On May 14, 2021, Teledyne acquired the outstanding stock of FLIR for approximately $8.1 billion, comprising of net cash payments of $3.7 billion, net Teledyne share issuances of $3.9 billion, and the assumption of FLIR debt of $0.5 billion. FLIR stockholders received $28.00 per share in cash and 0.0718 shares of Teledyne common stock for each FLIR share, and Teledyne issued approximately 9.5 million shares at $409.41 per share. See Note 10 to these Notes to Condensed Consolidated Financial Statements for information regarding financing activities undertaken in connection with the FLIR acquisition.

Founded in 1978, FLIR is an industrial technology company focused on intelligent sensing solutions for defense and industrial applications. FLIR offers a diversified portfolio that serves a number of applications in government and defense, industrial, and commercial markets. FLIR develops technologies that enhance perception and awareness. FLIR designs, develops, markets, and distributes solutions that detect people, objects and substances that may not be perceived by human senses and improve the way people interact with the world around them. FLIR technologies include thermal imaging systems, visible-light imaging systems, locater systems, measurement and diagnostic systems, and advanced threat-detection solutions. FLIR is part of the Digital Imaging segment.

•the opportunity to add new and complementary products with FLIR’s products based on different semiconductor technologies for imaging across different wavelengths than Teledyne products, and the opportunity to serve different customers and applications, with minimal overlapping technologies and markets;

•the expectation of combining two businesses that both provide sensors, cameras and sensor systems to customers and both business portfolios being balanced among commercial and government markets and geographies, but with Teledyne primarily producing extremely high-performance infrared detectors used for astronomy and space-based imaging applications compared to FLIR’s products focused on helicopters to soldiers to firefighters throughout commercial tomography and automotive advanced driver systems;

The significant factors that resulted in recognition of goodwill were: (a) the purchase price was based on cash flow and return on capital projections assuming integration with our businesses and (b) the calculation of the fair value of tangible and intangible assets acquired that qualified for recognition. Goodwill resulting from the FLIR acquisition will not be deductible for tax purposes.

The following table presents the preliminary purchase price allocation for FLIR. We are accounting for the FLIR acquisition under the acquisition method and are required to measure identifiable assets acquired and liabilities assumed of the acquiree at the fair values on the closing date. The Company made an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. As of October 3, 2021, the measurement period (not to exceed one year) is open; therefore, the assets acquired and liabilities assumed related to the FLIR acquisition are subject to adjustment until the end of the respective measurement period. The Company is in the process of specifically identifying the amounts assigned to certain assets, including acquired intangible assets, and liabilities and the related impact on taxes and goodwill for the FLIR acquisition. The Company is in the process of obtaining a third-party valuation of certain intangible assets and tangible assets of FLIR. The fair values of acquired intangibles are determined based on estimates and assumptions that are deemed reasonable by the Company. The amounts recorded as of October 3, 2021 are preliminary since there was insufficient time between the acquisition date and the end of the period to finalize the analysis.


Fair values allocated to the assets acquired and liabilities assumed - FLIR (in millions):
Cash and cash equivalents	$	287.7
Accounts receivables, net	240.2
Unbilled receivables, net	72.2
Inventories, net	556.4
Prepaid expenses and other current assets	106.1
Total current assets	1,262.6

Property, plant and equipment	391.7
Goodwill	5,795.0
Acquired intangible assets	2,400.0
Other long-term assets	131.4
Total assets acquired	$	9,980.7

Accounts payable	144.6
Accrued liabilities	601.5
Total current liabilities assumed	746.1

Long-term debt, net	496.8
Long-term deferred tax liabilities	647.5
Other long-term liabilities	181.7
Total liabilities assumed	2,072.1
Consideration transferred	$	7,908.6

Consideration transferred, net of cash acquired (a)	$	7,620.9

(a) The consideration transferred included approximately $3.9 billion of Teledyne shares issued to existing shareholders of the acquired company. This $3.9 billion of equity consideration is a non-cash transaction. An immaterial portion of the cash consideration for certain vested FLIR restricted stock awards was deferred at the election of the award holder and will be paid out in future periods.

During fiscal year 2018, the Swedish Tax Authority (“STA”) issued a reassessment of tax for the year ending December 31, 2012 to one of FLIR’s non-operating subsidiaries in Sweden. The total taxes, penalties and interest levied by the STA totals SEK 3.1 billion ($351.5 million USD). The reassessment concerns the use of tax credits applied against capital gains pursuant to European Union Council Directive 2009/133/EC, commonly referred to as the EU Merger Directive, and the reassessment levied significant taxes and penalties. In March 2020, FLIR received an adverse judgment from the First Instance Court of Sweden regarding the STA’s reassessment. FLIR appealed the decision to the Administrative Court of Appeal in Stockholm, Sweden (the “ Appellate Court”). After completing an extensive analysis, including consultation with outside specialists, Teledyne recorded a liability for this uncertain tax position that reflects the most likely outcome for this tax matter under the acquisition method for business combinations in the third quarter of 2021, which is included within Accrued Liabilities on the Condensed Consolidated Balance Sheet. Subsequently, the Appellate Court hearing was held on September 15, 2021 and in the subsequent weeks ending on October 22, 2021, the STA and Teledyne submitted additional arguments in writing, including closing arguments. An adverse tax ruling by the Appellate Court related to a pre-acquisition assessment by the STA against a FLIR subsidiary would materially impact our cash flow.

The Company is in the process of reviewing and identifying acquisition accounting adjustments for a number of acquired tax positions of FLIR that may meet the definition of an acquired uncertain tax position. In addition to the STA matter described above, the Company has preliminarily recorded $51.2 million of provisional purchase accounting adjustments for the accrual of other uncertain tax positions of FLIR. These amounts are included within other Long-Term Liabilities on the Condensed Consolidated Balance Sheet. These preliminary estimates are subject to change as the Company obtains additional information on these matters and as additional information is made known during the post-acquisition measurement period. The final acquisition accounting adjustments for these tax matter may be materially different, as Teledyne obtains additional information on this matter and as additional information is made known during the post-acquisition measurement period.


Intangibles subject to amortization:(a)	Intangible Assets		Weighted average useful life in years
Proprietary technology	$	1,412.0	10.0
Customer list/relationships	380.0		12.0
Backlog	8.0		0.8
Total intangibles subject to amortization	1,800.0		10.4
Intangibles not subject to amortization:(a)
Trademarks	600.0
Total acquired intangible assets	$	2,400.0

With significant operations in the United States, Europe and Canada, FLIR had sales of approximately $1,932.7 million for its fiscal year ended December 31, 2020. FLIR’s results have been included since the date of the acquisition and include $775.0 million in net sales and operating income of $56.6 million, which included $152.5 million in acquisition-related costs for the nine months ended October 3, 2021. The third quarter of 2021, includes $473.6 million in net sales and operating income of $35.2 million, which included $82.3 million in acquisition-related costs.

In connection with the FLIR acquisition, in the third quarter of 2021, Teledyne incurred pretax expenses of $82.6 million, consisting of $45.6 million in acquired intangible asset amortization expense, $35.2 million in acquired inventory step-up expense, recorded to cost of sales and $1.8 million of transaction and integration-related costs, recorded to selling, general and administrative expenses. Of these amounts, $82.3 million impacted Digital Imaging segment’s operating income. In the first nine months of 2021, Teledyne incurred pretax expenses of $259.8 million, consisting of $68.4 million in acquired intangible asset amortization expense, $58.9 million recorded to cost of sales, primarily in acquired inventory step-up expense, and $101.9 million of transaction and integration-related costs, recorded to selling, general and administrative expenses and $30.6 million was recorded to interest and debt expense. Of these amounts, $152.5 million impacted the Digital Imaging segment’s operating income and $76.7 million of transaction and integration-related costs impacted corporate expense.

The unaudited proforma information below, as required by GAAP, assumes that FLIR had been acquired at the beginning of the 2020 fiscal year and includes the effect of transaction accounting adjustments. These adjustments include the financing costs associated with debt to fund the acquisition, amortization of acquired intangible assets, depreciation of the fair value step-up of acquired property, plant and equipment, and amortization of inventory fair value step-up (assumed to be fully amortized in 2020) as well as the issuance of Teledyne common stock in connection with the acquisition. These costs are considered non-recurring costs that were necessary to complete the acquisition and are included in the unaudited pro forma condensed combined statement of operations.

This unaudited proforma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have resulted had the acquisition been in effect at the beginning of the 2020 fiscal year. In addition, the unaudited proforma results are not intended to be a projection of future results and do not reflect any operating efficiencies or cost savings that might be achievable.

The following table presents proforma net sales, net income and earnings per share data assuming FLIR was acquired at the beginning of the 2020 fiscal year:


	Third Quarter (a)				Nine Months (a)
(unaudited - in millions, except per share amounts)	2021		2020		2021		2020
Net sales	$	1,311.9	$	1,215.5	$	3,859.9	$	3,676.3
Net income	$	164.3	$	99.7	$	356.8	$	218.4
Basic earnings per common share	$	3.53	$	2.15	$	8.50	$	4.73
Diluted earnings per common share	$	3.44	$	2.11	$	8.28	$	4.62
(a) The above unaudited proforma information is presented for the FLIR acquisition as it is considered a material acquisition.

On January 5, 2020, we acquired OakGate Technology, Inc. (“OakGate”) for $28.5 million in cash, net of cash acquired. Based in Loomis, California, OakGate provides software and hardware designed to test electronic data storage devices from development through manufacturing and end-use applications. OakGate is part of the Test and Measurement product line of the Instrumentation segment. Teledyne funded the acquisition with cash on hand. The results of the OakGate acquisition have been included in Teledyne’s results since the date of the acquisition. Goodwill resulting from the acquisition of OakGate is not deductible for tax purposes.

Teledyne’s goodwill was $7,899.5 million at October 3, 2021 and $2,150.0 million at January 3, 2021. The increase in the balance of goodwill in 2021 related primarily to goodwill recognized in the FLIR acquisition. Teledyne’s net acquired intangible assets were $2,705.2 million at October 3, 2021 and $409.7 million at January 3, 2021. The increase in the balance of net acquired intangible assets primarily reflected the acquired intangible assets acquired in the FLIR acquisition.

Acquired intangible assets are summarized as follows:


	October 3, 2021						January 3, 2021
Acquired intangible assets (in millions):	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Proprietary technology	$	1,826.6	$	315.5	$	1,511.1	$	420.3	$	242.7	$	177.6
Customer list/relationships	547.0		130.9		416.1		168.3		112.8		55.5
Patents	0.6		0.6		—		0.7		0.7		—
Non-compete agreements	0.9		0.9		—		0.9		0.9		—
Trademarks	4.5		3.8		0.7		4.5		3.6		0.9
Backlog	24.3		20.0		4.3		16.5		16.5		—
Total intangibles subject to amortization	2,403.9		471.7		1,932.2		611.2		377.2		234.0
Intangibles not subject to amortization:
Trademarks	773.0		—		773.0		175.7		—		175.7
Total acquired intangible assets	$	3,176.9	$	471.7	$	2,705.2	$	786.9	$	377.2	$	409.7