Derivative Instruments

6 Months Ended

Jul. 03, 2011

Derivative Instruments [Abstract]

Derivative Instruments

Note 4. Derivative Instruments

Teledyne Technologies 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. Due to the February 2011 acquisition of DALSA, the Company began to utilize foreign currency forward contracts to reduce the volatility of cash flows primarily related to forecasted revenue and expenses denominated in Canadian dollars. In addition, from time to time, the Company may utilize foreign currency forward contracts to mitigate foreign exchange rate risk associated with foreign-currency-denominated monetary assets and liabilities, including intercompany receivables and payables. The gains and losses on these derivatives are intended to, at a minimum, partially offset the transaction gains and losses recognized in earnings. Under ASC 815, Derivatives and Hedging, all derivatives are recorded on the balance sheet at fair value. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on the use of the derivative and whether it is designated and qualifies for hedge accounting. Teledyne Technologies does not use foreign currency forward contracts for speculative or trading purposes.

Cash Flow Hedging Activities

In February 2011, Teledyne Technologies began utilizing foreign currency forward contracts which were designated and qualify as cash flow hedges. The effectiveness of the cash flow hedge contracts, excluding time value, is assessed prospectively and retrospectively on a monthly basis using regression analysis, as well as using other timing and probability criteria. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedges and must be highly effective in offsetting changes to future cash flows on hedged transactions. The effective portion of the cash flow hedge contracts’ gains or losses resulting from changes in the fair value of these hedges is initially reported, net of tax, as a component of accumulated other comprehensive income in stockholders’ equity until the underlying hedged item is reflected in our consolidated statements of income, at which time the effective amount in accumulated other comprehensive income is reclassified to cost of sales in our consolidated statements of income. The Company expects to reclassify a loss of approximately $0.5 million over the next 18 months.

In the event that the gains or losses in accumulated other comprehensive income are deemed to be ineffective, the ineffective portion of gains or losses resulting from changes in fair value, if any, is reclassified to interest and other income and expense. In the event that the underlying forecasted transactions do not occur, or it becomes remote that they will occur, within the defined hedge period, the gains or losses on the related cash flow hedges will be reclassified from accumulated other comprehensive income to interest and other income and expense. During the current reporting period, all forecasted transactions occurred and, therefore, there were no such gains or losses reclassified into interest and other income and expense. As of July 3, 2011, Teledyne Technologies had foreign currency forward contracts to buy Canadian dollars and to sell U.S. dollars totaling $98.7 million and these contracts had a fair value of $0.6 million on that date. These foreign currency forward contracts have maturities ranging from July 2011 to February 2013. As of January 2, 2011, we had no foreign currency forward contracts outstanding.

The effect of the gains and losses from our foreign currency forward contracts in our income statement for the second quarter and six months ended July 3, 2011 was immaterial.

	Second			Six
	Quarter			Months
(in millions)	2011			2011
Beginning balance of unrealized gain on derivative instruments	$	0.3		$	—
Change in unrealized gain on derivative instruments		(0.9	)		(0.6	)
Ending balance of unrealized gain on derivative instruments	$	(0.6	)	$	(0.6	)

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

Liability derivatives	Balance sheet location	July 3, 2011
Derivatives designated as hedging instruments:
Cash flow forward contracts	Other current
	liabilities	$	0.5
Total derivatives designated as hedging instruments			0.5
Derivatives not designated as hedging instruments:
Non-designated forward contracts	Other current
	liabilities		0.1
Total derivatives not designated as hedging instruments			0.1
Total liability derivatives		$	0.6