TELEDYNE TECHNOLOGIES INC (TDY)

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

Overview

Teledyne provides enabling technologies to sense, analyze and distribute information 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 believe our technological capabilities, 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

Our strategy continues to emphasize growth in our four business segments: Digital Imaging, Instrumentation, Aerospace and Defense Electronics, and Engineered Systems. The markets in which we sell our enabling technologies 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 business with targeted acquisitions and through product development. We continue to focus on balanced and disciplined capital deployment among capital expenditures, acquisitions, stock repurchases and product development. We aggressively pursue operational excellence to continually improve our margins and earnings by emphasizing cost containment and evaluating 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 through targeted research and development (“R&D”), we seek to create new products to grow our company and expand our addressable markets. We continually evaluate our businesses and products to ensure that they are aligned with our strategy.

Trends and Other Matters Affecting Our Business

The global trade environment continues to be highly dynamic. There have been continuing significant tariffs and trade sanctions between the United States and other countries, including China. China has also restricted the export of certain rare earth minerals that we use in our products, which could disrupt the supply chain for these minerals and components made from these materials. Tariffs, trade restrictions and retaliatory measures could result in revenue reductions, cost increases on material used in our products or significant production delays, which could adversely affect our business, financial condition, operational results and cash flows. Our manufacturing facilities span across many countries which helps us mitigate the impact of certain tariffs and trade restrictions. Also, consistent with our strategy, we continually optimize our operations and take measures to contain costs to reduce the impact from tariffs or other inflationary pressures. We may also implement additional pricing actions to mitigate the impact of these tariffs or other inflationary pressures. We have been working to minimize potential delivery delays and shortages of components and raw materials needed for certain products we manufacture. To date, we believe our strategies have helped minimize our exposure to these conditions. In February 2026, the U.S. Supreme Court issued a ruling invalidating tariffs under International Emergency Economic Powers Act (IEEPA). We filed for IEEPA refunds during the first half of 2026, and we began receiving these refunds in the second quarter of 2026. We also continue to pay tariffs, as required. We will continue to assess these developments as additional information becomes available.

To date, we have not been materially impacted by the current conflict in the Middle East; however, the conflict has increased the disruption, instability and volatility in global markets and industries, and could negatively impact our operations. If the ongoing conflict intensifies or expands, it could adversely affect our business, supply chain, partners or customers. Given the fluid and evolving nature of the conflict, we are unable to predict the full extent of the impact of the conflict on Teledyne at this time.

Further U.S. Government shutdowns could negatively impact our businesses. Previous U.S. Government shutdowns have resulted in delays in anticipated contract awards, issuances of export licenses, shipments and payments of invoices for several of our businesses.

The Company continues to benefit from increased global defense spending.

Sales recorded and costs incurred recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar. We try to reduce this potential volatility in reported earnings primarily through derivative instruments and hedging activities. See Note 13 for additional discussion around our derivative instruments and hedging activities used to mitigate these impacts.

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During 2026, we plan to invest approximately $150 million in capital expenditures, principally to upgrade facilities and manufacturing equipment as well as to support internal growth initiatives. As part of a continuing effort to reduce costs and improve operating performance, we continue to take actions to consolidate and relocate certain facilities, rationalize products and reduce headcount across various businesses, reducing our exposure to weaker end markets. We continue to seek cost reductions in our businesses.

Results of Operations

(a) Net sales exclude inter-segment sales of $18.0 million and $23.3 million for the second quarter and six months of 2026, respectively, and $7.2 million and $11.0 million for the second quarter and six months of 2025, respectively.

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Second Quarter Results

The following is a discussion of our 2026 second quarter results compared with the second quarter results of 2025. Comparisons are with the corresponding reporting period of 2025 unless noted otherwise.

Second quarter of 2026 compared with the second quarter of 2025

Our second quarter of 2026 net sales increased 9.8%. Net income attributable to Teledyne for the second quarter of 2026 increased 19.9%, primarily driven by an increase in sales and an increase in overall operating margin. Net income per diluted share was $5.37 for the second quarter of 2026, compared with net income per diluted share of $4.43.

Net Sales

The second quarter of 2026 net sales compared with the second quarter of 2025 reflected higher net sales in each segment. The second quarter of 2026 included $12.2 million in incremental sales from recent acquisitions, which are included within the Digital Imaging and Instrumentation segments.

Cost of Sales

Cost of sales increased $55.3 million in the second quarter of 2026, primarily driven by higher net sales partially offset by tariff refunds, primarily within the Digital Imaging segment. Cost of sales as a percentage of net sales decreased for the second quarter of 2026, to 55.6% from 57.4%.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense increased $29.3 million in the second quarter of 2026 primarily due to higher net sales, including net sales related to 2026 and 2025 acquisitions. SG&A expense as a percentage of net sales increased to 15.6% for the second quarter of 2026 compared with 15.2%. Corporate expense, which is included in SG&A expense, was $28.0 million for the second quarter of 2026 compared with $21.7 million, with the increase related to higher compensation costs, including incentive compensation as well as higher professional services. Stock-based compensation expense was $13.9 million for the second quarter of 2026 compared with $11.3 million.

Research and Development Ex

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Teledyne provides enabling technologies to sense, analyze and distribute information 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 believe our technological capabilities, 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.

Information about results of operations and financial conditions for 2023 and 2024 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections in the Company’s Annual Report on Form 10-K for the year ended December 29, 2024.

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Strategy

Our strategy continues to emphasize growth in our four business segments: Digital Imaging, Instrumentation, Aerospace and Defense Electronics, and Engineered Systems. The markets in which we sell our enabling technologies 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 business with targeted acquisitions and through product development. We continue to focus on balanced and disciplined capital deployment among capital expenditures, acquisitions, stock repurchases and product development. We aggressively pursue operational excellence to continually improve our margins and earnings by emphasizing cost containment and evaluating 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 through targeted R&D, we seek to create new products to grow our company and expand our addressable markets. We continually evaluate our businesses and products to ensure that they are aligned with our strategy.

Trends and Other Matters Affecting Our Business

The global trade environment continues to be highly dynamic, including new potential tariffs and retaliatory tariffs, and a number of the tariffs remain in effect. There have been continuing significant tariffs and trade sanctions between the United States and China. China has also restricted the export of certain rare earth minerals that we use in our products, which could disrupt the supply chain for these minerals and components made from these materials. Tariffs, trade restrictions and retaliatory measures could result in revenue reductions, cost increases on material used in our products or significant production delays, which could adversely affect our business, financial condition, operational results and cash flows. Our manufacturing facilities span across many countries which helps us mitigate the impact of certain tariffs and trade restrictions. Also, consistent with our strategy, we continually optimize our operations and take measures to contain costs to reduce the impact from tariffs. We may also implement additional pricing actions to mitigate the impact of these tariffs. We have been working to minimize potential delivery delays and shortages of components and raw materials needed for certain products we manufacture. To date, we believe our strategies have helped minimize our exposure to these conditions. It is unclear how the recent U.S. Supreme Court ruling invalidating certain tariffs will impact our exposure to tariffs or our strategy with respect to tariffs going forward.

U.S. Government shutdowns could negatively impact our businesses. Previous U.S. Government shutdowns have resulted in delays in anticipated contract awards, issuances of export licenses, shipments and payments of invoices for several of our businesses.

Sales recorded and costs incurred recorded by subsidiaries operating outside of the United States are translated into U.S. dollars using exchange rates effective during the respective period. As a result, we are exposed to movements in the exchange rates of various currencies against the U.S. dollar. We try to reduce this potential volatility in reported earnings primarily through derivative instruments and hedging activities. See Note 14 for additional discussion around our derivative instruments and hedging activities used to mitigate these impacts.

During 2026, we plan to invest approximately $150 million in capital expenditures, principally to upgrade facilities and manufacturing equipment as well as to support internal growth initiatives. As part of a continuing effort to reduce costs and improve operating performance, we continue to take actions to consolidate and relocate certain facilities, rationalize products and reduce headcount across various businesses, reducing our exposure to weaker end markets. We continue to seek cost reductions in our businesses.

Recent Acquisitions

Consistent with our strategy, we completed four acquisitions in 2025 and two acquisitions in 2024. The financial results of these acquisitions have been included since the respective date of each acquisition. Our 2025 and 2024 acquisitions were within the Digital Imaging, Instrumentation and Aerospace and Defense Electronics segments. See Note 3 for additional information about our 2025 and 2024 business acquisitions. Subsequent to the end of the year, we have completed one acquisition which will be included within the Instrumentation segment. See Note 18 for additional information.

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Selected Consolidated Operating Results

Our fiscal year is determined based on a 52- or 53-week convention ending on the Sunday nearest to December 31. Fiscal years 2025 and 2024 each contained 52 weeks.

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Consolidated Results of Operations

Our businesses are aligned in four segments: Digital Imaging, Instrumentation, Aerospace and Defense Electronics, and Engineered Systems. Additional financial information about our business segments can be found in Note 4.

2025 compared with 2024

* Not meaningful

Net Sales

Net sales increased across three of our four business segments. Total year 2025 net sales included $270.1 million in incremental net sales from current and prior year acquisitions. Refer to “Business Segment Operating Results” later in this section for additional discussion of changes in net sales. In both 2025 and 2024, sales to international customers represented approximately 48% of total net sales. Approximately 25% and 24% of our total net sales in 2025 and 2024, respectively, were derived from contracts with agencies of, or prime contractors to, the U.S. Government.

Cost of Sales

Cost of sales increased in 2025, primarily driven by the impact of higher net sales. Cost of sales as a percentage of net sales for 2025 was 57.2%, compared with 57.1% for 2024. Refer to “Business Segment Operating Results” later in this section for additional discussion of changes in cost of sales.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense increased in 2025, primarily driven by higher sales across most segments. SG&A expense as a percentage of net sales was 15.2% for 2025, compared with 15.9% for 2024. Corporate expense in 2025 was $87.5 million, compared with $77.8 million in 2024, with the increase primarily related to higher compensation expense, including higher stock-based compensation as well as higher consulting and legal costs.

Research and Development Expense

R&D expense increased in 2025, primarily driven by increases within our Digital Imaging, Aerospace and Defense Electronics, and Instrumentation segments.

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Acquired Intangible Asset Amortization

Acquired intangible asset amortization for 2025 was $216.6 million, compared with $198.0 million for 2024, with the increase primarily related to current and prior year acquisitions.

Impairment of Acquired Intangible Assets

We recorded $52.5 million of pretax, non-cash trademark impairments in 2024 in the Digital Imaging and Instrumentation segments. No comparative amounts were recorded in 2025.

Pension Service Expense

Pension servic

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