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 April 2, 2023

OR

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

For the transition period from             to             

Commission File Number: 1-15295

_____________________________________

TELEDYNE TECHNOLOGIES INCORPORATED

(Exact name of registrant as specified in its charter)

_____________________________________

Delaware		25-1843385
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1049 Camino Dos Rios
Thousand Oaks	California	91360-2362
(Address of principal executive offices)		(Zip Code)

805 373-4545

(Registrant’s telephone number, including area code)

____________________________________

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    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, a 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.

Large accelerated filer	☒	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 47,045,579 shares of common stock, $.01 par value per share, outstanding as of April 19, 2023.

TELEDYNE TECHNOLOGIES INCORPORATED

TABLE OF CONTENTS

		PAGE
Part I	Financial Information	2
	Item 1. Financial Statements	2
	Condensed Consolidated Statements of Income	2
	Condensed Consolidated Statements of Comprehensive Income (Loss)	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders' Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	23
	Item 4. Controls and Procedures	23
Part II	Other Information	23
	Item 1. Legal Proceedings	23
	Item 1A. Risk Factors	23
	Item 5. Other Information	23
	Item 6. Exhibits	25
Signatures		26

1

PART I FINANCIAL INFORMATION

Item 1.    Financial Statements

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE FIRST QUARTER ENDED APRIL 2, 2023 AND APRIL 3, 2022

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

	First Quarter
	2023		2022
Net sales	$	1,383.3	$	1,321.0
Costs and expenses
Cost of sales	790.7		752.6
Selling, general and administrative	300.4		291.3
Acquired intangible asset amortization	49.7		53.6
Total costs and expenses	1,140.8		1,097.5
Operating income (loss)	242.5		223.5
Interest and debt income (expense), net	(21.0)		(22.3)
Non-service retirement benefit income (expense), net	3.3		2.8
Other income (expense), net	(1.1)		(1.0)
Income (loss) before income taxes	223.7		203.0
Provision (benefit) for income taxes	44.9		(9.6)
Net income (loss) including noncontrolling interest	178.8		212.6
Less: Net income (loss) attributable to noncontrolling interest	0.1		—
Net income (loss) attributable to Teledyne	$	178.7	$	212.6
Basic earnings per common share	$	3.81	$	4.55
Weighted average common shares outstanding	46.9		46.7
Diluted earnings per common share	$	3.73	$	4.46
Weighted average diluted common shares outstanding	47.9		47.7

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

2

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE FIRST QUARTER ENDED APRIL 2, 2023 AND APRIL 3, 2022

(Unaudited - Amounts in millions)

	First Quarter
	2023		2022
Net income (loss) including noncontrolling interest	$	178.8	$	212.6
Other comprehensive income (loss):
Foreign exchange translation adjustment	(4.3)		(32.6)
Hedge activity, net of tax	2.5		6.5
Pension and postretirement benefit adjustments, net of tax	1.5		4.2
Other comprehensive income (loss)	(0.3)		(21.9)
Comprehensive income (loss) including noncontrolling interest	178.5		190.7
Comprehensive (income) loss attributable to noncontrolling interest	0.1		—
Comprehensive income (loss) attributable to Teledyne	$	178.4	$	190.7

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

3

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited - Amounts in millions, except share amounts)

	April 2, 2023		January 1, 2023
Assets
Current Assets
Cash and cash equivalents	$	665.2	$	638.1
Accounts receivable, net	827.9		883.7
Unbilled receivables, net	292.2		274.7
Inventories, net	951.7		890.7
Prepaid expenses and other current assets	145.4		130.7
Total current assets	2,882.4		2,817.9
Property, plant and equipment, net of accumulated depreciation and amortization of $876.2 at April 2, 2023 and $847.8 at January 1, 2023	765.3		769.8
Goodwill	7,925.5		7,873.0
Acquired intangibles, net	2,405.4		2,440.6
Prepaid pension assets	182.4		178.4
Other assets, net	268.3		274.3
Total Assets	$	14,429.3	$	14,354.0
Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Equity
Current Liabilities
Accounts payable	$	495.0	$	505.7
Accrued liabilities	692.9		717.6
Current portion of long-term debt	300.1		300.1
Total current liabilities	1,488.0		1,523.4
Long-term debt, net of current portion	3,520.3		3,620.5
Long-term deferred tax liabilities	482.4		490.0
Other long-term liabilities	569.2		547.2
Total Liabilities	6,059.9		6,181.1
Commitments and contingencies
Redeemable Noncontrolling Interest	3.7		3.7
Stockholders’ Equity
Preferred stock, $0.01 par value; outstanding shares - none	—		—
Common stock, $0.01 par value; authorized 125,000,000 shares; issued shares: 47,194,766 at April 2, 2023 and 47,194,766 at January 1, 2023; outstanding shares: 47,037,465 at April 2, 2023 and 46,912,635 at January 1, 2023	0.5		0.5
Additional paid-in capital	4,360.9		4,353.4
Retained earnings	4,740.5		4,561.8
Treasury stock, 157,301 shares at April 2, 2023 and 282,131 shares at January 1, 2023	(9.4)		(20.0)
Accumulated other comprehensive income (loss)	(726.8)		(726.5)
Total Stockholders’ Equity	8,365.7		8,169.2
Total Liabilities, Redeemable Noncontrolling Interest and Stockholders' Equity	$	14,429.3	$	14,354.0

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

4

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 1, 2023	$	0.5	$	4,353.4	$	(20.0)	$	4,561.8	$	(726.5)	$	8,169.2
Net income (loss)	—		—		—		178.7		—		178.7
Other comprehensive income (loss), net of tax	—		—		—		—		(0.3)		(0.3)
Treasury stock issued	—		(10.6)		10.6		—		—		—
Stock-based compensation	—		7.9		—		—		—		7.9
Exercise of stock options	—		10.2		—		—		—		10.2
Balance, April 2, 2023	0.5		4,360.9		(9.4)		4,740.5		(726.8)		8,365.7

	Common Stock		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance, January 2, 2022	$	0.5	$	4,317.1	$	(38.8)	$	3,773.2	$	(430.0)	$	7,622.0
Net income (loss)	—		—		—		212.6		—		212.6
Other comprehensive income (loss), net of tax	—		—		—		—		(21.9)		(21.9)
Treasury stock issued	—		(11.6)		11.6		—		—		—
Stock-based compensation	—		7.0		—		—		—		7.0
Exercise of stock options	—		12.7		—		—		—		12.7
Balance, April 3, 2022	0.5		4,325.2		(27.2)		3,985.8		(451.9)		7,832.4

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

5

TELEDYNE TECHNOLOGIES INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED APRIL 2, 2023 AND APRIL 3, 2022

(Unaudited - Amounts in millions)

	Three Months
	2023		2022
Operating Activities
Net income (loss) including noncontrolling interest	$	178.8	$	212.6
Adjustments to reconcile net income (loss) including noncontrolling interest to net cash provided by (used in) operating activities:
Depreciation and amortization	82.1		86.9
Stock-based compensation	7.9		9.0
Changes in operating assets and liabilities excluding the effect of business acquired:
Accounts receivable and unbilled receivables	50.0		(57.2)
Inventories	(57.6)		(56.6)
Accounts payable	(10.8)		33.1
Deferred and income taxes receivable/payable, net	7.2		5.6
Prepaid expenses and other assets	(11.3)		(2.4)
Accrued expenses and other liabilities	(34.6)		(451.5)
Other operating, net	(8.7)		3.8
Net cash provided by (used in) operating activities	203.0		(216.7)
Investing Activities
Purchases of property, plant and equipment	(24.4)		(21.0)
Purchase of businesses, net of cash acquired	(52.5)		—
Other investing, net	—		1.4
Net cash provided by (used in) investing activities	(76.9)		(19.6)
Financing Activities
Net borrowings from (repayments made to) credit facility	(100.0)		32.0
Payments on other debt	(0.1)		—
Proceeds from exercise of stock options	10.2		12.7
Maturity of cross currency swap	(13.5)		—
Other financing, net	—		(2.1)
Net cash provided by (used in) financing activities	(103.4)		42.6
Effect of exchange rate changes on cash	4.4		3.3
Change in cash and cash equivalents	27.1		(190.4)
Cash and cash equivalents—beginning of period	638.1		474.7
Cash and cash equivalents—end of period	$	665.2	$	284.3

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

6

TELEDYNE TECHNOLOGIES INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

April 2, 2023

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 1, 2023 (“2022 Form 10-K”).

In the opinion of 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 April 2, 2023 and the consolidated results of operations, consolidated comprehensive income (loss) and consolidated cash flows for the first quarter ended April 2, 2023. The results of operations and cash flows for the periods ended April 2, 2023 and cash flows for the three months ended April 2, 2023 are not necessarily indicative of the results of operations or cash flows to be expected for any subsequent quarter or the full fiscal year.

Recent Accounting Standards

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations. This standard requires annual disclosure of the key terms of supplier finance programs, obligations outstanding with a description of where the amounts are presented in the financial statements, a rollforward of such amounts, and interim disclosure of amounts outstanding as of the end of each period. The adoption of ASU 2022-04 did not have an impact on the Company's disclosures as the impact of supplier finance programs is not material to the Company's financial statements.

Note 2. Business Acquisitions

2023 Acquisitions

ChartWorld

During the first quarter of 2023, the Company acquired ChartWorld International Limited and affiliates ("ChartWorld") for $52.5 million in cash, net of cash acquired, and subject to certain adjustments. ChartWorld, headquartered in Cyprus, with additional locations in Germany, Singapore, Canada and Japan, is a provider of digital marine navigation hardware and software provided through an affordable subscription-based model. ChartWorld is part of the Digital Imaging segment. Goodwill resulting from the ChartWorld acquisition will not be deductible for tax purposes.

2022 Acquisitions

ETM

During the fourth quarter of 2022, Teledyne acquired ETM-Electromatic, Inc. ("ETM") for $87.7 million in cash, net of cash acquired, and subject to certain adjustments. ETM, headquartered in Newark, California, designs and manufactures high-power microwave and high-energy X-ray subsystems for cancer radiotherapy, defense and X-ray security applications. ETM is part of the Digital Imaging segment. Goodwill resulting from the ETM acquisition will not be deductible for tax purposes.

NL Acoustics

During the third quarter of 2022, the Company acquired an approximate 80% majority interest in Noiseless Acoustics Oy ("NL Acoustics"), paying $11.9 million in cash, net of cash acquired, during the year, with an immaterial amount payable in 2023. NL Acoustics, located in Helsinki, Finland, designs and manufactures acoustics imaging instruments and predictive maintenance solutions. NL Acoustics is part of the Digital Imaging segment. Goodwill resulting from the NL Acoustics acquisition will not be deductible for tax purposes.

The minority ownership interest in shares of NL Acoustics held by certain former owners and employees is classified as a redeemable noncontrolling interest on the consolidated balance sheet due to a put option under which the third party may require the Company to purchase the remaining ownership interest, with the put option exercisable beginning in the third quarter of 2025. The redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. Adjustments to the carrying value of the redeemable

7

noncontrolling interest are recorded through retained earnings. Changes in the redeemable noncontrolling interest balance during the period were not material.

The following tables show the purchase price (net of cash acquired), goodwill acquired, and acquired intangible assets for these acquisitions (in millions):

	2023
Acquisitions	Acquisition Date	Cash Paid (a)		Goodwill Acquired		Acquired Intangible Assets
ChartWorld	January 3, 2023	$	52.5	$	48.4	$	11.3
(a) Net of cash acquired
	2022
Acquisitions	Acquisition Date	Cash Paid (a)		Goodwill Acquired		Acquired Intangible Assets
ETM	October 28, 2022	$	87.7	$	33.5	$	20.9
NL Acoustics (acquisition of 80% interest)	July 15, 2022	11.9		11.6		3.8
Total		$	99.6	$	45.1	$	24.7
(a) Net of cash acquired; an immaterial portion of NL Acoustics will be paid in 2023.

The Company’s cost to acquire these acquisitions was allocated to the assets acquired and liabilities assumed based upon their respective fair values as of the date of the completion of the acquisition. The differences between the fair value of the consideration paid and the estimated fair value of the assets and liabilities acquired was recorded as goodwill. The fair value of the acquired identifiable assets and liabilities for these acquisitions is provisional pending finalization of the Company’s acquisition accounting, including the measurement of tax basis in certain jurisdictions and the resulting deferred taxes that might arise from book and tax basis differences, if any. Pro forma results of operations, the revenue and net income subsequent to the acquisition date, and a more detailed breakout of the major classes of assets and liabilities acquired for these acquisitions have not been presented because the effects of these acquisitions, individually and in the aggregate, were not material to the Company's financial results. The significant factors that resulted in recognition of goodwill for the 2022 and 2023 acquisitions included the acquired businesses’ market positions, growth opportunities in the markets in which they operate, their experienced work force and established operating infrastructures. The results of these acquisitions have been included in Teledyne’s results since the dates of their respective acquisition.

Note 3. Business Segments

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 include net sales and operating income by segment but excludes corporate office expenses. Corporate expense primarily includes various administrative expenses relating to the corporate office not allocated to our segments.

The following table presents net sales and operating income by segment (dollars in millions):

	First Quarter				%
	2023		2022		Change
Net sales (a):
Digital Imaging	$	772.5	$	750.5	2.9	%
Instrumentation	333.5		308.9		8.0	%
Aerospace and Defense Electronics	173.2		166.2		4.2	%
Engineered Systems	104.1		95.4		9.1	%
Total net sales	$	1,383.3	$	1,321.0	4.7	%
Operating income:
Digital Imaging	$	122.2	$	115.7	5.6	%
Instrumentation	80.7		71.6		12.7	%
Aerospace and Defense Electronics	47.0		42.9		9.6	%
Engineered Systems	10.0		9.4		6.4	%
Corporate expense	(17.4)		(16.1)		8.1	%
Operating income	$	242.5	$	223.5	8.5	%
(a) Net sales excludes inter-segment sales of $6.2 million and $5.5 million for the first quarter of 2023 and 2022, respectively.

8

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:	April 2, 2023		January 1, 2023
Digital Imaging	$	11,406.6	$	11,432.3
Instrumentation	1,634.6		1,626.4
Aerospace and Defense Electronics	554.5		540.1
Engineered Systems	188.3		200.3
Corporate	645.3		554.9
Total identifiable assets	$	14,429.3	$	14,354.0

Product Lines

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

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

	First Quarter
Instrumentation	2023		2022
Marine Instrumentation	$	128.2	$	111.9
Environmental Instrumentation	117.9		114.0
Test and Measurement Instrumentation	87.4		83.0
Total	$	333.5	$	308.9

Note 4. Revenue Recognition and Contract Balances

Approximately 70% of the Company's net sales are recognized at a point in time, with the remaining 30% of net sales recognized over time. The Company disaggregates its revenue from contracts with customers by customer type and geographic region for each segment, as management believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. With the exception of the Engineered Systems segment, net sales in each segment is primarily derived from fixed price contracts. Net sales in the Engineered Systems segment is typically between 45% and 55% fixed price contracts in a given reporting period, with the balance of net sales derived from cost-reimbursable type contracts. For the three months ended April 2, 2023, approximately 51% of net sales in the Engineered Systems segment were derived from fixed price contracts.

	First Quarter Ended April 2, 2023						First Quarter Ended April 2, 2023
	Customer Type						Geographic Region (c)
(in millions)	U.S. Govt. (a)		Other (b)		Total		United States		Europe		Asia		All other		Total
Net sales:
Digital Imaging	$	130.4	$	642.1	$	772.5	$	334.4	$	197.3	$	158.4	$	82.4	$	772.5
Instrumentation	23.0		310.5		333.5		138.0		97.2		67.5		30.8		333.5
Aerospace and Defense Electronics	64.7		108.5		173.2		120.1		29.5		17.0		6.6		173.2
Engineered Systems	93.4		10.7		104.1		103.3		—		0.2		0.6		104.1
Total	$	311.5	$	1,071.8	$	1,383.3	$	695.8	$	324.0	$	243.1	$	120.4	$	1,383.3

(a) U.S. Government sale include sales as a prime contractor or subcontractor.

(b) Primarily commercial sales

(c) Geographic region by destination

9

	First Quarter Ended April 3, 2022						First Quarter Ended April 3, 2022
	Customer Type						Geographic Region (c)
(in millions)	U.S. Govt. (a)		Other (b)		Total		United States		Europe		Asia		All other		Total
Net sales:
Digital Imaging	$	141.5	$	609.0	$	750.5	$	337.2	$	183.8	$	149.6	$	79.9	$	750.5
Instrumentation	22.4		286.5		308.9		133.4		80.9		65.6		29.0		308.9
Aerospace and Defense Electronics	59.9		106.3		166.2		123.9		22.6		14.2		5.5		166.2
Engineered Systems	86.4		9.0		95.4		95.0		—		0.2		0.2		95.4
Total	$	310.2	$	1,010.8	$	1,321.0	$	689.5	$	287.3	$	229.6	$	114.6	$	1,321.0

(a) U.S. Government sale include sales as a prime contractor or subcontractor.

(b) Primarily commercial sales

(c) Geographic region by destination

Contract Liabilities

	Balance at
Contract Liabilities by Balance Sheet Location (in millions)	April 2, 2023		January 1, 2023
Accrued liabilities	$	221.5	$	187.6
Other long-term liabilities	20.7		20.2
Total contract liabilities	$	242.2	$	207.8

The Company recognized revenue of $67.9 million during the three months ended April 2, 2023 from contract liabilities that existed at the beginning of year.

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 exclude unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity). As of April 2, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $3,198.8 million. The Company expects approximately 82% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 18% recognized thereafter.

Changes in Contract Estimates at Completion

For over time contracts using the cost-to-cost method, the Company has 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, determining reasonably dependable cost estimates, and making assumptions for schedule and technical issues. The majority of revenue recognized over time uses an EAC process. Since certain contracts extend over a long period of time, the impact of revisions in cost and revenue estimates during the progress of work may adjust the current period earnings 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 generally reviewed and reassessed quarterly.

The net aggregate effects of these changes in estimates on contracts accounted for under the cost-to-cost method in the first three months of 2023 and 2022 was $2.9 million of favorable operating income and $7.6 million favorable operating income, respectively, with both years primarily related to favorable changes in estimates that impacted revenue, and, to a lesser degree, cost of sales. None of the effects of changes in estimates on any individual contract were material to the consolidated statements of income for any period presented.

Note 5. Goodwill and Intangible Assets

Goodwill

The carrying value of goodwill by segment was as follows (in millions):

	Digital Imaging		Instrumentation		Aerospace and Defense Electronics		Engineered Systems		Total
Balance at January 1, 2023	6,780.4		913.2		161.8		17.6		7,873.0
Current year acquisitions	48.4		—		—		—		48.4
Foreign currency changes and other	(0.3)		3.8		0.6		—		4.1
Balance at April 2, 2023	$	6,828.5	$	917.0	$	162.4	$	17.6	$	7,925.5

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Acquired intangible assets (in millions):	April 2, 2023						January 1, 2023
	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Proprietary technology	$	1,673.8	$	538.2	$	1,135.6	$	1,667.7	$	497.4	$	1,170.3
Customer list/relationships	604.4		187.7		416.7		596.1		177.0		419.1
Patents	0.6		0.6		—		0.6		0.6		—
Non-compete agreements	0.9		0.9		—		0.9		0.9		—
Trademarks	9.9		4.7		5.2		7.1		4.4		2.7
Backlog	16.2		16.0		0.2		16.1		15.8		0.3
Total intangibles subject to amortization	2,305.8		748.1		1,557.7		2,288.5		696.1		1,592.4
Intangibles not subject to amortization:
Trademarks	847.7		—		847.7		848.2		—		848.2
Total acquired intangible assets	$	3,153.5	$	748.1	$	2,405.4	$	3,136.7	$	696.1	$	2,440.6

An evaluation of the carrying value of goodwill and indefinite-lived intangibles is required to be performed on an annual basis and on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. There have been no events or changes in circumstances which indicate an interim impairment review is required in 2023. The Company will perform its annual analysis during the fourth quarter of 2023.

Note 6. Supplemental Balance Sheet Information

Cash Equivalents

The Company had $326.1 million and $167.1 million of cash equivalents at April 2, 2023 and January 1, 2023, respectively. The Company has categorized its cash equivalents as a Level 1 financial asset, measured at fair value based on quoted prices in active markets of identical assets.

Accounts Receivable, net

Accounts receivable is presented net of an allowance for doubtful accounts of $10.6 million at April 2, 2023 and $11.7 million at January 1, 2023.

Inventories, net

Inventories are stated at current cost, net of reserves for excess, slow moving and obsolete inventory. Inventories are primarily valued under the FIFO method or average cost method, with an immaterial amount of inventories valued under the LIFO method. Inventory balances are summarized as follows (in millions):

	Balance at
	April 2, 2023		January 1, 2023
Raw materials and supplies	$	577.1	$	563.7
Work in process	178.9		156.8
Finished goods	195.7		170.2
Total inventories, net	$	951.7	$	890.7

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 accrued liabilities and other long-term liabilities on the condensed consolidated balance sheet.

	Three Months
Warranty Reserve (in millions):	2023		2022
Balance at beginning of year	$	50.3	$	49.5
Product warranty expense	4.3		0.6
Deductions	(4.2)		(4.8)
Balance at end of period	$	50.4	$	45.3

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Note 7. Long-Term Debt

	Balance at
Long-Term Debt (in millions):	April 2, 2023		January 1, 2023
$1.15 billion credit facility due March 2026, weighted average variable rate of 5.76% at April 2, 2023 and 5.46% at January 1, 2023	$	25.0	$	125.0
0.65% Fixed Rate Senior Notes due April 2023	300.0		300.0
0.95% Fixed Rate Senior Notes due April 2024	450.0		450.0
Term loan due October 2024, variable rate of 6.11% at April 2, 2023 and 5.63% at January 1, 2023, swapped to a Euro fixed rate of 0.61%	150.0		150.0
1.60% Fixed Rate Senior Notes due April 2026	450.0		450.0
Term loan due May 2026, variable rate of 6.00% at April 2, 2023 and 5.61% at January 1, 2023	245.0		245.0
2.25% Fixed Rate Senior Notes due April 2028	700.0		700.0
2.50% Fixed Rate Senior Notes due August 2030	485.0		485.0
2.75% Fixed Rate Senior Notes due April 2031	1,040.0		1,040.0
Other debt	0.6		2.1
Debt discount and debt issuance costs	(25.2)		(26.5)
Total debt, net	3,820.4		3,920.6
Less: current portion of long-term debt	(300.1)		(300.1)
Total long-term debt, net of current portion	$	3,520.3	$	3,620.5

During the first three months of 2023, the Company repaid $100.0 million of amounts outstanding on its credit facility.

At April 2, 2023, $1,103.9 million was available under the $1.15 billion credit facility, after reductions of $25.0 million in borrowings and $21.1 million in outstanding letters of credit. Our bank credit agreements require Teledyne to comply with various financial and operating covenants and at April 2, 2023, the Company was in compliance with these covenants.

Teledyne estimates the fair value of its long-term debt based on debt of similar type, rating and maturity and at comparable interest rates. The Company’s long-term debt is considered a level 2 input in the fair value hierarchy and is valued based on observable market data. As of April 2, 2023 and January 1, 2023, the aggregate fair values of our borrowings were $3,490.7 million and $3,492.7 million, respectively, and the carrying values were $3,845.6 million and $3,947.1 million, respectively.

Subsequent to the end of the first quarter, on April 3, 2023, the Company repaid the $300.0 million of fixed rate senior notes.

Note 8. 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 stock-based accounting income tax benefits, are treated separately.

The Company’s effective income tax rate for the first quarter of 2023 was a 20.1% compared with an effective income tax rate of negative 4.7% for the first quarter of 2022. The first quarter of 2023 includes net discrete income tax benefits of $6.6 million compared with net discrete income tax benefits of $56.5 million for the first quarter of 2022. The first quarter of 2023 net discrete tax benefits include $5.9 million related to stock-based accounting. The first quarter of 2022 net discrete income tax amounts include a non-cash income tax benefit of $50.0 million primarily related to the resolution of certain FLIR tax reserves and $6.7 million related to stock-based accounting. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 23.0% for the first quarter of 2023 and 23.1% for the first quarter of 2022.

Note 9. Pension Plans

	First Quarter
	2023		2022
Service cost — benefits earned during the period (in millions)	$	1.5	$	2.2
Pension non-service cost (income) (in millions):
Interest cost on benefit obligation	$	8.4	$	5.9
Expected return on plan assets	(13.6)		(14.0)
Amortization of net prior service cost	(0.5)		(0.5)
Amortization of net actuarial loss	2.4		5.8
Pension non-service cost (income)	$	(3.3)	$	(2.8)

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Note 10. Stock-based Compensation

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

Stock-based compensation expense was $7.9 million for the first quarter of 2023 and $9.0 million the first quarter of 2022.

Stock option activity for the first three months of 2023 is as follows:

	Shares	Weighted Average Exercise Price
Balance at January 1, 2023	1,726,731	$	223.43
Exercised	(95,748)	$	106.51
Canceled	(8,039)	$	415.27
Balance at April 2, 2023	1,622,944	$	229.38