Pension Plans and Postretirement Benefits

Pension Plans

Teledyne has a defined benefit pension plan covering substantially all U.S. employees hired before January 1, 2004 or approximately 22% of Teledyne’s active employees. As of January 1, 2004, new hires participate in a defined contribution plan The Company’s assumed discount rate on plan liabilities for the domestic plan is 4.40% for 2013 and was 5.50% for 2012. In 2011, the assumed discount rate on plan liabilities was 5.90% until the April 19, 2011 sale date of the piston engine businesses. For the remainder of 2011 the plan liabilities were measured using a discount rate of 6.15%. The Company’s assumed long-term rate of return on plan assets for the domestic plan is 8.25% for both 2012 and 2011.

In connection with the acquisition of Intelek, the Company assumed responsibility for a frozen defined benefit pension plan based in the United Kingdom covering certain employees of Intelek. The plan was closed to new members in January 2000 and ceased further service accruals to members in September 2002. In connection with the 2012 acquisition of LeCroy, the Company assumed the responsibility for a defined benefit plan based in Switzerland covering certain employees of LeCroy.

Teledyne's domestic pension expense was $6.6 million in 2012, $6.7 million in 2011 and $4.8 million in 2010. In accordance with U.S. Government Cost Accounting Standards (“CAS”), $12.7 million, $12.6 million and $9.6 million was recoverable from certain government contracts, for 2012, 2011 and 2010, respectively. These amounts do not include pension expense for discontinued operations. Teledyne made voluntary pretax cash contributions to its domestic pension plan of $92.8 million in 2012 and $69.0 million in 2011, prior to any recovery from the U.S. Government. On January 7, 2013, the Company made a voluntary pretax cash contribution of $83.0 million to its domestic pension plan.

In 2012, in an effort to reduce our future pension liability, the Company amended the domestic pension plan to change the rate at which pension benefits accrue after February 29, 2012 and offered lump sum payments to certain participants in the plan whose employment with Teledyne had terminated. In 2012, the Company made lump sum payments of approximately $32.8 million from the domestic plan assets to certain participants in the domestic plan as a result of this lump sum offer.

The Company's contributions associated with 401(k) plans were $8.2 million, $7.5 million and $7.4 million, for 2012, 2011 and 2010, respectively.

The following tables set forth the components of net periodic pension benefit expense for Teledyne’s defined benefit pension plans and postretirement benefit plans for 2012, 2011 and 2010 (in millions):



	Pension Benefits Domestic Plans									Pension Benefits Foreign Plans
	2012			2011			2010			2012			2011			2010
Service cost - benefits earned during the period	$	12.7		$	13.1		$	13.7		$	0.3		$	—		$	—
Interest cost on benefit obligation	39.6			42.5			40.6			1.7			1.7			0.7
Expected return on plan assets	(65.5		)	(62.7		)	(57.2		)	(1.7		)	(1.7		)	(0.6		)
Amortization of prior service cost	(4.6		)	0.2			0.4			—			—			—
Amortization of actuarial loss	24.4			13.6			7.7			0.1			—			—
Net periodic benefit expense	$	6.6		$	6.7		$	5.2		$	0.4		$	—		$	0.1
Less: expense attributable to discontinued operations	—			—			0.4			—			—			—
Net periodic benefit expense - continuing operations	$	6.6		$	6.7		$	4.8		$	0.4		$	—		$	0.1

The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation of the defined benefit pension plans (in millions):



	Pension Benefits Domestic Plans						Pension Benefits Foreign Plans
	2012			2011			2012			2011
Changes in benefit obligation:
Benefit obligation - beginning of year	$	743.4		$	722.9		$	32.9		$	31.1
Service cost - benefits earned during the year	12.7			13.1			0.3			—
Interest cost on projected benefit obligation	39.6			42.5			1.7			1.7
Actuarial loss	127.7			45.0			1.3			2.4
Benefits paid	(76.5		)	(40.6		)	(2.0		)	(2.2		)
Plan amendments(a)	—			(43.3		)	—			—
Divestiture	—			3.8			—			—
Other - including foreign currency	—			—			2.5			(0.1		)
Business combination - Swiss based plan	—			—			13.9			—
Benefit obligation - end of year	$	846.9		$	743.4		$	50.6		$	32.9

Accumulated benefit obligation - end of year	$	846.0		$	742.3		$	50.6		$	32.9



(a)	impact of changing the calculation of applicable wages for the determination of the benefit obligation.

The following table sets forth the reconciliation of the beginning and ending balances of the fair value of plan assets for Teledyne's defined benefit pension plans (in millions):



	Domestic Plans						Foreign Plans
	2012			2011			2012			2011
Changes in plan assets:
Fair value of plan assets - beginning of year	$	678.9		$	657.6		$	26.8		$	29.7
Actual return on plan assets	95.9			(8.2		)	2.0			(1.1		)
Employer contribution - defined benefit plan	92.8			69.0			0.4			0.3
Employer contribution - other benefit plan	2.2			1.1			—			—
Foreign currency changes	—			—			2.0			0.1
Benefits paid	(76.5		)	(40.6		)	(2.0		)	(2.2		)
Other	—			—			0.1			—
Business combination - Swiss based plan	—			—			13.0			—
Fair value of net plan assets - end of year	$	793.3		$	678.9		$	42.3		$	26.8

The measurement date for the Company's pension plans is December 31.

The following table sets forth the funded status and amounts recognized in Teledyne's consolidated balance sheets for its pension plans at year end 2012 and 2011 (in millions):



	Pension Plans Domestic Benefits						Foreign Plans Pension Benefits
	2012			2011			2012			2011
Funded status	$	(53.6	)	$	(64.5	)	$	(8.3	)	$	(6.1	)

Amounts recognized in the consolidated balance sheets:
Accrued pension obligation (long-term)	$	(48.6	)	$	(59.9	)	$	(8.3	)	$	(6.1	)
Accrued pension obligation (short-term)	(1.5		)	(1.5		)	—			—
Other liabilities	(3.5		)	(3.1		)	—			—
Net amount recognized	$	(53.6	)	$	(64.5	)	$	(8.3	)	$	(6.1	)

Amounts recognized in accumulated other comprehensive loss:
Unrecognized prior service cost	$	(37.8	)	$	(42.4	)	$	—		$	—
Unrecognized net loss	450.7			377.8			5.7			4.5
Net amount recognized, before tax effect	$	412.9		$	335.4		$	5.7		$	4.5

At year-end 2012 and 2011 the Company had a non-cash reduction to stockholders' equity of $254.3 million and $204.9 million, respectively, related to its pension and postretirement plans. The non-cash reductions to stockholders' equity did not affect net income and were recorded net of deferred taxes of $159.9 million in 2012 and $129.8 million in 2011.

At December 30, 2012, the estimated amounts of the minimum liability adjustment that are expected to be recognized as components of net periodic benefit cost during 2013 for the pension plans are: net loss $40.7 million and net prior service credit $4.6 million.

The following table presents the estimated future benefit payments for the Company's pension plans (in millions):



	Domestic Plans		Foreign Plans
2013	$	43.2	$	2.1
2014	45.3		2.2
2015	46.6		2.3
2016	48.1		2.3
2017	49.8		2.3
2018-2022	269.3		11.8
Total	$	502.3	$	23.0

The following table sets forth the percentage of year-end market value by asset class for Teledyne's defined benefit pension plans:



	Domestic Plans Plan Assets % to Total				Foreign Plans Plan Assets % to Total
	2012		2011		2012		2011
Equity instruments	65.0	%	63.0	%	58.0	%	61.0	%
Fixed income instruments	30.0		33.0		20.0		39.0
Alternates and other	5.0		4.0		22.0		—
Total	100.0	%	100.0	%	100.0	%	100.0	%

The Company has an active management policy for a portion of the pension assets in the domestic pension plan. The long term asset allocation target for the domestic plan consists of 70% in equity instruments including a portion in alternatives and 30% in fixed income instruments. The balance in equity instruments for the domestic plan can range from 45% to 75% before rebalancing is required under the Company's policy. The investment policy for the plan based in the United Kingdom is set by the Company along with the trustees of the foreign plan. The current long-term asset allocation target for the plan based in the United Kingdom includes a target of 60% in equity instruments including a portion in alternatives and 40% in fixed income instruments and other.

The plan's investments are stated at fair value. A total of $446.6 million in plan investments for the domestic pension plan are considered a level 1 fair value hierarchy and are valued at quoted market prices in active markets. A total of $339.0 million in plan investments for the domestic pension plan are considered a level 2 fair value hierarchy and are valued based on observable market data. The domestic plan has $2.8 million in investments that would be considered a level 3 fair value hierarchy.

For the foreign based plans a total of $31.0 million in plan investments are considered a level 1 fair value hierarchy and are valued at quoted market prices in active markets and a total of $11.3 million in plan investments are considered a level 2 fair value hierarchy and are valued based on observable market data. The plans have no investments that would be considered a level 3 fair value hierarchy.

The expected long-term rate of return on plan assets is reviewed annually, taking into consideration the Company's asset allocation, historical returns on the types of assets held, and the current economic environment. We determined the discount rate based on a model which matches the timing and amount of expected benefit payments to maturities of quality bonds priced as of the pension plan measurement date. The yields on the bonds are used to derive a discount rate for the liability.

The following assumptions were used to determine the benefit obligation and the net benefit cost:



Pension Plan	Weighted average discount rate		Weighted average increase in future compensation levels		Expected weighted-average long-term rate of return

Domestic Plan - 2012	5.50	%	2.75	%	8.25	%
Domestic Plan - 2011	5.90	%	4.14	%	8.25	%
Domestic Plan - 2010	6.25	%	4.07	%	8.25	%

United Kingdom Based Plan 2012	4.70	%	—		6.40	%
United Kingdom Based Plan 2011	5.40	%	—		6.60	%
United Kingdom Based Plan 2010	5.60	%	—		6.40	%

Swiss Based Plan 2012	2.0	%	1.8	%	3.0	%

For its domestic pension plans the Company is projecting a long-term rate of return on plan assets of 8.25% in 2013. The discount rate used in determining the benefit obligations is expected to be 4.4% in 2013 and the expected weighted average increase in future compensation levels is 2.75%. For its United Kingdom based foreign pension plan the Company is projecting a long-term rate of return on plan assets of 6.4% in 2013. The discount rate used in determining the benefit obligations is expected to be 4.2% in 2013. For its Swiss based foreign pension plan the Company is projecting a long-term rate of return on plan assets of 3.0% in 2013. The discount rate used in determining the benefit obligations is expected to be 1.80% in 2013.

Postretirement Plans

The Company sponsors several postretirement defined benefit plans covering certain salaried and hourly employees. The plans provide health care and life insurance benefits for certain eligible retirees.

The following table sets forth the components of net period postretirement benefit income/expense for Teledyne's postretirement benefit plans for 2012, 2011 and 2010 (in millions):



	Postretirement Benefits
	2012			2011			2010
Service cost - benefits earned during the period	$	—		$	—		$	—
Interest cost on benefit obligation	0.8			1.0			1.1
Amortization of prior service cost	(0.5		)	(0.6		)	(0.5		)
Amortization of actuarial gain	(0.4		)	(0.5		)	(1.1		)
Net periodic benefit income	(0.1		)	(0.1		)	(0.5		)
Less: amounts attributable to discontinued operations	—			—			(0.5		)
Net periodic benefit income - continuing operations	$	(0.1	)	$	(0.1	)	$	—

The following table sets forth the reconciliation of the beginning and ending balances of the benefit obligation of the postretirement benefit plans (in millions):



	Postretirement Benefits
	2012			2011
Changes in benefit obligation:
Benefit obligation - beginning of year	$	14.8		$	18.4
Interest cost on projected benefit obligation	0.8			1.0
Actuarial (gain) loss	(0.1		)	(1.6		)
Benefits paid	(2.0		)	(1.5		)
Curtailment and other	0.8			(1.5		)
Benefit obligation - end of year	$	14.3		$	14.8

The measurement date for the Company's postretirement plans is December 31.

The following table presents the estimated future benefit payments for the Company's postretirement plans (in millions):



	Postretirement Benefit Plan
2013	$	1.4
2014	1.4
2015	1.3
2016	1.3
2017	1.2
2018-2022	5.3
Total	$	11.9

The following table sets forth the funded status and amounts recognized in Teledyne's consolidated balance sheets for the postretirement plans at year end 2012 and 2011 (in millions):



	Postretirement Benefits
	2012			2011
Funded status	$	(14.4	)	$	(14.8	)
Unrecognized prior service cost	(0.7		)	(1.2		)
Unrecognized net gain	(3.7		)	(4.0		)
Accrued benefit cost	$	(18.8	)	$	(20.0	)

Accrued postretirement benefits (long-term)	$	(12.8	)	$	(13.0	)
Accrued postretirement benefits (short-term)	(1.6		)	(1.8		)
Accumulated other comprehensive income	(4.4		)	(5.2		)
Net amount recognized	$	(18.8	)	$	(20.0	)

At December 30, 2012, the amounts in the minimum liability adjustment that have not yet been recognized as components of net periodic benefit income for the retiree medical plans are: net gain $3.7 million and net prior service credit $0.7 million. At December 30, 2012, the estimated amounts in the minimum liability expected to be recognized as components of net periodic benefit income during 2012 for the retiree medical plans are: net gain $0.3 million and net prior service credit $0.5 million.

The annual assumed rate of increase in the per capita cost of covered benefits (the health care cost trend rate) for health care plans is 7.5% in 2013 and was assumed to decrease to 5.0% by the year 2018 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one percentage point increase in the assumed health care cost trend rates would result in an increase in the annual service and interest costs by less than $0.1 million for 2012 and would result in an increase in the postretirement benefit obligation by $0.5 million at December 30, 2012. A one percentage point decrease in the assumed health care cost trend rates would result in a decrease in the annual service and interest costs by less than $0.1 million for 2012 and would result in a decrease in the postretirement benefit obligation by $0.5 million at December 30, 2012.