures for the first nine months of 2021 and 2020 were $67.6 million and $52.0 million, respectively.
Our goodwill was $7,899.5 million at October 3, 2021 and $2,150.0 million at January 3, 2021. The increase in goodwill primarily reflected preliminary amounts recorded for the FLIR acquisition. Teledyne’s net acquired intangible assets were $2,705.2 million at October 3, 2021 and $409.7 million at January 3, 2021. The increase in the balance of net acquired intangible assets reflected preliminary amounts recorded for the FLIR acquisition. The Company is in the process of specifically identifying the amount assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the FLIR acquisition. The amounts recorded as of October 3, 2021 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.
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Financing activities provided cash of $3,147.3 million for the first nine months of 2021, compared with cash used by financing activities of $45.9 million. The higher cash provided by financing activities in the first nine months of 2021 included the proceeds of debt incurred to fund the cash portion of the FLIR acquisition. Proceeds from the exercise of stock options were $21.4 million for the first nine months of 2021 compared with $29.5 million for the first nine months of 2020.
Total debt at October 3, 2021 was $4,441.7 million compared with $778.5 million at January 3, 2021. The debt balance at October 3, 2021, includes the debt incurred in 2021 for the cash portion of the consideration for the FLIR acquisition. At October 3, 2021, Teledyne had $288.9 million in outstanding letters of credit. At October 3, 2021, $751.1 million was available under the $1.150 billion credit facility, after reductions of $125.0 million in borrowings and $273.9 million in outstanding letters of credit. The outstanding letters of credit include a $253.6 million letter of credit to the STA related to a disputed 2018 tax reassessment issued to a FLIR subsidiary in Sweden. See Note 2 to these Notes to Condensed Consolidated Financial Statements for information regarding the STA’s reassessment of tax for the year ending December 31, 2012 related to one of FLIR’s non-operating subsidiaries in Sweden.
Our principal cash and capital requirements are to fund working capital needs, capital expenditures, income tax payments, and debt service requirements, as well as acquisitions. It is anticipated that cash on hand, operating cash flow, together with available borrowings under the $1.15 billion credit facility, will be sufficient to meet these requirements. To support acquisitions, we may raise additional capital. We currently expect to spend approximately $115.0 million for capital expenditures in 2021, of which $67.6 million has been spent in the first nine months of 2021. No cash pension contributions have been made since 2013 or are planned for the remainder of 2021 for the domestic qualified pension plans.
Our credit agreements require Teledyne to comply with various financial and operating covenants and at October 3, 2021, the Company was in compliance with these covenants. As of October 3, 2021, the Company had an adequate amount of margin between required financial covenant ratios (as required by applicable credit agreements) and our actual ratios. At October 3, 2021, the required financial ratios and the actual ratios were as follows:
$1.15 billion Credit Facility expires March 2026, $1.0 billion term loan due May 2026 and $150.0 million term loan due October 2024 (issued October 2019) | |||||||||||
| Financial Covenants | Requirement | Actual Measure | |||||||||
| Consolidated Leverage Ratio (Net Debt/EBITDA) (a) | No more than 4.75 to 1 | 3.3 to 1 | |||||||||
| Consolidated Interest Coverage Ratio (EBITDA/Interest) (b) | No less than 3.0 to 1 | 9.6 to 1 | |||||||||
a) The Consolidated Leverage Ratio is equal to Net Debt/EBITDA as defined in our $1.150 billion credit agreement. Requirement changes to 4.5 to 1 for the second and third quarter of 2022 and to 4.0 to 1 for the fourth quarter of 2022 and 3.5 to 1 thereafter.
b) The Consolidated Interest Coverage Ratio is equal to EBITDA/Interest as defined in our $1.150 billion credit agreement.
Our liquidity is not dependent upon the use of off-balance sheet financial arrangements. We have no off-balance sheet financing arrangements that incorporate the use of special purpose entities or unconsolidated entities.
Critical Accounting Policies
Our critical accounting policies are those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are the following: accounting for revenue recognition; accounting for pension plans; accounting for business combinations, goodwill, and acquired intangible assets; and accounting for income taxes.
For additional discussion of the application of the critical accounting policies and other accounting policies, see Note 1 to these Condensed Consolidated Financial Statements and also Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Note 2 of the Notes to Consolidated Financial Statements included in Teledyne’s 2020 Form 10-K.
Safe Harbor Cautionary Statement Regarding Forward-Looking Information
From time to time we make, and this report contains, forward looking statements, as defined in the Private Securities Litigation Reform Act of 1995, directly or indirectly relating to sales, earnings, operating margin, growth opportunities, acquisitions, including the acquisition of FLIR, product sales, capital expenditures, pension matters, stock-based compensation expense, the credit facility, interest expense, severance, relocation and facility consolidation costs, environmental remediation costs, taxes, exchange rate fluctuations and strategic plans. Forward-looking statements are generally accompanied by words such as “estimate”, “project”, “predict”, “believes” or “expect”, that convey the uncertainty of future events or outcomes. All statements made in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q that are not historical in nature should be considered forward-looking.
Actual results could differ materially from these forward-looking statements. Many factors could change anticipated results, including ongoing challenges and uncertainties posed by the COVID pandemic for businesses and governments around the world, including production, supply, contractual and other disruptions, including facility closures and furloughs and travel restrictions; the inability to integrate FLIR successfully, to retain customers and key employees and to achieve operating synergies, including the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the
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strength of the economy and competitive factors in the areas where Teledyne and FLIR do business; changes in relevant tax and other laws; risks associated with indebtedness, including that incurred as a result of financing transactions undertaken in connection with the acquisition of FLIR, as well as our ability to reduce indebtedness and the timing thereof; the inability to develop and market new competitive products; inherent uncertainties involved in the estimates and judgments used in the preparation of financial statements and the providing of estimates of financial measures, in accordance with U.S. GAAP and related standards; operating results of FLIR being lower than anticipated; disruptions in the global economy; customer and supplier bankruptcies; changes in demand for products sold to the defense electronics, instrumentation, digital imaging, energy exploration and production, commercial aviation, semiconductor and communications markets; funding, continuation and award of government programs; cuts to defense spending resulting from existing and future deficit reduction measures or changes to U.S. and foreign government spending and budget priorities triggered by the COVID pandemic; impacts from the United Kingdom’s exit from the European Union; uncertainties related to the policies of the U.S. Presidential Administration; the imposition and expansion of, and responses to, trade sanctions and tariffs; the continuing review and resolution of FLIR’s tax and export matters; escalating economic and diplomatic tension between China and the United States; the impact of higher inflation; semiconductor and other supply chain shortages; and threats to the security of our confidential and proprietary information, including cyber security threats. Lower oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, and new regulations or restrictions relating to energy production could further negatively affect our businesses that supply the oil and gas industry. Continued weakness in the commercial aerospace industry will negatively affect the markets of our commercial aviation businesses. In addition, financial market fluctuations affect the value of the company’s pension assets. 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. An adverse tax ruling by the Swedish Appellate Court related to a pre-acquisition assessment by the Swedish Tax Authority against a FLIR subsidiary would materially impact our cash flow.
While the Company’s growth strategy includes possible acquisitions, we cannot provide any assurance as to when, if or on what terms any acquisitions will be made. Acquisitions involve various inherent risks, such as, among others, our ability to integrate acquired businesses, retain customers and achieve identified financial and operating synergies. There are additional risks associated with acquiring, owning and operating businesses internationally, including those arising from U.S. and foreign government policy changes or actions and exchange rate fluctuations.
While we believe our internal and disclosure control systems are effective, there are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected.
Readers are urged to read our periodic reports filed with the Securities and Exchange Commission for a more complete description of our Company, its businesses, its strategies and the various risks that we face. Various risks are identified in Teledyne’s 2020 Form 10-K and subsequent Quarterly Reports on Form 10-Q.
We assume no duty to publicly update or revise any forward-looking statements, whether as a result of new information or otherwise.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Except as set forth below, there were no material changes to the information provided under “Item 7A, Quantitative and Qualitative Disclosure About Market Risk” included in our 2020 Form 10-K.
Market Risk
Teledyne transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk. The Company’s primary 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, and in British pounds for our U.K. companies. These contracts are designated and qualify as cash flow hedges. The Company has converted U.S. dollar denominated, variable rate and fixed rate debt obligations of a European subsidiary, into euro fixed rate obligations using a receive float, pay fixed cross currency swap, and a receive fixed, pay fixed cross currency swap. These cross currency swaps are designated as cash flow hedges. In addition, the Company has converted domestic U.S. variable rate debt to fixed rate debt using a receive variable, pay fixed interest rate swap. The interest rate swap is also designated as a cash flow hedge.
Foreign Currency Exchange Rate Risk
Notwithstanding our efforts to mitigate portions of our foreign currency exchange rate risks, there can be no assurance that our hedging activities will adequately protect us against the risks associated with foreign currency fluctuations. A hypothetical 10 percent price change in the U.S. dollar from its value at October 3, 2021 would result in a decrease or increase in the fair value of our foreign currency forward contracts designated as cash flow hedges to buy Canadian dollars and to sell U.S. dollars by approximately $11.6 million. A hypothetical 10 percent price change in the U.S. dollar from its value at October 3, 2021 would result in a decrease or increase in the fair value of our foreign currency forward contracts designated as cash flow hedges to buy British Pounds and to sell U.S. dollars by approximately $1.9 million. For additional information, see Derivative Instruments discussed in Note 4 to these condensed consolidated financial statements.
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Market Risk Disclosure
We are exposed to market risk through the interest rate on our borrowings under our $1.15 billion credit facility and our $150.0 million term loan. As of October 3, 2021, we had $125.0 million in outstanding under our credit facility and $150.0 million outstanding under our term loan for a total $275.0 million. A 100 basis point increase in interest rates would result in an increase in annual interest expense of approximately $2.75 million, assuming the $275.0 million in debt was outstanding for the full year. A hypothetical 10 percent price change in the U.S. dollar from its value at October 3, 2021 would result in a decrease or increase in the fair value of our Euro/U.S. Dollar cross currency swaps designated as cash flow hedges by approximately $29.4 million. A hypothetical 10 percent increase in the U.S. interest rates at October 3, 2021 would result in an increase in the fair value of our U.S. dollar interest rate swap designated as a cash flow hedge by approximately $1.7 million.
Item 4. Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, are recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our Chairman, President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, with the participation and assistance of other members of management, have reviewed the effectiveness of our disclosure controls and procedures and have concluded that the disclosure controls and procedures, as of October 3, 2021, are effective at the reasonable assurance level.
On May 14, 2021, we acquired FLIR and, as a result, we have begun integrating certain processes, systems and controls relating to FLIR into our existing system of internal control over financial reporting in accordance with our integration plans. Except for certain processes, systems and controls relating to the integration of FLIR, during the quarter ended October 3, 2021, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
See Item 1 of Part 1, “Financial Statements -- Note 12 -- Lawsuits, Claims, Commitments, Contingencies and Related Matters.”
| Item 1A. | Risk Factors | ||||
Except as set forth below, there are no material changes to the risk factors previously disclosed in our 2020 Form 10-K in response to Item 1A to Part 1 of Form 10-K. See also Part I Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information regarding COVID risks and Part I Item 3, Quantitative and Qualitative Disclosures About Market Risk, for updated disclosures about interest rate exposure and exchange rate risks.
Risk factors related to newly-acquired FLIR business:
Adverse findings in matters related FLIR’s historical export control practices could materially impact us
On April 24, 2018, FLIR entered into a Consent Agreement with the United States Department of State’s Directorate of Defense Trade Controls (“DDTC”) to resolve allegations regarding the unauthorized export of technical data and defense services to dual and third country nationals in certain of FLIR’s facilities, the failure to properly use and manage export licenses and export authorizations, and failures to report certain payments under 22 CFR Part 130 in potential violation of ITAR. The Consent Agreement has a four-year term and provides for: (i) a civil penalty of $30.0 million with $15.0 million of this amount suspended on the condition that the funds have or will be used for Department-approved Consent Agreement remedial compliance measures, (ii) the appointment of an external Special Compliance Official to oversee compliance with the Consent Agreement and the ITAR; (iii) two external audits of our ITAR compliance program; and (iv) continued implementation of ongoing remedial compliance measures and additional remedial compliance measures related to automated systems and ITAR compliance policies, procedures, and training. While FLIR has enhanced its trade compliance program more broadly, implemented and continues to implement remedial measures and has undergone its first external audit and just concluded its second external audit of FLIR’s ITAR compliance program, adverse disclosures and findings could materially cause incurrence of additional expenses in connection with implementation of remedial measures and result in a substantial adjustment to our revenue and net income. As of October 3, 2021, FLIR has $3.5 million remaining to be paid under the Consent Agreement. FLIR’s investments to date in remedial compliance measures have been more than sufficient to cover the $15.0 million suspension amount.
In June 2017, the Bureau of Industry and Security (“BIS”) of the United States Department of Commerce informed FLIR of additional export licensing requirements that restricted the FLIR’s ability to sell certain thermal products without a license to customers in China not identified on a list maintained by the United States Department of Commerce. This action was precipitated by concerns of sale without a license or potential diversion of some of FLIR’s products to prohibited end users and to countries subject to economic and other sanctions implemented by the United States. BIS subsequently favorably modified these restrictions to reduce the applicability of the restrictions to sales of FLIR's Tau camera cores (as opposed to finished products containing Tau camera cores) to customers in China not identified on a list maintained by the United States Department of Commerce and persons in a country other than those in the Export Administration Regulations ("EAR") Country Group A:5 (Supplement No. 1 to Part 740 of the EAR). FLIR has identified certain shipments that potentially violate these license requirements and voluntary disclosed this matter to BIS.
In April 2021, FLIR resolved allegations of misrepresentations made to BIS, between November 2012 and December 2013, in a commodity jurisdiction request relating to its newly developed Lepton uncooled focal plane arrays by an administrative settlement and fine of $0.3 million and agreeing to perform two internal audits of its EAR export compliance programs. The first internal audit has been completed and another voluntary disclosure has been filed to report potential violations.
FLIR has made other voluntary disclosures to the U.S. Department of State and U.S. Department of Commerce, including to BIS with respect to the shipments of products from non-U.S. jurisdictions which were not licensed due to incorrect de minimis calculation methodology. If FLIR is found to have violated applicable rules and regulations with respect to customers and limitations on the export and end use of its products, FLIR could be subject to substantial fines and penalties, suspension of existing licenses or other authorizations and/or loss or suspension of export privileges.
At this time, based on available information, we are unable to reasonably estimate the time it may take to resolve these matters or the amount or range of potential loss, penalty or other government action, if any, that may be incurred in connection with these matters. However, an unfavorable outcome could result in substantial fines and penalties or loss or suspension of export privileges or of particular authorizations that could be material to the Company’s financial position, results of operations or cash flows in and following the period in which such an outcome becomes estimable or known.
No adjustments have been made for these matters in Teledyne’s current preliminary estimates of its purchase price allocation for FLIR. The final acquisition accounting adjustments for these matters may be materially different, as Teledyne obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period.
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Ongoing reviews of FLIR’s historical operations by foreign tax authorities could result in material tax assessments
During fiscal year 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of FLIR’s non-operating subsidiaries in Sweden. The total taxes, penalties and interest levied by the STA totals SEK 3.1 billion ($351.5 million USD). The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and levied significant taxes and penalties. In March 2020, FLIR received an adverse judgment from the First Instance Court of Sweden regarding the STA’s reassessment. FLIR appealed the decision to the Administrative Court of Appeal in Stockholm, Sweden (the “Appellate Court”). After completing an extensive analysis, including consultation with outside specialists, Teledyne recorded a liability that reflects the most likely outcome for this tax matter under the acquisition method for business combinations in the third quarter of 2021. Subsequently, the Appellate Court hearing was held on September 15, 2021 and in the subsequent weeks ending on October 22, 2021, the STA and Teledyne submitted additional arguments in writing, including closing arguments. An adverse tax ruling by the Appellate Court related to a pre-acquisition assessment by the STA against a FLIR subsidiary would materially impact our cash flow.
Item 5. Other Information
First Amendment to Amended and Restated Credit Agreement
On October 26, 2021, Teledyne, as borrower and guarantor, certain of its foreign subsidiaries, as designated borrowers, and Teledyne’s domestic subsidiary Teledyne FLIR, LLC (“Teledyne FLIR”), as subsidiary guarantor, entered into an amendment (the “First Amendment to Amended and Restated Credit Agreement”) to that certain Amended and Restated Credit Agreement dated as of March 4, 2021 (the “Amended and Restated Credit Agreement”).
As amended by the First Amendment to Amended and Restated Credit Agreement, the Amended and Restated Credit Agreement includes customary language to provide for the replacement of LIBOR as a benchmark rate for determining the interest rate with respect to loans thereunder denominated in euros, Canadian dollars, Swedish krona and sterling, to provide for the recovery of any erroneous payments as may be made by the administrative agent to the lenders thereunder and to provide for certain other administrative matters.
Third Amendment to 2019 Term Loan Credit Agreement
On October 26, 2021, Teledyne and its foreign subsidiary, Teledyne Netherlands B.V., as borrowers, and Teledyne FLIR, as guarantor, entered into an amendment (the “Third 2019 Term Loan Amendment”) to Teledyne’s Amended and Restated Term Loan Credit Agreement dated as of October 30, 2019, as amended by that certain First Amendment to Amended and Restated Term Loan Agreement dated as of January 19, 2021, and as further amended by that certain Second Amendment to Amended and Restated Term Loan Agreement dated as of March 4, 2021 (the “2019 Term Loan Credit Agreement”).
As amended by the Third 2019 Term Loan Amendment, the 2019 Term Loan Credit Agreement includes customary language to provide for the phase out and replacement of LIBOR as a benchmark rate for determining the interest rate on loans thereunder, to provide for the recovery of any erroneous payments as may be made by the administrative agent to the lenders thereunder and to provide for certain other administrative matters. The amendment also provides that the applicable margin to be added to the benchmark rate in determining the interest rate will be determined by reference to the ratings established by S&P and Moody’s from time to time for Teledyne’s long term, unsecured, senior, non-credit enhanced indebtedness, rather than Teledyne’s consolidated leverage ratio.
General
In the ordinary course of their respective businesses, certain of the lenders and the other parties to the Amended and Restated Credit Agreement and the 2019 Term Loan Credit Agreement (as amended in each such case) and their respective affiliates have engaged, and may in the future engage, in commercial banking, investment banking, financial advisory or other services with Teledyne and its affiliates for which they have in the past and/or may in the future receive customary compensation and expense reimbursement.
The descriptions set forth above are qualified in their entirety by the First Amendment to Amended and Restated Credit Agreement and the Third 2019 Term Loan Amendment, copies of which are filed as exhibits to this report and are incorporated by reference herein.
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| Item 6. | Exhibits | ||||
| (a) | Exhibits | |||||||
| Exhibit 3.1 | ||||||||
| Exhibit 10.1 | ||||||||
| Exhibit 10.2 | ||||||||
| Exhibit 10.3 | First Amendment to Amended and Restated Credit Agreement, dated as of October 26, 2021, by and among Teledyne Technologies Incorporated, as a borrower and guarantor, the designated borrowers party thereto, the guarantor party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent, swing line lender and L/C issuer | |||||||
| Exhibit 10.4 | ||||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
| Exhibit 101 (INS) | XBRL Instance Document | |||||||
| Exhibit 101 (SCH) | XBRL Schema Document | |||||||
| Exhibit 101 (CAL) | XBRL Calculation Linkbase Document | |||||||
| Exhibit 101 (LAB) | XBRL Label Linkbase Document XBRL Schema Document | |||||||
| Exhibit 101 (PRE) | XBRL Presentation Linkbase Document XBRL Schema Document | |||||||
| Exhibit 101 (DEF) | XBRL Definition Linkbase Document XBRL Schema Document | |||||||
| Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
| † | Denotes management contract or compensatory arrangement | |||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TELEDYNE TECHNOLOGIES INCORPORATED | |||||||||||
| DATE: October 28, 2021 | By: | /s/ Susan L. Main | |||||||||
| Susan L. Main, Senior Vice President and | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer and Authorized Officer) | |||||||||||
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Teledyne Technologies Incorporated
Index to Exhibits
| Exhibit Number | Description | ||||
| Exhibit 3.1 | |||||
| Exhibit 10.1 | |||||
| Exhibit 10.2 | |||||
| Exhibit 10.3 | First Amendment to Amended and Restated Credit Agreement, dated as of October 26, 2021, by and among Teledyne Technologies Incorporated, as a borrower and guarantor, the designated borrowers party thereto, the guarantor party thereto, the lenders party thereto and Bank of America, N.A., as administrative agent, swing line lender and L/C issuer | ||||
| Exhibit 10.4 | |||||
| Exhibit 31.1 | |||||
| Exhibit 31.2 | |||||
| Exhibit 32.1 | |||||
| Exhibit 32.2 | |||||
| Exhibit 101 (INS) | XBRL Instance Document | ||||
| Exhibit 101 (SCH) | XBRL Schema Document | ||||
| Exhibit 101 (CAL) | XBRL Calculation Linkbase Document | ||||
| Exhibit 101 (DEF) | XBRL Definition Linkbase Document XBRL Schema Document | ||||
| Exhibit 101 (LAB) | XBRL Label Linkbase Document XBRL Schema Document | ||||
| Exhibit 101 (PRE) | XBRL Presentation Linkbase Document XBRL Schema Document | ||||
| Exhibit 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||
| † | Denotes management contract or compensatory arrangement | ||||
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EXHIBIT 10.3
EXECUTION VERSION
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this “Agreement”), dated as of October 26, 2021 (the “Amendment Effective Date”), is entered into among TELEDYNE TECHNOLOGIES INCORPORATED, a Delaware corporation (the “Company”), the Designated Borrowers (defined herein), the Subsidiary Guarantors (defined herein), the Lenders (defined herein) and BANK OF AMERICA, N.A., as Administrative Agent (the “Administrative Agent”).
RECITALS
WHEREAS, the Company, certain Subsidiaries of the Company party thereto (each a “Designated Borrower” and, together with the Company, the “Borrowers” and, each a “Borrower”), certain other Subsidiaries of the Company party thereto (each a “Subsidiary Guarantor”), the lenders from time to time party thereto (the “Lenders”) and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, have entered into that certain Amended and Restated Credit Agreement dated as of March 4, 2021 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the “Credit Agreement”);
WHEREAS, certain loans and/or other extensions of credit (the “Loans”) under the Credit Agreement denominated in Euros, Canadian Dollars and Sterling (collectively, the “Impacted Currencies”) incur or are permitted to incur interest, fees, commissions or other amounts based on the London Interbank Offered Rate as administered by the ICE Benchmark Administration (“LIBOR”) in accordance with the terms of the Credit Agreement; and
WHEREAS, applicable parties under the Credit Agreement have determined in accordance with the Credit Agreement that LIBOR for the Impacted Currencies should be replaced with a successor rate in accordance with the Credit Agreement and, in connection therewith, the Administrative Agent has determined that certain conforming changes are necessary or advisable.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms used herein but not otherwise defined herein (including on any Appendix attached hereto) shall have the meanings provided to such terms in the Credit Agreement, as amended by this Agreement.
2. Agreement. Notwithstanding any provision of the Credit Agreement or any other document related thereto (the “Loan Documents”) to the contrary, the parties hereto hereby agree that the terms set forth on Appendix A shall apply to the Impacted Currencies. For the avoidance of doubt, to the extent provisions in the Credit Agreement apply to the Impacted Currencies and such provisions are not specifically addressed by Appendix A, the provisions in the Credit Agreement shall continue to apply to the Impacted Currencies.
3. The following language is hereby added to Article X of the Credit Agreement as new Section 10.13:
10.13 Recovery of Erroneous Payments.
Teledyne Confidential; Commercially Sensitive Business Data | ||
Without limitation of any other provision in this Agreement, if at any time the Administrative Agent makes a payment for the account of the Lenders or the L/C Issuer hereunder, whether or not in respect of an Obligation due and owing by the Borrowers at such time, as to which the Administrative Agent determines (which determination shall be conclusive absent manifest error) that any of the following applies (such payment referred to as the “Rescindable Amount”): (1) the applicable Borrower has not in fact made such payment; (2) the Administrative Agent has made a payment in excess of the amount so paid by such Borrower (whether or not then owed); or (3) the Administrative agent has for any reason otherwise erroneously made such payment, then in any such event, each Lender receiving a Rescindable Amount severally agrees to repay to the Administrative Agent forthwith on demand the Rescindable Amount received by such Lender in Same Day Funds in the currency so received, with interest thereon, for each day from and including the date such Rescindable Amount is received by it to but excluding the date of payment to the Administrative Agent, at a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. Each Lender irrevocably waives any and all defenses, including any “discharge for value” (under which a creditor might otherwise claim a right to retain funds mistakenly paid by a third party in respect of a debt owed by another) or similar defense to its obligation to return any Rescindable Amount. The Administrative Agent shall inform each Lender promptly upon determining that any payment made to such Lender comprised, in whole or in part, a Rescindable Amount.
4. Paragraph 11.19 of the Credit Agreement is hereby amended and restated in its entirety as follows:
11.19 Electronic Execution of Assignments and Certain Other Documents.
This Agreement and any document, amendment, approval, consent, information, notice, certificate, request, statement, disclosure or authorization related to this Agreement (each a “Communication”), may, if agreed by the Administrative Agent, be in the form of an Electronic Record and may be executed using Electronic Signatures (including, without limitation, facsimile and .pdf) and shall be considered an original, and shall have the same legal effect, validity and enforceability as a paper record. This Agreement may be executed in as many counterparts as necessary or convenient, including both paper and electronic counterparts, but all such counterparts are one and the same Agreement. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Administrative Agent of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format), or an electronically signed Communication converted into another format, for transmission, delivery and/or retention. Notwithstanding anything contained herein to the contrary, the Administrative Agent is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it; provided, further, without limiting the foregoing, (a) to the extent the Administrative Agent has agreed to accept such Electronic Signature, the Administrative Agent shall be entitled to rely on any such Electronic Signature without further verification and (b) upon the request of the Administrative Agent any Electronic Signature shall be promptly followed by a manually executed, original counterpart. For purposes hereof, “Electronic Record” and “Electronic
Teledyne Confidential; Commercially Sensitive Business Data | ||
Signature” shall have the meanings assigned to them, respectively, by 15 USC §7006, as it may be amended from time to time.
5. Conflict with Loan Documents. In the event of any conflict between the terms of this Agreement and the terms of the Credit Agreement or the other Loan Documents, the terms hereof shall control.
6. Conditions Precedent. This Agreement shall become effective upon receipt by the Administrative Agent of counterparts of this Agreement, properly executed by the Borrowers, the Administrative Agent and the Lenders.
7. Payment of Expenses. The Borrowers agree to reimburse the Administrative Agent for all reasonable fees, charges and disbursements of the Administrative Agent in connection with the preparation, execution and delivery of this Agreement, including all reasonable fees, charges and disbursements of counsel to the Administrative Agent (paid directly to such counsel if requested by the Administrative Agent).
8. Miscellaneous.
(a)The Loan Documents, and the obligations of the Borrowers under the Loan Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms. This Agreement is a Loan Document.
(b)Each Borrower (i) acknowledges and consents to all of the terms and conditions of this Agreement, (ii) affirms all of its obligations under the Loan Documents and (iii) agrees that this Agreement and all documents executed in connection herewith do not operate to reduce or discharge its obligations under the Loan Documents.
(c)Each Borrower represents and warrants that:
(i) The execution, delivery and performance by such Person of this Agreement is within such Person’s organizational powers and has been duly authorized by all necessary organizational, partnership, member or other action, as applicable, as may be necessary or required.
(ii) This Agreement has been duly executed and delivered by such Person, and constitutes a valid and binding obligation of such Person, enforceable against it in accordance with the terms hereof, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity.
(iii) The execution and delivery by such Person of this Agreement and performance by such Person of this Agreement have been duly authorized by all necessary corporate or other organizational action, and do not and will not (i)contravene the terms of its certificate or articles of incorporation or organization or other applicable constitutive documents, (ii)conflict with or result in any breach or contravention of, or the creation of any lien under, or require any payment to be made under (x)any contractual obligation to which such Person is a party or affecting such Person or the properties of such Person or any subsidiary thereof or (y)any order, injunction, writ or decree of any
Teledyne Confidential; Commercially Sensitive Business Data | ||
governmental authority or any arbitral award to which such Person or any subsidiary thereof or its property is subject or (c)violate any law.
(iv) Before and after giving effect to this Agreement, (A) all representations and warranties of such Person set forth in the Loan Documents are true and correct in all material respects (and in all respects if any such representation or warranty is already qualified by materiality (after giving effect to such materiality qualification)) on and as of the Amendment Effective Date (except to the extent that such representations and warranties specifically refer to an earlier date, in which case they were true and correct in all material respects (and in all respects if any such representation or warranty is already qualified by materiality (after giving effect to such materiality qualification)) as of such earlier date), and (B) no Event of Default exists.
(d)This Agreement may be in the form of an electronic record (in “.pdf” form or otherwise) and may be executed using electronic signatures, which shall be considered as originals and shall have the same legal effect, validity and enforceability as a paper record. This Agreement may be executed in as many counterparts as necessary or convenient, including both paper and electronic counterparts, but all such counterparts shall be one and the same Agreement. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Administrative Agent of a manually signed Agreement which has been converted into electronic form (such as scanned into “.pdf” format), or an electronically signed Agreement converted into another format, for transmission, delivery and/or retention.
(e)Any provision of this Agreement held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(f)The terms of the Credit Agreement with respect to governing law, submission to jurisdiction, waiver of venue and waiver of jury trial are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.
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Each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.
| COMPANY: | TELEDYNE TECHNOLOGIES INCORPORATED, a Delaware corporation | ||||
By: /s/ Susan L. Main___________________ Name: Susan L. Main Title: Senior Vice President and Chief Financial Officer | |||||
| DESIGNATED BORROWERS: | TELEDYNE NETHERLANDS B.V., a Dutch company with limited liability having its official seat (statutaire zetel) in Amsterdam, the Netherlands, registered with the Dutch trade register under number 52020444 | ||||
By: /s/ Stephen F. Blackwood_____________ Name: Stephen F. Blackwood Title: Authorized Signatory TELEDYNE DIGITAL IMAGING, INC., an Ontario, Canada corporation By: /s/ Stephen F. Blackwood_____________ Name: Stephen F. Blackwood Title: Senior Vice President and Treasurer | |||||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| SUBSIDIARY GUARANTORS | TELEDYNE FLIR, LLC, a Delaware limited liability company By: /s/ Susan L. Main___________________ Name: Susan L. Main Title: Senior Vice President | ||||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A.,
as Administrative Agent
By: /s/ Maurice Washington
Name: Maurice Washington
Title: Vice President
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| LENDERS: | BANK OF AMERICA, N.A., as a Lender, L/C Issuer and Swing Line Lender | ||||
By: _/s/ Mukesh Singh_______________________ Name: Mukesh Singh Title: Director | |||||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| JPMORGAN CHASE BANK, N.A., as a Lender | ||
By: __/s/ Jonathan Bennett_____________________ Name: Jonathan Bennett Title: Executive Director | ||
Teledyne Confidential; Commercially Sensitive Business Data | ||
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
U.S. BANK NATIONAL ASSOCIATION, as a Lender | |||||
By: __/s/ Steven L. Sawyer__________________________ Name: Steven L. Sawyer Title: Senior Vice President | |||||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| BANK OF MONTREAL, as a Lender | ||
By: __/s/ Joshua Hovermale_____ Name: Joshua Hovermale Title: Director | ||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
MUFG BANK, LTD., as a Lender | |||||
By: __/s/ Victor Pierzchalski___________________________ Name: Victor Pierzchalski Title: Authorized Signatory | |||||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| PNC BANK, NATIONAL ASSOCIATION, as a Lender | ||
By: __/s/ Sean Piper___________________ Name: Sean Piper Title: VP | ||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
TRUIST BANK, as a Lender | |||||
By: __/s/ Jonathan Hart____________________________ Name: Jonathan Hart Title: Director | |||||
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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| BANK OF THE WEST, as a Lender | ||
By: __/s/ Tricia Landry___________________________ Name: Tricia Landry Title: Director | ||
Teledyne Confidential; Commercially Sensitive Business Data | ||
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| CITY NATIONAL BANK, as a Lender | ||
By: __/s/ Katie McDowell_________________________ Name: Katie McDowell Title: Senior Vice President | ||
Teledyne Confidential; Commercially Sensitive Business Data | ||
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
| HSBC BANK USA, NATIONAL ASSOCIATION, as a Lender | ||
By: __/s/ Tomoko Hoffman________________________ Name: Tomoko Hoffman, #22682 Title: SVP | ||
Teledyne Confidential; Commercially Sensitive Business Data | ||
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THE BANK OF NEW YORK MELLON, as a Lender | ||
By: __/s/_John T. Smathers_______________________ Name: John T. Smathers Title: Director | ||
Teledyne Confidential; Commercially Sensitive Business Data | ||
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THE NORTHERN TRUST COMPANY, as a Lender | ||
By: __/s/_Jeffrey Leets___________________________ Name: Jeffrey Leets Title: Vice President | ||
Teledyne Confidential; Commercially Sensitive Business Data | ||
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
KEYBANK NATIONAL ASSOCIATION, as a Lender | ||
By: __/s/_David Raczka_________________________ Name: David Raczka Title: Senior Vice President | ||
Teledyne Confidential; Commercially Sensitive Business Data | ||
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
Appendix A
TERMS APPLICABLE TO ALTERNATIVE CURRENCY LOANS
1. Defined Terms. The following terms shall have the meanings set forth below:
“Administrative Agent’s Office” means, with respect to any currency, the Administrative Agent’s address and, as appropriate, account specified in the Credit Agreement with respect to such currency, or such other address or account with respect to such currency as the Administrative Agent may from time to time notify the Company and the Lenders.
“Alternative Currency” means each of the following currencies: Euro, Canadian Dollar, Swedish Krona (solely with respect to issuing Letters of Credit), Sterling and each other currency (other than Dollars) that is approved in accordance with Section 1.05 of the Credit Agreement.
“Alternative Currency Daily Rate” means, for any day, with respect to any extension of credit under the Credit Agreement denominated in Sterling, the rate per annum equal to SONIA determined pursuant to the definition thereof plus the SONIA Adjustment; provided, that, if any Alternative Currency Daily Rate shall be less than zero, such rate shall be deemed zero for purposes of this Agreement. Any change in an Alternative Currency Daily Rate shall be effective from and including the date of such change without further notice.
“Alternative Currency Daily Rate Loan” means a Loan that bears interest at a rate based on the definition of “Alternative Currency Daily Rate.” All Alternative Currency Daily Rate Loans must be denominated in an Alternative Currency.
1“Alternative Currency Loan” means an Alternative Currency Daily Rate Loan or an Alternative Currency Term Rate Loan, as applicable.
“Alternative Currency Term Rate” means, for any Interest Period, with respect to any extension of credit under the Credit Agreement:
(a)denominated in Euros, the rate per annum equal to the Euro Interbank Offered Rate (“EURIBOR”), as published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) on the day that is two TARGET Days preceding the first day of such Interest Period with a term equivalent to such Interest Period; and
(b)denominated in Canadian Dollars, the rate per annum equal to the Canadian Dollar Offered Rate, as published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) (the “CDOR Rate”) on the first day of such Interest Period (or if such day is not a Business Day, then on the immediately preceding Business Day) with a term equivalent to such Interest Period;
provided, that, if any Alternative Currency Term Rate shall be less than zero, such rate shall be deemed zero for purposes of this Agreement;
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“Alternative Currency Term Rate Loan” means a Loan that bears interest at a rate based on the definition of “Alternative Currency Term Rate.” All Alternative Currency Term Rate Loans must be denominated in an Alternative Currency.
“Applicable Authority” means, with respect to any Alternative Currency, the applicable administrator for the Relevant Rate for such Alternative Currency or any governmental authority having jurisdiction over the Administrative Agent or such administrator.
“Applicable Rate” means the Applicable Rate, Applicable Margin or any similar or analogous definition in the Credit Agreement.
“Base Rate” means the Base Rate or any similar or analogous definition in the Credit Agreement.
“Base Rate Loans” means a Loan that bears interest at a rate based on the Base Rate.
“Borrowing” means a Borrowing or any similar or analogous definition in the Credit Agreement.
1“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located; provided that
(a) if such day relates to any interest rate settings as to an Alternative Currency Loan denominated in Euro, any fundings, disbursements, settlements and payments in Euro in respect of any such Alternative Currency Loan, or any other dealings in Euro to be carried out pursuant to this Agreement in respect of any such Alternative Currency Loan, means a Business Day that is also a TARGET Day;
(b) if such day relates to any interest rate settings as to an Alternative Currency Loan denominated in Sterling, means a day other than a day banks are closed for general business in London because such day is a Saturday, Sunday or a legal holiday under the laws of the United Kingdom; and
(c) if such day relates to any fundings, disbursements, settlements and payments in a currency other than Euro in respect of an Alternative Currency Loan denominated in a currency other than Euro, or any other dealings in any currency other than Euro to be carried out pursuant to this Agreement in respect of any such Alternative Currency Loan (other than any interest rate settings), means any such day on which banks are open for foreign exchange business in the principal financial center of the country of such currency.
“Canadian Prime Rate” means, for any day, a fluctuating rate of interest per annum equal to the per annum rate of interest announced as the “prime rate” of the Canada branch of the Administrative Agent which it quotes or establishes for such day as its reference rate of interest in order to determine interest rates for commercial loans in Canadian Dollars in Canada to its Canadian borrowers. Such prime rate is based on various factors including cost and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the
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“prime rate” shall take effect at the opening of business on the day specified in the public announcement of such change.
“Canadian Prime Rate Loan” means an Alternative Currency Loan that bears interest based on the Canadian Prime Rate. All Canadian Prime Rate Loans shall be denominated in Canadian Dollars.
“CDOR Rate” has the meaning specified in clause (b) of the definition of “Alternative Currency Term Rate.”
“Conforming Changes” means, with respect to the use, administration of or any conventions associated with SONIA, EURIBOR, the CDOR Rate or any proposed Successor Rate for any currency, any conforming changes to the definitions of “SONIA”, “EURIBOR”, “CDOR Rate”, “Interest Period”, timing and frequency of determining rates and making payments of interest and other technical, administrative or operational matters (including, for the avoidance of doubt, the definition of “Business Day”, timing of borrowing requests or prepayment, conversion or continuation notices and length of lookback periods) as may be appropriate, in the discretion of the Administrative Agent, to reflect the adoption and implementation of such applicable rate(s) and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice for such currency (or, if the Administrative Agent determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such rate for such currency exists, in such other manner of administration as the Administrative Agent determines is reasonably necessary in connection with the administration of this Agreement and any other Loan Document).
“Dollar” and “$” mean lawful money of the United States.
“Dollar Equivalent” means the Dollar Equivalent or any similar or analogous definition in the Credit Agreement.
“Eurocurrency Rate” means Eurocurrency Rate, LIBOR, LIBOR Rate or any similar or analogous definition in the Credit Agreement.
“Eurocurrency Rate Loans” means a Loan that bears interest at a rate based on the Eurocurrency Rate.
“Interest Payment Date” means, (a) as to any Alternative Currency Daily Rate Loan, the last Business Day of each month and the applicable maturity date set forth in the Credit Agreement and (b) as to any Alternative Currency Term Rate Loan, the last day of each Interest Period applicable to such Loan; provided, however, that if any Interest Period for an Alternative Currency Term Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall be Interest Payment Dates.
“Interest Period” means as to each Alternative Currency Term Rate Loan, the period commencing on the date such Alternative Currency Term Rate Loan is disbursed or converted to or continued as an Alternative Currency Term Rate Loan and ending on the date one, three or six months thereafter (in each case, subject to availability for the interest rate applicable to the relevant currency), as selected by the applicable Borrower in its Loan Notice, or such other period that is twelve months or less requested by the applicable Borrower and consented to by all the Lenders; provided that:
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(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless, in the case of an Alternative Currency Term Rate Loan, such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period pertaining to an Alternative Currency Term Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the applicable maturity date set forth in the Credit Agreement.
“Loan Notice” means a Loan Notice or any similar or analogous definition in the Credit Agreement, and such term shall be deemed to include the Loan Notice attached hereto as Exhibit A.
“Relevant Rate” means, with respect to any Loan denominated in (a) Sterling, SONIA, (b) Canadian Dollars, the CDOR Rate and (c) Euros, EURIBOR, as applicable.
“Required Lenders” means the Required Lenders or any similar or analogous definition in the Credit Agreement, subject to Section 2(h) of this Appendix A.
“Revaluation Date” means, with respect to any Loan, each of the following: (a) each date of a Borrowing of an Alternative Currency Loan, (b) with respect to an Alternative Currency Daily Rate Loan, each Interest Payment Date, (c) each date of a continuation of an Alternative Currency Term Rate Loan pursuant to the terms of the Credit Agreement, and (d) such additional dates as the Administrative Agent shall determine or the Required Lenders shall require.
“SONIA” means, with respect to any applicable determination date, the Sterling Overnight Index Average Reference Rate published on the fifth Business Day preceding such date on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time); provided however that if such determination date is not a Business Day, SONIA means such rate that applied on the first Business Day immediately prior thereto.
“SONIA Adjustment” means, with respect to SONIA, 0.0326% (3.26 basis points) per annum.
“Successor Rate” has the meaning set forth in Section 2(h).
“TARGET2” means the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilizes a single shared platform and which was launched on November 19, 2007.
“TARGET Day” means any day on which TARGET2 (or, if such payment system ceases to be operative, such other payment system, if any, determined by the Administrative Agent to be a suitable replacement) is open for the settlement of payments in Euro.
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“Type” means, with respect to a Loan, its character as a Base Rate Loan, a Eurocurrency Rate Loan, an Alternative Currency Daily Rate Loan or an Alternative Currency Term Rate Loan.
2. Terms Applicable to Alternative Currency Loans. From and after the Amendment Effective Date, the parties hereto agree as follows:
(a) Alternative Currencies. (i) No Alternative Currency shall be considered a currency for which there is a published LIBOR rate, and (ii) any request for a new Loan denominated in an Alternative Currency, or to continue an existing Loan denominated in an Alternative Currency, shall be deemed to be a request for a new Loan bearing interest at the Alternative Currency Daily Rate or Alternative Currency Term Rate, as applicable; provided, that, to the extent any Loan bearing interest at the Eurocurrency Rate is outstanding on the Amendment Effective Date, such Loan shall continue to bear interest at the Eurocurrency Rate until the end of the current Interest Period or payment period applicable to such Loan unless, in the case of a Loan that bears interest at a daily floating rate, such daily floating rate is no longer representative or being made available, in which case such Loan shall bear interest at the applicable Alternative Currency Rate immediately upon the effectiveness of this Agreement.
(b) References to Eurocurrency Rate and Eurocurrency Rate Loans in the Credit Agreement and Loan Documents.
(i) References to the Eurocurrency Rate and Eurocurrency Rate Loans in provisions of the Credit Agreement and the other Loan Documents that are not specifically addressed herein (other than the definitions of Eurocurrency Rate and Eurocurrency Rate Loan) shall be deemed to include Alternative Currency Daily Rates, Alternative Currency Term Rates, and Alternative Currency Loans, as applicable.
(ii) For purposes of any requirement for the Borrowers to compensate Lenders for losses in the Credit Agreement resulting from any continuation, conversion, payment or prepayment of any Alternative Currency Loan on a day other than the last day of any Interest Period (as defined in the Credit Agreement), references to the Interest Period (as defined in the Credit Agreement) shall be deemed to include any relevant interest payment date or payment period for an Alternative Currency Loan.
(c) Interest Rates. The Administrative Agent does not warrant, nor accept responsibility, nor shall the Administrative Agent have any liability with respect to the administration, submission or any other matter related to the rates in the definition of “Alternative Currency Daily Rate”, “Alternative Currency Term Rate” or with respect to any rate (including, for the avoidance of doubt, the selection of such rate and any related spread or other adjustment) that is an alternative or replacement for or successor to any such rate or the effect of any of the foregoing, or of any Conforming Changes.
(d) Revaluation Dates. The Administrative Agent shall determine the Dollar Equivalent amounts of Borrowings and Loans denominated in Alternative Currencies. Such Dollar Equivalent shall become effective as of such Revaluation Date and shall be the Dollar Equivalent of such amounts until the next Revaluation Date to occur.
(e) Borrowings and Continuations of Alternative Currency Loans. In addition to any other borrowing requirements set forth in the Credit Agreement:
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(i) Alternative Currency Loans. Each Borrowing of Alternative Currency Loans, and each continuation of an Alternative Currency Term Rate Loan shall be made upon the applicable Borrower’s irrevocable notice to the Administrative Agent, which may be given by (A) telephone or (B) a Loan Notice; provided that any telephonic notice must be confirmed immediately by delivery to the Administrative Agent of a Loan Notice. Each such Loan Notice must be received by the Administrative Agent not later than 11:00 a.m. (Eastern time) three Business Days (or five Business Days in the case of a Special Notice Currency or a Loan bearing interest based on SONIA) prior to the requested date of any Borrowing or, in the case of Alternative Currency Term Rate Loans, any continuation. Each Borrowing of or continuation of Alternative Currency Loans shall be in a principal amount of the Dollar Equivalent of $3,000,000 or a whole multiple of the Dollar Equivalent of $500,000 in excess thereof. Each Loan Notice shall specify (i) whether the applicable Borrower is requesting a Borrowing or a continuation of Alternative Currency Term Rate Loans, (ii) the requested date of the Borrowing or continuation, as the case may be (which shall be a Business Day), (iii) the currency and principal amount of Loans to be borrowed or continued, (iv) the Type of Loans to be borrowed, (v) if applicable, the duration of the Interest Period with respect thereto. If the applicable Borrower fails to specify a currency in a Loan Notice requesting a Borrowing, then the Loans so requested shall be made in Dollars. If the applicable Borrower fails to specify a Type of Loan in a Loan Notice or if such Borrower fails to give a timely notice requesting a continuation, then the applicable Loans shall be made as Base Rate Loans denominated in Dollars; provided, however, that in the case of a failure to timely request a continuation of Alternative Currency Term Rate Loans, such Loans shall be continued as Alternative Currency Term Rate Loans in their original currency with an Interest Period of one (1) month. If the applicable Borrower requests a Borrowing of or continuation of Alternative Currency Term Rate Loans in any such Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. Except as otherwise specified in the Credit Agreement, no Alternative Currency Loan may be converted into or continued as a Loan denominated in a different currency, but instead must be repaid in the original currency of such Alternative Currency Loan and reborrowed in the other currency.
(ii) Conforming Changes. With respect to any Alternative Currency Rate the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein, in the Credit Agreement or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement, the Credit Agreement or any other Loan Document; provided, that, with respect to any such amendment effected, the Administrative Agent shall post each such amendment implementing such Conforming Changes to the Borrowers and the Lenders reasonably promptly after such amendment becomes effective.
(iii) Loan Notice. For purposes of a Borrowing of Alternative Currency Loans, or a continuation of and Alternative Currency Term Rate Loan, the applicable Borrower shall use the Loan Notice attached hereto as Exhibit A.
(f) Interest.
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(i) Subject to the provisions of the Credit Agreement with respect to default interest, (x) each Alternative Currency Daily Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Alternative Currency Daily Rate plus the Applicable Rate; and (y) each Alternative Currency Term Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Alternative Currency Term Rate for such Interest Period plus the Applicable Rate.
(ii) Interest on each Alternative Currency Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified the Credit Agreement. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any debtor relief law.
(g) Computations. All computations of interest for Alternative Currency Loans (other than Loans bearing interest based on EURIBOR, which shall be made on the basis of a year of 360 days) shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed, or, in the case of interest in respect of Alternative Currency Loans as to which market practice differs from the foregoing, in accordance with such market practice. Interest shall accrue on each Alternative Currency Loans for the day on which the Alternative Currency Loans is made, and shall not accrue on an Alternative Currency Loans, or any portion thereof, for the day on which the Alternative Currency Loans or such portion is paid, provided that any Alternative Currency Loans that is repaid on the same day on which it is made shall, subject to the terms of the Credit Agreement, bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
(h) Inability to Determine Rate; Successor Rates.
(i) Defined Terms. For purposes of this Section 2(h), those Lenders that either have not made, or do not have an obligation under the Credit Agreement to make, the relevant Loans in the relevant Alternative Currency shall be excluded from any determination of Required Lenders.
(ii) Inability to Determine Rates. If in connection with any request for an Alternative Currency Loan or a continuation of any of such Loans, as applicable, (A) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that (x) no Successor Rate for the Relevant Rate for the applicable currency has been determined in accordance with Section 2(h)(iii) and the circumstances under clause (x) of Section 2(h)(iii) or the Scheduled Unavailability Date has occurred with respect to such Relevant Rate (as applicable), or (y) adequate and reasonable means do not otherwise exist for determining the Relevant Rate for the applicable currency for any determination date(s) or requested Interest Period, as applicable, with respect to a proposed Alternative Currency Loan, or (B) the Administrative Agent or the Required Lenders determine that for any reason that the Relevant Rate with respect to a proposed Loan denominated in an a currency for any requested Interest Period or determination date(s) does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Company and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain Loans in the affected currencies, as applicable, shall be suspended in each case to
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the extent of the affected Alternative Currency Loans or Interest Period or determination date(s), as applicable, in each case until the Administrative Agent (or, in the case of a determination by the Required Lenders described in clause (B) of this Section, until the Administrative Agent upon instruction of the Required Lenders) revokes such notice.
Upon receipt of such notice, (A) the applicable Borrower may revoke any pending request for a Borrowing of, or continuation of Alternative Currency Loans to the extent of the affected Alternative Currency Loans or Interest Period or determination date(s), as applicable or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans denominated in Dollars in the Dollar Equivalent of the amount specified therein and (B) any outstanding affected Alternative Currency Loans, at the applicable Borrower’s election, shall either (1) be converted into a Borrowing of Base Rate Loans denominated in Dollars in the Dollar Equivalent of the amount of such outstanding Alternative Currency Loan (or in the case of a Borrowing of CDOR Rate Loans, into a Borrowing of Canadian Prime Rate Loans, without giving effect to the CDOR Rate component thereof) immediately, in the case of an Alternative Currency Daily Rate Loan or at the end of the applicable Interest Period, in the case of an Alternative Currency Term Rate Loan or (2) be prepaid in full immediately, in the case of an Alternative Currency Daily Rate Loan, or at the end of the applicable Interest Period, in the case of an Alternative Currency Term Rate Loan; provided that if no election is made by the applicable Borrower (x) in the case of an Alternative Currency Daily Rate Loan, by the date that is three Business Days after receipt by such Borrower of such notice or (y) in the case of an Alternative Currency Term Rate Loan, by the last day of the current Interest Period for the applicable Alternative Currency Term Rate Loan, the applicable Borrower shall be deemed to have elected clause (1) above.
(iii) Replacement of Relevant Rate or Successor Rate. Notwithstanding anything to the contrary in this Agreement, the Credit Agreement or any other Loan Documents, if the Administrative Agent determines (which determination shall be conclusive absent manifest error), or the Company or Required Lenders notify the Administrative Agent (with, in the case of the Required Lenders, a copy to the Company) that the Company or Required Lenders (as applicable) have determined, that:
(x) adequate and reasonable means do not exist for ascertaining the Relevant Rate for an Alternative Currency because none of the tenors of such Relevant Rate (including any forward-looking term rate thereof) is available or published on a current basis and such circumstances are unlikely to be temporary; or
(y) the Applicable Authority has made a public statement identifying a specific date after which all tenors of the Relevant Rate for an Alternative Currency (including any forward-looking term rate thereof) shall or will no longer be representative or made available, or used for determining the interest rate of loans denominated in such Alternative Currency, or shall or will otherwise cease, provided that, in each case, at the time of such statement, there is no successor administrator that is satisfactory to the Administrative Agent that will continue to provide such representative tenor(s) of the Relevant Rate for such Alternative Currency (the latest date on which all tenors of the Relevant Rate for such Alternative Currency (including any forward-looking term rate thereof) are no longer representative or available permanently or indefinitely, the “Scheduled Unavailability Date”); or
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(z) syndicated loans currently being executed and agented in the United States, are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace the Relevant Rate for an Alternative Currency;
or if the events or circumstances of the type described in Section 2(h)(iii)(x), (iii)(y) or (iii)(z) of this Appendix A have occurred with respect to the Successor Rate then in effect, then, the Administrative Agent and the Borrowers may amend this Agreement solely for the purpose of replacing the Relevant Rate for an Alternative Currency or any then current Successor Rate for an Alternative Currency in accordance with this Section 2(h)(iii) with an alternative benchmark rate giving due consideration to any evolving or then existing convention for similar credit facilities syndicated and agented in the United States and denominated in such Alternative Currency for such alternative benchmarks, and, in each case, including any mathematical or other adjustments to such benchmark giving due consideration to any evolving or then existing convention for similar credit facilities syndicated and agented in the United States and denominated in such Alternative Currency for such benchmarks, which adjustment or method for calculating such adjustment shall be published on an information service as selected by the Administrative Agent from time to time in its reasonable discretion and may be periodically updated (and any such proposed rate, including for the avoidance of doubt, any adjustment thereto, a “Successor Rate”), and any such amendment shall become effective at 5:00 p.m. on the fifth Business Day after the Administrative Agent shall have posted such proposed amendment to all Lenders and the Company unless, prior to such time, Lenders comprising the Required Lenders have delivered to the Administrative Agent written notice that such Required Lenders object to such amendment.
The Administrative Agent will promptly (in one or more notices) notify the Company and each Lender of the implementation of any Successor Rate.
Any Successor Rate shall be applied in a manner consistent with market practice; provided that to the extent such market practice is not administratively feasible for the Administrative Agent, such Successor Rate shall be applied in a manner as otherwise reasonably determined by the Administrative Agent.
Notwithstanding anything else herein or in the Credit Agreement, if at any time any Successor Rate as so determined would otherwise be less than 0%, the Successor Rate will be deemed to be 0% for the purposes of this Agreement and the other Loan Documents.
In connection with the implementation of a Successor Rate, the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement; provided that, with respect to any such amendment effected, the Administrative Agent shall post each such amendment implementing such Conforming Changes to the Company and the Lenders reasonably promptly after such amendment becomes effective.
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Exhibit A
FORM OF LOAN NOTICE
(Alternative Currency Loans)
(Alternative Currency Loans)
Date: ___________, _____1
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement, dated as of March 4, 2021 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement;” the terms defined therein being used herein as therein defined), among Teledyne Technologies Incorporated, a Delaware corporation (the “Company”), certain Subsidiaries of the Company party thereto (each, a “Designated Borrower” and, together with the Company, the “Borrowers” and, each a “Borrower”), certain other Subsidiaries of the Company (each a “Subsidiary Guarantor”), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
The undersigned hereby requests (select one)2:
Indicate: Borrowing, Conversion or Continuation | Indicate: Borrower Name | Indicate: Requested Amount | Indicate: Currency | Indicate: Alternative Currency Daily Rate Loan or Alternative Currency Term Rate Loan | For Alternative Currency Term Rate Loans Indicate: Interest Period (e.g., 1, 3 or 6 month interest period) | ||||||||||||
1 Note to Borrowers. All requests submitted under a single Loan Notice must be effective on the same date. If multiple effective dates are needed, multiple Loan Notices will need to be prepared and signed.
2 Note to Borrowers. For multiple borrowings, conversions and/or continuations for a particular facility, fill out a new row for each borrowing/conversion and/or continuation.
The Borrowing, if any, requested herein complies with the requirements set forth in the Credit Agreement.
[TELEDYNE TECHNOLOGIES INCORPORATED, a Delaware corporation]/
[APPLICABLE DESIGNATED BORROWER]
By:
Name:
Title:
EXHIBIT 10.4
EXECUTION VERSION
THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT dated as of October 26, 2021 (the “Amendment”), is entered into among Teledyne Technologies Incorporated, a Delaware corporation (the “Company”), the Designated Borrower party hereto, the Guarantors party hereto, the Lenders party hereto (the “Consenting Lenders”) and Bank of America, N.A., as Administrative Agent (the “Administrative Agent”). All capitalized terms used herein and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement (as defined below).
RECITALS
WHEREAS, the Company, the Designated Borrower party thereto, the Guarantors from time to time party thereto, the Lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent entered into that certain Amended and Restated Term Loan Credit Agreement dated as of October 30, 2019 (as amended by that certain First Amendment to Amended and Restated Term Loan Credit Agreement, dated as of January 19, 2021, as amended by that certain Second Amendment to Amended and Restated Term Loan Credit Agreement, dated as of March 4, 2021, and as further amended, restated, amended and restated, supplemented, extended or otherwise modified from time to time, the “Credit Agreement”); and
WHEREAS, the Company has requested that the Lenders amend the Credit Agreement as set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Amendments.
(a) Section 1.01 of the Credit Agreement is amended to add the following new defined terms in the appropriate alphabetical order:
1“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (x) if the then-current Benchmark is a term rate, any tenor for such Benchmark that is or may be used for determining the length of an Interest Period or (y) otherwise, any payment period for interest calculated with reference to such Benchmark, as applicable, pursuant to this Agreement as of such date.
2“Benchmark” means, initially, LIBOR; provided that if a replacement of the Benchmark has occurred pursuant to Section 3.03(c) then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate. Any reference to “Benchmark” shall include, as applicable, the published component used in the calculation thereof.
3“Benchmark Replacement” means:
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(1)For purposes of Section 3.03(c)(i), the first alternative set forth below that can be determined by the Administrative Agent:
(a)the sum of: (i) Term SOFR and (ii) 0.11448% (11.448 basis points) for an Available Tenor of one-month’s duration, 0.26161% (26.161 basis points) for an Available Tenor of three-months’ duration, 0.42826% (42.826 basis points) for an Available Tenor of six-months’ duration, and 0.71513% (71.513 basis points) for an Available Tenor of twelve-months’ duration, or
(b)the sum of (i) Daily Simple SOFR and (ii) 0.11448% (11.448 basis points);
4provided that, if initially LIBOR is replaced with the rate contained in clause (b) above (Daily Simple SOFR plus the applicable spread adjustment) and subsequent to such replacement, the Administrative Agent determines that Term SOFR has become available and is administratively feasible for the Administrative Agent in its sole discretion, and the Administrative Agent notifies the Borrower and each Lender of such availability, then from and after the beginning of the Interest Period, relevant interest payment date or payment period for interest calculated, in each case, commencing no less than thirty (30) days after the date of such notice, the Benchmark Replacement shall be as set forth in clause (a) above; and
(2) For purposes of Section 3.03(c)(ii), the sum of (a) the alternate benchmark rate and (b) an adjustment (which may be a positive or negative value or zero), in each case, that has been selected by the Administrative Agent and the Borrower as the replacement Benchmark giving due consideration to any evolving or then-prevailing market convention, including any applicable recommendations made by a Relevant Governmental Body, for U.S. dollar-denominated syndicated credit facilities at such time;
1provided that, if the Benchmark Replacement as determined pursuant to clause (1) or 0 above would be less than 0%, the Benchmark Replacement will be deemed to be 0% for the purposes of this Agreement and the other Loan Documents.
Any Benchmark Replacement shall be applied in a manner consistent with market practice; provided that to the extent such market practice is not administratively feasible for the Administrative Agent, such Benchmark Replacement shall be applied in a manner as otherwise reasonably determined by the Administrative Agent.
5“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
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6“Benchmark Transition Event” means, with respect to any then-current Benchmark other than LIBOR, the occurrence of a public statement or publication of information by or on behalf of the administrator of the then-current Benchmark or a Governmental Authority with jurisdiction over such administrator announcing or stating that all Available Tenors are or will no longer be representative, or made available, or used for determining the interest rate of loans, or shall or will otherwise cease, provided that, at the time of such statement or publication, there is no successor administrator that is satisfactory to the Administrative Agent, that will continue to provide any representative tenors of such Benchmark after such specific date.
7“Daily Simple SOFR” with respect to any applicable determination date means the secured overnight financing rate (“SOFR”) published on such date by the Federal Reserve Bank of New York, as the administrator of the benchmark (or a successor administrator) on the Federal Reserve Bank of New York’s website (or any successor source).
8“Early Opt-in Effective Date” means, with respect to any Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders.
9“Early Opt-in Election” means the occurrence of:
(1)a determination by the Administrative Agent, or a notification by the Borrower to the Administrative Agent that the Borrower has made a determination, that U.S. dollar-denominated syndicated credit facilities currently being executed, or that include language similar to that contained in Section 3.03(c), are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR, and
(2)the joint election by the Administrative Agent and the Borrower to replace LIBOR with a Benchmark Replacement and the provision by the Administrative Agent of written notice of such election to the Lenders.
10“Index Debt” shall mean the Borrower’s long term, unsecured, senior, non-credit enhanced Indebtedness.
11“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.
12“Other Rate Early Opt-in” means the Administrative Agent and the Borrower have elected to replace LIBOR with a Benchmark Replacement other than a SOFR-based rate pursuant to (1) an Early Opt-in Election and (2) Section 3.03(c)(ii) and paragraph (2) of the definition of “Benchmark Replacement”.
13 “Relevant Governmental Body” means the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System or the Federal Reserve Bank of New York, or any successor thereto.
14“S&P” means Standard & Poor’s Financial Services LLC, a subsidiary of S&P Global Inc., and any successor thereto.
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15“SOFR Early Opt-in” means the Administrative Agent and the Borrower have elected to replace LIBOR pursuant to (1) an Early Opt-in Election and (2) Section 3.03(c)(i) and paragraph (1) of the definition of “Benchmark Replacement”.
16 “Term SOFR” means, for the applicable corresponding tenor (or if any Available Tenor of a Benchmark does not correspond to an Available Tenor for the applicable Benchmark Replacement, the closest corresponding Available Tenor and if such Available Tenor corresponds equally to two Available Tenors of the applicable Benchmark Replacement, the corresponding tenor of the shorter duration shall be applied), the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.
17
(b)the definition of “Alternative Currency” in Section 1.01 of the Credit Agreement is hereby amended by inserting the following new proviso at the end thereof:
; provided that, it is understood and agreed that the Loan was funded in full on the Closing Date in Dollars, and Borrowings in Alternative Currencies are no longer available.
(c)the definition of “Applicable Rate” in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows:
“Applicable Rate” means, the following percentages per annum, based upon the ratings established by S&P and Moody’s for the Index Debt as of the most recent determination date:
18
| Pricing Level | Company’s Index Debt Rating | Base Rate Loans | Eurocurrency Rate Loans | ||||||||
| 1 | BBB+/Baa1 or better | 0.125% | 1.125% | ||||||||
| 2 | BBB /Baa2 | 0.250% | 1.250% | ||||||||
| 3 | BBB-/ Baa3 | 0.375% | 1.375% | ||||||||
| 4 | BB+/ Ba1 | 0.625% | 1.625% | ||||||||
| 5 | BB/Ba2 or lower | 0.875% | 1.875% | ||||||||
For purposes of the foregoing, the applicable Pricing Level shall change on the date of any relevant change in the rating of the Index Debt by S&P or Moody’s. In the case of split ratings from S&P and Moody’s, the applicable Pricing Level will be based on the higher of the two ratings (e.g., BBB+/Baa2 results in Pricing Level 1), unless one of the ratings is two or more Pricing Levels lower than the other, in
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which case the Applicable Rate shall be determined by reference to the Pricing Level below the higher of the two ratings. If only one of S&P and Moody’s shall have a rating of the Index Debt in effect, the Applicable Rate shall be determined by reference to such available rating. If neither S&P or Moody’s shall have a rating of the Index Debt in effect, or if an Event of Default shall have occurred and be continuing, the ratings shall be deemed to be in Pricing Level 5. If the Company at any time does not hold outstanding Index Debt, then the Pricing Levels (and all other calculations based on the Index Debt) will be calculated on the basis of the Company’s corporate credit ratings announced by Moody’s or S&P from time to time.
(d)Section 2.10(b) of the Credit Agreement is hereby deleted in its entirety and replaced with “Reserved.”
19
(e)Section 3.03(c) of the Credit Agreement is hereby amended and restated in its entirety as follows:
2(c) Notwithstanding anything to the contrary herein or in any other Loan Document:
3
(i) On March 5, 2021 the Financial Conduct Authority (“FCA”), the regulatory supervisor of LIBOR’s administrator (“IBA”), announced in a public statement the future cessation or loss of representativeness of overnight/Spot Next, 1-week, 1-month, 2-month, 3-month, 6-month and 12- month U.S. dollar LIBOR tenor settings. On the earliest of (A) the date that all Available Tenors of U.S dollar LIBOR have permanently or indefinitely ceased to be provided by IBA or have been announced by the FCA pursuant to public statement or publication of information to be no longer representative, (B) June 30, 2023 and (C) the Early Opt-in Effective Date in respect of a SOFR Early Opt-in, if the then-current Benchmark is LIBOR, the Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to this Agreement or any other Loan Document. If the Benchmark Replacement is Daily Simple SOFR, all interest payments will be payable on a monthly basis.
(ii) (x) Upon (A) the occurrence of a Benchmark Transition Event or (B) a determination by the Administrative Agent that neither of the alternatives under clause (1) of the definition of Benchmark Replacement are available, the Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders (and any such objection shall be conclusive and binding absent manifest error); provided that solely in the event that the then-current Benchmark at the time of such Benchmark Transition Event is not a SOFR-based rate, the Benchmark Replacement therefor shall be determined in accordance with clause (1) of the definition of Benchmark Replacement unless the Administrative Agent determines that neither of such alternative rates is available.
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(y) On the Early Opt-in Effective Date in respect of an Other Rate Early Opt-in, the Benchmark Replacement will replace LIBOR for all purposes hereunder and under any Loan Document in respect of any setting of such Benchmark on such day and all subsequent settings without any amendment to, or further action or consent of any other party to this Agreement or any other Loan Document.
(iii) At any time that the administrator of the then-current Benchmark has permanently or indefinitely ceased to provide such Benchmark or such Benchmark has been announced by the regulatory supervisor for the administrator of such Benchmark pursuant to public statement or publication of information to be no longer representative of the underlying market and economic reality that such Benchmark is intended to measure and that representativeness will not be restored, the Borrower may revoke any request for a borrowing of, conversion to or continuation of Loans to be made, converted or continued that would bear interest by reference to such Benchmark until the Borrower’s receipt of notice from the Administrative Agent that a Benchmark Replacement has replaced such Benchmark, and, failing that, the Borrower will be deemed to have converted any such request into a request for a borrowing of or conversion to Base Rate Loans. During the period referenced in the foregoing sentence, the component of Base Rate based upon the Benchmark will not be used in any determination of Base Rate.
(iv) In connection with the implementation and administration of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement.
(v) The Administrative Agent will promptly notify the Borrower and the Lenders of (A) the implementation of any Benchmark Replacement and (B) the effectiveness of any Benchmark Replacement Conforming Changes. Any determination, decision or election that may be made by the Administrative Agent pursuant to this Section 3.03(c), including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action, will be conclusive and binding absent manifest error and may be made in its sole discretion and without consent from any other party hereto, except, in each case, as expressly required pursuant to this Section 3.03(c).
(vi) At any time (including in connection with the implementation of a Benchmark Replacement), (A) if the then-current Benchmark is a term rate (including Term SOFR or LIBOR), then the Administrative Agent may remove any tenor of such Benchmark that is unavailable or non-representative for Benchmark (including Benchmark Replacement) settings and (B) the Administrative Agent may reinstate any such previously removed tenor for Benchmark (including Benchmark Replacement) settings.
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(f)The following language is hereby added to Article X of the Credit Agreement as Section 10.13:
10.13 Recovery of Erroneous Payments.
Without limitation of any other provision in this Agreement, if at any time the Administrative Agent makes a payment for the account of the Lenders hereunder, whether or not in respect of an Obligation due and owing by the Borrower at such time, as to which the Administrative Agent determines (which determination shall be conclusive absent manifest error) that any of the following applies (such payment referred to as the “Rescindable Amount”): (1) the Borrower has not in fact made such payment; (2) the Administrative Agent has made a payment in excess of the amount so paid by the Borrower (whether or not then owed); or (3) the Administrative agent has for any reason otherwise erroneously made such payment, then in any such event, each Lender receiving a Rescindable Amount severally agrees to repay to the Administrative Agent forthwith on demand the Rescindable Amount received by such Lender in Same Day Funds in the currency so received, with interest thereon, for each day from and including the date such Rescindable Amount is received by it to but excluding the date of payment to the Administrative Agent, at a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. Each Lender irrevocably waives any and all defenses, including any “discharge for value” (under which a creditor might otherwise claim a right to retain funds mistakenly paid by a third party in respect of a debt owed by another) or similar defense to its obligation to return any Rescindable Amount. The Administrative Agent shall inform each Lender promptly upon determining that any payment made to such Lender comprised, in whole or in part, a Rescindable Amount.
(g)Paragraph 11.19 of the Credit Agreement is hereby amended and restated in its entirety as follows:
11.19 Electronic Execution of Assignments and Certain Other Documents.
This Agreement and any document, amendment, approval, consent, information, notice, certificate, request, statement, disclosure or authorization related to this Agreement (each a “Communication”), may, if agreed by the Administrative Agent, be in the form of an Electronic Record and may be executed using Electronic Signatures (including, without limitation, facsimile and .pdf) and shall be considered an original, and shall have the same legal effect, validity and enforceability as a paper record. This Agreement may be executed in as many counterparts as necessary or convenient, including both paper and electronic counterparts, but all such counterparts are one and the same Agreement. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Administrative Agent of a manually signed paper Communication which has been converted into electronic form (such as scanned into PDF format), or an electronically signed Communication converted into another format, for transmission, delivery and/or retention. Notwithstanding anything contained herein to the contrary, the Administrative Agent is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it; provided, further,
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without limiting the foregoing, (a) to the extent the Administrative Agent has agreed to accept such Electronic Signature, the Administrative Agent shall be entitled to rely on any such Electronic Signature without further verification and (b) upon the request of the Administrative Agent any Electronic Signature shall be promptly followed by a manually executed, original counterpart. For purposes hereof, “Electronic Record” and “Electronic Signature” shall have the meanings assigned to them, respectively, by 15 USC §7006, as it may be amended from time to time.
2.Conditions Precedent. This Amendment shall be effective upon satisfaction of the following conditions precedent (the date such conditions precedent are satisfied, the “Third Amendment Effective Date”):
(a)Receipt by the Administrative Agent of counterparts of this Amendment duly executed by the Company, the Designated Borrower, the Guarantors, the Consenting Lenders (constituting all of the Lenders) and Bank of America, N.A., as Administrative Agent.
(b)Unless waived by the Administrative Agent, the Company shall have paid all Attorney Costs of the Administrative Agent (directly to such counsel, if so requested by the Administrative Agent) to the extent invoiced prior to or on the Third Amendment Effective Date, plus such additional amounts of Attorney Costs as shall constitute its reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Company and the Administrative Agent).
3.Miscellaneous.
(a) The Credit Agreement, and the obligations of the Loan Parties thereunder and under the other Loan Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms.
(b) Each Loan Party (i) acknowledges and consents to all of the terms and conditions of this Amendment, (ii) affirms all of its obligations under the Loan Documents and (iii) agrees that this Amendment and all documents executed in connection herewith do not operate to reduce or discharge its obligations under the Credit Agreement or the Loan Documents.
(c) Each Loan Party hereby represents and warrants as follows:
(i) Each Loan Party has taken all necessary corporate or limited liability company action to authorize the execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered by the Loan Parties and constitutes each of the Loan Parties’ legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be limited by Debtor Relief Laws and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
(iii) No consent, approval, authorization or order of, or filing, registration or qualification with, any Governmental Authority or any other Person with respect to any
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Contractual Obligation is required in connection with the execution, delivery or performance by any Loan Party of this Amendment other than those that have already been obtained and are in full force and effect or the failure of which to have obtained would not reasonably be expected to have a Material Adverse Effect.
(d) After giving effect to this Amendment, the Loan Parties represent and warrant to the Lenders that (i) the representations and warranties of the Loan Parties set forth in Article VI of the Credit Agreement and in each other Loan Document are true and correct in all material respects (unless already qualified by materiality, in which case such representation and warranty is true and correct in all respects) as of the date hereof, except to the extent such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects (unless already qualified by materiality, in which case such representation and warranty is true and correct in all respects) as of such earlier date, and except that for purposes of this Amendment, the representations and warranties contained in Section 6.05(a) and (b) of the Credit Agreement shall be deemed to refer to the most recent statements furnished pursuant to Sections 7.01(a) and (b) of the Credit Agreement, respectively and (ii) no event has occurred and is continuing which constitutes a Default or an Event of Default.
(e) Each Lender party hereto represents and warrants that, after giving effect to this Amendment, the representations and warranties of such Lender set forth in the Credit Agreement are true and correct as of the Third Amendment Effective Date. Each Lender party hereto hereby agrees to comply with the covenants applicable to such Lender set forth in the Credit Agreement.
(f) This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or other electronic imaging means (e.g. “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Amendment.
(g) THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(h) The terms of Sections 11.14 and 11.15 of the Credit Agreement with respect to submission to jurisdiction, waiver of venue and waiver of right to trial by jury are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.
[remainder of page intentionally left blank]
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Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.
COMPANY: TELEDYNE TECHNOLOGIES INCORPORATED,
a Delaware corporation
By: /s/ Susan L. Main
Name: Susan L. Main
Title: Senior Vice President and Chief Financial Officer
DESIGNATED BORROWER: TELEDYNE NETHERLANDS B.V.,
a Dutch company with limited liability having its official seat (statutaire zetel) in Amsterdam, the Netherlands, registered with the Dutch trade register under number 52020444
By: /s/ Stephen F. Blackwood
Name: Stephen F. Blackwood
Title: Authorized Signatory
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
GUARANTORS: TELEDYNE FLIR, LLC,
a Delaware limited liability company
By: /s/ Susan L. Main
Name: Susan L. Main
Title: Senior Vice President
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
ADMINISTRATIVE AGENT: BANK OF AMERICA, N.A.,
as Administrative Agent
By: /s/ Maurice Washington
Name: Maurice Washington
Title: Vice President
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
LENDERS: BANK OF AMERICA, N.A.,
as a Lender
By: /s/ Mukesh Singh
Name: Mukesh Singh
Title: Director
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
JPMORGAN CHASE BANK, N.A.,
as a Lender
By: /s/ Jonathan Bennett
Name: Jonathan Bennett
Title: Executive Director
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
MUFG BANK, LTD.,
as a Lender
By: /s/ Victor Pierzchalski
Name: Victor Pierzchalski
Title: Authorized Signatory
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
PNC BANK NATIONAL ASSOCIATION,
as a Lender
By: /s/ Sean Piper
Name: Sean Piper
Title: VP
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
TRUIST BANK, formerly known as Branch Banking
and Trust Company,
as a Lender
By: /s/ Jonathan Hart
Name: Jonathan Hart
Title: Director
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THIRD AMENDMENT TO AMENDED AND RESTATED TERM LOAN CREDIT AGREEMENT
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Mehrabian, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Teledyne Technologies Incorporated (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d – 15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 28, 2021
| By: | /s/ Robert Mehrabian | ||||
| Robert Mehrabian | |||||
| Chairman, President and Chief Executive Officer | |||||
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Susan L. Main, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Teledyne Technologies Incorporated (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d – 15(f)) for the registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 28, 2021
| By: | /s/ Susan L. Main | ||||
| Susan L. Main | |||||
| Senior Vice President and Chief Financial Officer | |||||
Exhibit 32.1
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
I, Robert Mehrabian, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to my knowledge that:
1.the Quarterly Report on Form 10-Q of Teledyne Technologies Incorporated (the “Corporation”) for the quarter ended October 3, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
| By: | /s/ Robert Mehrabian | ||||
| Robert Mehrabian | |||||
| Chairman, President and Chief Executive Officer | |||||
| October 28, 2021 | |||||
Exhibit 32.2
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
18 U.S.C. Section 1350
I, Susan L. Main, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, to my knowledge that:
1.the Quarterly Report on Form 10-Q of Teledyne Technologies Incorporated (the “Corporation”) for the quarter ended October 3, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
.
| By: | /s/ Susan L. Main | ||||
| Susan L. Main | |||||
| Senior Vice President and Chief Financial Officer | |||||
| October 28, 2021 | |||||