Income Taxes

The effective tax rate for the third quarter of 2021 was 20.1%, compared with 21.5%. The third quarter of 2021 reflected net discrete income tax benefits of $6.3 million, which included a $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 reflected net discrete income tax benefits of $1.2 million which included $0.7 million in 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, compared with 22.5%.

Other

Stock option expense was $5.8 million for the third quarter of 2021 compared with $5.7 million. Stock option expense for fiscal year 2021 is currently expected to be $20.5 million, compared with $24.7 million for fiscal year 2020. Restricted stock unit expense for FLIR employees was $1.8 million in the third quarter of 2021 and is expected to be $7.9 million for fiscal year 2021 and is included in the Digital Imaging segment results. Non-service retirement benefit income was $2.8 million for the third quarter of 2021, compared with $3.2 million. Interest expense, net of interest income, increased to $23.8 million for the third quarter of 2021 compared with $4.1 million. The higher 2021 amount included interest and debt expense on the debt incurred to fund the FLIR acquisition. Corporate expense increased to $15.7 million for the third quarter of 2021, compared with $12.9 million. The higher 2021 amount included higher compensation and professional fees expense. Other income and expense, was expense of $0.7 million for the third quarter of 2021, compared with expense of $1.9 million.

Outlook

Based on its current outlook, the company’s management believes that fourth quarter 2021 GAAP diluted earnings per common share will be in the range of $2.53 to $2.69 and full year 2021 GAAP diluted earnings per common share will be in the range of $9.13 to $9.29. The company's management further believes that fourth quarter 2021 non-GAAP diluted earnings per common share will be in the range of $4.07 to $4.17 and full year 2021 non-GAAP diluted earnings per common share will be in the range of $16.35 to $16.45. The non-GAAP outlook excludes certain costs related to the FLIR acquisition, such as acquired intangible asset amortization, inventory step-up expense, bridge loan and debt extinguishment fees, transaction and integration costs and acquisition-related foreign tax matters. This outlook also excludes acquired intangible asset amortization from prior acquisitions. The company’s annual expected tax rate for 2021 is 23.9%, before discrete tax items. In addition, we currently expect less discrete tax items in 2021 compared with 2020.

Use of Non-GAAP Financial Measures

We report our financial results in accordance with generally accepted accounting principles in the United States (“GAAP”). We supplement the reporting of our financial results determined under GAAP with certain non-GAAP financial measures. The non-GAAP financial measures presented provides management, financial analysts, and investors with additional useful information in evaluating the performance of the company. The non-GAAP financial measures should be considered in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP. Further details on reasons that we use non-GAAP financial measures, a reconciliation of these measures to the most directly comparable GAAP measures, and other information relating to these measures are included following our GAAP financial statements.

Forward-Looking Statements Cautionary Notice

This earnings release contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, with respect to management’s beliefs about the financial condition, results of operations and businesses of Teledyne in the future. Forward-looking statements involve risks and uncertainties, are based on the current expectations of the management of Teledyne and are subject to uncertainty and changes in circumstances.

The forward-looking statements contained herein may include statements relating to stock option compensation expense, and about the expected effects on Teledyne of the acquisition of FLIR and related financing, the anticipated scope of the transaction, anticipated earnings enhancements, estimated cost savings and other synergies related to the transaction, costs to be incurred in achieving synergies, anticipated capital expenditures and product developments, and other strategic options. Forward-looking statements generally are accompanied by words such as “projects”, “intends”, “expects”, “anticipates”, “targets”, “estimates”, “will” and words of similar import that convey the uncertainty of future events or outcomes. All statements made in this communication that are not historical in nature should be considered forward-looking. By its nature, forward-looking information is not a guarantee of future performance or results and involves risks and uncertainties because it relates to events and depends on circumstances that will occur in the future.