TELEDYNE TECHNOLOGIES INC

Note 13. Derivative Instruments and Hedging Activities

The Company's primary exposure to market risk relates to changes in foreign currency exchange rates and interest rates. 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. During the first quarter ended March 30, 2025, the Company entered into certain derivative contracts to reduce the volatility from translation of the Company’s euro denominated net investments. The Company does not use foreign currency forward contracts for speculative or trading purposes.

The Company mitigates exposure to foreign currency exchange rates and interest rates primarily through the following:

Designated Hedging Activities

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 UK companies. As of March 30, 2025, foreign currency forward contracts in Canadian dollars designated as cash flow hedges have maturities ranging from June 2025 to February 2026. As of March 30, 2025, foreign currency forward contracts in British pounds designated as cash flow hedges have maturities ranging from June 2025 to February 2026.

The Company utilizes cross-currency swaps to hedge portions of the Company’s euro denominated net investments against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. In the first quarter of 2025, the Company entered cross-currency swaps designated as net investment hedges with a total notional amount of €300.0 million to hedge portions of the Company’s euro denominated net investments against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S. dollar. These cross-currency swaps mature between March 2027 and September 2029.

The Company converted a U.S. dollar denominated, variable rate debt obligation of a European subsidiary into a euro fixed rate obligation using a receive float, pay fixed cross-currency swap to reduce the variability of interest rates. This cross-currency swap had notional amounts of €156.0 million and $150.0 million and matured in October 2024.

Non-Designated Hedging Activities

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. These foreign currency forward contracts are not designated as accounting hedges. The gain or loss resulting from a change in fair value of a derivative instrument that is not designated in accounting hedge is recognized immediately in earnings and intended to, at a minimum, partially offset the transaction gains and losses recognized in earnings.

Derivative Instruments

The following is a summary of the gain (loss) included in the condensed consolidated statements of income (loss) and comprehensive income (loss) related to the derivative instruments described above (in millions):

(a) Effective portion, pre-tax

(b) Amount reclassified to offset earnings impact of liability hedged by cross-currency swap, used to hedge debt

Net deferred losses recorded in AOCI for the forward contracts that will mature in the next 12 months total $1.0 million, net of taxes. These losses are expected to be offset by anticipated gains in the value of the forecasted underlying hedged item.

The following is a summary of notional amounts and fair values of the Company’s derivatives recorded in the condensed consolidated balance sheets presented by instrument type and use (in millions):

All derivative assets are presented in Other current assets or Other non-current assets. All derivative liabilities are presented in Accrued liabilities or Other non-current liabilities.

Note 14. Fair Value Measurement

The Company’s financial assets and liabilities carried at fair value are primarily comprised of derivative contracts used to hedge the Company’s foreign currency risk. The Company has not elected to measure any additional financial instruments or other items at fair value.

Financial Instruments Recorded at Fair Value

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

Gross derivative assets and liabilities are subject to legally enforceable master netting agreements, for which the Company have not elected to present net amounts on the condensed consolidated balance sheets. The effect of such right of setoff on the Company’s financial position were $0.4 million and $0.2 million, as of March 30, 2025, and December 29, 2024, respectively.

Financial Instruments Not Recorded at Fair Value

The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair values due to the short-term maturities of these assets and liabilities.

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 and is valued based on observable market data. As of March 30, 2025 and December 29, 2024, the aggregate fair values of our borrowings were $2,758.8 million and $2,395.0 million, respectively, and the carrying values were $2,981.1 million and $2,666.2 million, respectively.

The cost, if any, to terminate off-balance sheet financial instruments (primarily letters of credit) is not significant.

Note 15. Commitments and Contingencies

Trade Compliance Matters

The Company has made voluntary disclosures to the U.S. Department of State and the U.S. Department of Commerce, including to the Bureau of Industry and Security (“BIS”) with respect to Teledyne FLIR shipments of products from non-U.S. jurisdictions which were not licensed due to an incorrect de minimis calculation methodology under the Export Administration Regulations. The Company has also made voluntary disclosures to export authorities in jurisdictions outside the United States for certain potential violations of local export laws. At this time, based on available information, the Company is 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 outcome becomes estimable or known.

Environmental Remediation Obligations

At March 30, 2025, the Company’s reserves for environmental remediation obligations totaled $6.5 million, of which $3.1 million is included in current accrued liabilities. At December 29, 2024, 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 pay the amounts recorded over many years and will complete remediation of all sites with which it has been identified in up to 30 years.

Legal Matters

The Company is working to resolve a civil investigation by the U.S. Department of Justice relating to an ejection seat sequencer program and deliveries to the U.S. Government between 2006 and 2018. A number of other lawsuits, claims and proceedings have been or may be asserted against the Company, including those pertaining to product liability, acquisitions, patent infringement, contracts, employment and employment benefits. While the outcome of litigation, claims, proceedings and investigations cannot be predicted with certainty, and some of these matters may be determined adversely to the Company, management does not believe that the disposition of any such pending matters is likely to have a material adverse effect on the Company’s financial condition.