Teledyne Technologies Inc.

10/23/2026 | Press release | Distributed by Public on 10/23/2026 15:20

Quarterly Report for Quarter Ending September 27, 2026 (Form 10-Q)

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 have been implementing 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 the International Emergency Economic Powers Act ("IEEPA"). We filed for IEEPA refunds during the first half of 2026, and we received substantially all of these refunds as of the end of the third 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 experienced a material adverse impact from the current conflicts in the Middle East; however, the conflicts have increased the disruption, instability and volatility in global markets and industries, and could negatively impact our operations. If the ongoing conflicts continue to intensify or further expand, it could adversely affect our business, supply chain, partners or customers. Given the fluid and evolving nature of the conflicts, we are unable to predict the full extent of the impact of the conflicts on Teledyne at this time.
The Company continues to benefit from increased global defense spending.
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.
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 to these condensed consolidated financial statements for additional discussion around our derivative instruments and hedging activities used to mitigate these impacts.
During 2026, we plan to invest approximately $140 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
Third Quarter % Nine Months %
(dollars in millions) 2026 2025 Change 2026 2025 Change
Net sales $ 1,684.9 $ 1,539.5 9.4 % $ 4,907.5 $ 4,503.1 9.0 %
Costs and expenses
Cost of sales 945.5 880.0 7.4 % 2,756.2 2,579.5 6.9 %
Selling, general and administrative
258.4 238.2 8.5 % 754.5 701.5 7.6 %
Research and development
78.6 83.4 (5.8) % 253.4 240.1 5.5 %
Acquired intangible asset amortization 55.2 55.1 0.2 % 168.8 161.7 4.4 %
Total costs and expenses 1,337.7 1,256.7 6.4 % 3,932.9 3,682.8 6.8 %
Operating income (loss) 347.2 282.8 22.8 % 974.6 820.3 18.8 %
Interest and debt income (expense), net (10.5) (12.6) (16.7) % (36.4) (47.5) (23.4) %
Non-service retirement benefit income (expense), net 2.6 2.7 (3.7) % 7.9 8.2 (3.7) %
Other income (expense), net 7.5 0.9 733.3 % 0.7 (7.7) 109.1 %
Income (loss) before income taxes 346.8 273.8 26.7 % 946.8 773.3 22.4 %
Provision (benefit) for income taxes 74.0 52.9 39.9 % 195.5 153.2 27.6 %
Net income (loss) including noncontrolling interest 272.8 220.9 23.5 % 751.3 620.1 21.2 %
Less: Net income (loss) attributable to noncontrolling interest - 0.2 (100.0) % - 0.9 (100.0) %
Net income (loss) attributable to Teledyne $ 272.8 $ 220.7 23.6 % $ 751.3 $ 619.2 21.3 %
Third Quarter % Nine Months %
(dollars in millions) 2026 2025 Change 2026 2025 Change
Net sales (a):
Digital Imaging $ 903.0 $ 785.4 15.0 % $ 2,588.6 $ 2,313.4 11.9 %
Instrumentation 370.5 363.6 1.9 % 1,119.7 1,074.5 4.2 %
Aerospace and Defense Electronics
287.4 275.5 4.3 % 851.3 782.8 8.8 %
Engineered Systems 124.0 115.0 7.8 % 347.9 332.4 4.7 %
Total net sales $ 1,684.9 $ 1,539.5 9.4 % $ 4,907.5 $ 4,503.1 9.0 %
Operating income (loss):
Digital Imaging $ 182.7 $ 123.4 48.1 % $ 494.6 $ 365.3 35.4 %
Instrumentation 99.6 98.8 0.8 % 289.4 293.1 (1.3) %
Aerospace and Defense Electronics
77.8 70.4 10.5 % 223.7 192.7 16.1 %
Engineered Systems 13.0 12.2 6.6 % 39.8 35.1 13.4 %
Corporate expense (25.9) (22.0) 17.7 % (72.9) (65.9) 10.6 %
Total operating income (loss) $ 347.2 $ 282.8 22.8 % $ 974.6 $ 820.3 18.8 %
(a) Net sales exclude inter-segment sales of $13.1 million and $36.4 million for the third quarter and nine months of 2026, respectively, and $6.6 million and $17.5 million for the third quarter and nine months of 2025, respectively.
Third Quarter Results
The following is a discussion of our 2026 third quarter results compared with the third quarter results of 2025. Comparisons are with the corresponding reporting period of 2025 unless noted otherwise.
Third quarter of 2026 compared with the third quarter of 2025
Our third quarter of 2026 net sales increased 9.4%. Net income attributable to Teledyne for the third quarter of 2026 increased 23.6%, primarily driven by an increase in sales and an increase in overall operating margin. Net income per diluted share was $5.82 for the third quarter of 2026, compared with net income per diluted share of $4.65.
Net Sales
The third quarter of 2026 net sales compared with the third quarter of 2025 reflected higher net sales in each segment. The third quarter of 2026 included $11.7 million in incremental sales from recent acquisitions, which are included within the Digital Imaging and Instrumentation segments.
Cost of Sales
Cost of sales increased $65.5 million in the third quarter of 2026, primarily driven by higher net sales. Cost of sales as a percentage of net sales decreased for the third quarter of 2026, to 56.1% from 57.2%.
Selling, General and Administrative Expense
Selling, general and administrative ("SG&A") expense increased $20.2 million in the third 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 decreased to 15.3% for the third quarter of 2026 compared with 15.5%. Corporate expense, which is included in SG&A expense, was $25.9 million for the third quarter of 2026 compared with $22.0 million, with the increase related to higher compensation costs, including incentive compensation as well as higher professional services. Stock-based compensation expense was $12.2 million for the third quarter of 2026 compared with $10.5 million.
Research and Development Expense
R&D expense decreased $4.8 million in the third quarter of 2026 primarily due to lower R&D expense in the Aerospace and Defense Electronics segment.
Acquired Intangible Asset Amortization
Acquired intangible asset amortization for the third quarter of 2026 was $55.2 million compared with $55.1 million, with the increase primarily related to 2026 and 2025 acquisitions across multiple segments.
Pension Service Expense
Pension service expense is included in both cost of sales and SG&A expense. For the third quarter of 2026 and 2025, pension service expense was $1.2 million and $1.5 million, respectively.
Operating Income
Operating income for the third quarter of 2026 increased 22.8%. The third quarter of 2026, compared with the third quarter of 2025, reflected higher operating income in each segment, including incremental operating income related to 2026 and 2025 acquisitions.
Non-operating Income and Expense
Interest and debt expense, net of interest income, was $10.5 million for the third quarter of 2026 compared with $12.6 million, with the decrease related to lower outstanding borrowings compared with the third quarter of 2025. Non-service retirement benefit income was $2.6 million for the third quarter of 2026 compared with $2.7 million. Other income (expense), net, was income of $7.5 million for the third quarter of 2026 compared with income of $0.9 million. For the third quarter of 2026, Other income (expense), net, primarily consisted of a $10.6 million gain related to adjusting Varex shares to the market price at the end of the quarter. For the third quarter of 2025, Other income (expense), net, primarily consisted of a $7.2 million gain on debt extinguishment, partially offset by foreign currency exchange losses.
Income Tax
The third quarter of both the 2026 and 2025 income tax provision considers income, permanent items, tax credits and various statutory tax rates.
Third Quarter
(dollars in millions) 2026 2025
Provision (benefit) for income taxes (a) $ 74.0 $ 52.9
Income (loss) before income taxes $ 346.8 $ 273.8
Effective tax rate 21.3% 19.3%
(a) The third quarter of 2026 and 2025 includes net discrete income tax benefits of $1.6 million and $4.9 million, respectively.
First nine months of 2026 compared with the first nine months of 2025
The first nine months of 2026 net sales increased 9.0%. Net income attributable to Teledyne for the first nine months of 2026 increased 21.3%, primarily driven by an increase in sales and an increase in overall operating margin. Net income per diluted share was $16.02 for the first nine months of 2026, compared with net income per diluted share of $13.06.
Net Sales
The first nine months of 2026 net sales, compared with the first nine months of 2025, reflected higher net sales in each segment. The first nine months of 2026 included $36.9 million in incremental sales from recent acquisitions, which are included within the Digital Imaging and Instrumentation segments.
Cost of Sales
Cost of sales increased $176.7 million in the first nine months of 2026, primarily driven by higher net sales, primarily within the Digital Imaging segment. Cost of sales as a percentage of net sales decreased for the first nine months of 2026 to 56.2% from 57.3%.
Selling, General and Administrative Expense
SG&A expense increased $53.0 million in the first nine months 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 decreased to 15.4% for the first nine months of 2026 compared with 15.6%. Corporate expense, which is included in SG&A expense, was $72.9 million for the first nine months of 2026 compared with $65.9 million, with the increase primarily related to higher employee compensation costs, including incentive compensation as well as higher professional services. Stock-based compensation expense was $31.7 million for the first nine months of 2026 compared with $30.7 million.
Research and Development Expense
R&D expense increased $13.3 million in the first nine months of 2026 primarily due to higher R&D expense within the Digital Imaging segment.
Acquired Intangible Asset Amortization
Acquired intangible asset amortization for the first nine months of 2026 was $168.8 million compared with $161.7 million, with the increase primarily related to 2026 and 2025 acquisitions across multiple segments.
Pension Service Expense
Pension service expense is included in both cost of sales and SG&A expense. For the first nine months of 2026 and 2025, pension service expense was $3.6 million and $4.5 million, respectively.
Operating Income
Operating income for the first nine months of 2026 increased 18.8%. The first nine months of 2026, compared with the first nine months of 2025, reflected higher operating income in the Digital Imaging, Aerospace and Defense Electronics, and Engineered Systems segments, including incremental operating income related to 2026 and 2025 acquisitions.
Non-operating Income and Expense
Interest and debt expense, net of interest income, was $36.4 million for the first nine months of 2026, compared with $47.5 million, with the decrease related to lower outstanding borrowings compared with the first nine months of 2025. Non-service retirement benefit income was $7.9 million for the first nine months of 2026 compared with $8.2 million. Other income (expense), net was income of $0.7 million for the first nine months of 2026 compared with expense of $7.7 million. For the first nine months of 2026, other income (expense), net, primarily consisted of a $10.6 million gain related to adjusting Varex shares to the market price at the end of the period, partially offset by foreign currency exchange losses. Other income (expense), net expense of $7.7 million for the first nine months of 2025 included a $10.5 million gain on debt extinguishment, partially offset by foreign currency exchange losses.
Income Tax
The first nine months of both the 2026 and 2025 income tax provision considers income, permanent items, tax credits and various statutory tax rates. In both 2026 and 2025, the first nine months discrete impact is primarily related to tax on stock-based compensation.
Nine Months
(dollars in millions) 2026 2025
Provision (benefit) for income taxes (a) $ 195.5 $ 153.2
Income (loss) before income taxes $ 946.8 $ 773.3
Effective tax rate 20.6% 19.8%
(a) The first nine months of 2026 and 2025 includes net discrete income tax benefits of $10.8 million and $17.0 million, respectively.
In July 2025, the "One Big Beautiful Bill Act" (the "Act") was enacted into law. The Act includes changes to U.S. tax law, including provisions to accelerate tax deductions for qualified property and research expense. The 2025 impact was a cash tax reduction of approximately $30.0 million. The 2026 impact is estimated to include a cash tax reduction of between $60.0 million and $70.0 million.
Segment Results
Segment results include net sales and operating income by segment but exclude corporate office expenses. Corporate expense primarily includes various administrative expenses relating to our corporate office that are not allocated to our segments. See Note 3 to these condensed consolidated financial statements for additional segment information.
Digital Imaging
Third Quarter Change Nine Months Change
(dollars in millions) 2026 2025 $ % 2026 2025 $ %
Net sales $ 903.0 $ 785.4 $ 117.6 15.0 % $ 2,588.6 $ 2,313.4 $ 275.2 11.9 %
Cost of sales $ 481.5 $ 435.1 $ 46.4 10.7 % $ 1,388.4 $ 1,294.2 $ 94.2 7.3 %
Selling, general and administrative expense
$ 139.7 $ 129.4 $ 10.3 8.0 % $ 401.0 $ 372.4 $ 28.6 7.7 %
Research and development expense
$ 52.2 $ 50.7 $ 1.5 3.0 % $ 162.3 $ 143.0 $ 19.3 13.5 %
Acquired intangible asset amortization $ 46.9 $ 46.8 $ 0.1 0.2 % $ 142.3 $ 138.5 $ 3.8 2.7 %
Operating income $ 182.7 $ 123.4 $ 59.3 48.1 % $ 494.6 $ 365.3 $ 129.3 35.4 %
As a percentage of net sales:
Cost of sales 53.3 % 55.4 % 53.6 % 55.9 %
Selling, general and administrative expense
15.5 % 16.5 % 15.5 % 16.1 %
Research and development expense
5.8 % 6.4 % 6.3 % 6.2 %
Acquired intangible asset amortization 5.2 % 6.0 % 5.5 % 6.0 %
Operating income 20.2 % 15.7 % 19.1 % 15.8 %
Third quarter of 2026 compared with the third quarter of 2025
Net sales increased primarily due to higher sales of infrared imaging detectors, components and subsystems for both defense and commercial applications as well as higher surveillance systems, industrial and scientific imaging systems, and X-ray products. Sales of infrared imaging detectors, components and subsystems increased $47.5 million, sales of integrated defense systems increased $12.2 million, sales of maritime products increased $11.2 million, sales of industrial and scientific imaging systems increased $10.6 million, sales of X-ray products increased $4.7 million, and sales of surveillance systems increased $4.3 million. The third quarter of 2026 included $5.5 million in incremental Digital Imaging sales from recent acquisitions.
Cost of sales increased primarily due to higher net sales partially offset by favorable product mix. The cost of sales percentage decreased during the period due to favorable product mix. SG&A expense increased primarily due to higher net sales, and SG&A expense as a percentage of net sales decreased. R&D expense increased slightly and R&D expense as a percentage of net sales decreased. Acquired intangible asset amortization increased slightly and acquired intangible asset amortization as a percentage of net sales decreased.
Operating income increased primarily due to higher net sales and favorable product mix. As a result, operating income as a percentage of net sales increased.
First nine months of 2026 compared with the first nine months of 2025
Net sales increased primarily due to higher sales of infrared imaging detectors, components and subsystems for both defense and commercial applications as well as higher surveillance systems, industrial and scientific imaging systems, and X-ray products. Sales of infrared imaging detectors, components and subsystems increased $95.4 million, sales of surveillance systems increased $28.7 million, sales of industrial and scientific imaging systems increased $24.0 million, and sales of X-ray products increased $15.6 million. The first nine months of 2026 included $19.7 million in incremental Digital Imaging sales from recent acquisitions.
Cost of sales increased primarily due to higher net sales, and the cost of sales percentage decreased during the period due to favorable product mix as well as tariff refunds primarily recorded in the second quarter of 2026. SG&A expense increased primarily due to higher net sales, and SG&A expense as a percentage of net sales decreased. R&D expense and R&D expense as a percentage of net sales increased primarily due to the timing of FLIR product development activities, including both defense and commercial development activities. Acquired intangible asset amortization increased while acquired intangible asset amortization as a percentage of net sales decreased.
Operating income increased primarily due to higher net sales, favorable product mix and tariff refunds, partially offset by higher R&D expense as a percentage of net sales. As a result, operating income as a percentage of net sales increased.
Instrumentation
Third Quarter Change Nine Months Change
(dollars in millions) 2026 2025 $ % 2026 2025 $ %
Net sales $ 370.5 $ 363.6 $ 6.9 1.9 % $ 1,119.7 $ 1,074.5 $ 45.2 4.2 %
Cost of sales $ 190.2 $ 186.2 $ 4.0 2.1 % $ 579.9 $ 546.4 $ 33.5 6.1 %
Selling, general and administrative expense
$ 54.0 $ 50.9 $ 3.1 6.1 % $ 165.4 $ 150.9 $ 14.5 9.6 %
Research and development expense
$ 23.7 $ 24.4 $ (0.7) (2.9) % $ 75.1 $ 74.3 $ 0.8 1.1 %
Acquired intangible asset amortization $ 3.0 $ 3.3 $ (0.3) (9.1) % $ 9.9 $ 9.8 $ 0.1 1.0 %
Operating income $ 99.6 $ 98.8 $ 0.8 0.8 % $ 289.4 $ 293.1 $ (3.7) (1.3) %
As a percentage of net sales:
Cost of sales 51.3 % 51.2 % 51.8 % 50.9 %
Selling, general and administrative expense
14.6 % 14.0 % 14.8 % 14.0 %
Research and development expense
6.4 % 6.7 % 6.7 % 6.9 %
Acquired intangible asset amortization 0.8 % 0.9 % 0.9 % 0.9 %
Operating income 26.9 % 27.2 % 25.8 % 27.3 %
Third quarter of 2026 compared with the third quarter of 2025
Net sales increased due to higher sales in the Environmental Instrumentation and Marine Instrumentation product lines. Sales of Environmental Instrumentation increased $8.3 million primarily due to stronger sales of gas detection products. Sales of Marine Instrumentation increased $3.4 million. Sales of Test and Measurement Instrumentation decreased $4.8 million. The third quarter of 2026 included $6.2 million in incremental Environmental Instrumentation sales from recent acquisitions.
Cost of sales increased due to higher net sales, and the cost of sales percentage increased slightly. SG&A expense and SG&A expense as a percentage of net sales increased. R&D expense and R&D expense as a percentage of net sales decreased. Acquired intangible asset amortization and acquired intangible asset amortization as a percentage of net sales decreased slightly.
Operating income increased and operating income as a percentage of net sales decreased slightly.
First nine months of 2026 compared with the first nine months of 2025
Net sales increased due to higher sales in the Marine Instrumentation and Environmental Instrumentation product lines. Sales of Marine Instrumentation increased $26.6 million due to stronger offshore energy and defense markets. Sales of Environmental Instrumentation increased $22.8 million primarily due to stronger sales of gas detection products. Sales of Test and Measurement Instrumentation decreased $4.2 million. The first nine months of 2026 included $17.2 million in incremental Environmental Instrumentation sales from recent acquisitions.
Cost of sales increased due to higher net sales and unfavorable product mix. As a result, the cost of sales percentage increased. SG&A expense and SG&A expense as a percentage of net sales increased. R&D expense increased in each product line, and R&D expense as a percentage of net sales decreased slightly. Acquired intangible asset amortization increased slightly due to the 2026 acquisition of DD-Scientific while acquired intangible asset amortization as a percentage of net sales remained consistent for both periods.
Operating income and operating income as a percentage of net sales decreased primarily due to unfavorable product mix.
Aerospace and Defense Electronics
Third Quarter Change Nine Months Change
(dollars in millions) 2026 2025 $ % 2026 2025 $ %
Net sales $ 287.4 $ 275.5 $ 11.9 4.3 % $ 851.3 $ 782.8 $ 68.5 8.8 %
Cost of sales $ 169.7 $ 162.5 $ 7.2 4.4 % $ 500.4 $ 460.9 $ 39.5 8.6 %
Selling, general and administrative expense
$ 32.2 $ 29.4 $ 2.8 9.5 % $ 95.6 $ 93.4 $ 2.2 2.4 %
Research and development expense
$ 2.4 $ 8.2 $ (5.8) (70.7) % $ 15.0 $ 22.4 $ (7.4) (33.0) %
Acquired intangible asset amortization $ 5.3 $ 5.0 $ 0.3 6.0 % $ 16.6 $ 13.4 $ 3.2 23.9 %
Operating income $ 77.8 $ 70.4 $ 7.4 10.5 % $ 223.7 $ 192.7 $ 31.0 16.1 %
As a percentage of net sales:
Cost of sales 59.0 % 59.0 % 58.8 % 58.9 %
Selling, general and administrative expense
11.2 % 10.7 % 11.2 % 11.9 %
Research and development expense
0.8 % 3.0 % 1.8 % 2.9 %
Acquired intangible asset amortization 1.9 % 1.7 % 1.9 % 1.7 %
Operating income 27.1 % 25.6 % 26.3 % 24.6 %
Third quarter of 2026 compared with the third quarter of 2025
Net sales increased due to a $16.5 million increase in defense electronics, partially offset by a $4.6 million decrease in aerospace electronics.
Cost of sales increased due to higher net sales while the cost of sales percentage remained consistent for both periods. SG&A expense and SG&A expense as a percentage of net sales increased. R&D expense and R&D expense as a percentage of net sales decreased. Acquired intangible asset amortization and acquired intangible asset amortization as a percentage of net sales increased slightly primarily due to the 2025 acquisitions.
Operating income increased primarily due to increased net sales, and operating income as a percentage of net sales increased primarily due to lower R&D expense.
First nine months of 2026 compared with the first nine months of 2025
Net sales increased due to a $73.4 million increase for defense electronics, partially offset by a $4.9 million decrease for aerospace electronics.
Cost of sales increased due to higher net sales. The cost of sales percentage decreased slightly due to favorable product mix. SG&A expense increased, and SG&A expense as a percentage of net sales decreased. R&D expense and R&D expense as a percentage of net sales decreased. Acquired intangible asset amortization and acquired intangible asset amortization as a percentage of net sales increased due to the 2025 acquisitions.
Operating income increased primarily due to increased net sales, and operating income as a percentage of net sales increased primarily due to lower R&D expense.
Engineered Systems
Third Quarter Change Nine Months Change
(dollars in millions) 2026 2025 $ % 2026 2025 $ %
Net sales $ 124.0 $ 115.0 $ 9.0 7.8 % $ 347.9 $ 332.4 $ 15.5 4.7 %
Cost of sales $ 104.1 $ 96.2 $ 7.9 8.2 % $ 287.5 $ 278.0 $ 9.5 3.4 %
Selling, general and administrative expense
$ 6.6 $ 6.5 $ 0.1 1.5 % $ 19.6 $ 18.9 $ 0.7 3.7 %
Research and development expense
$ 0.3 $ 0.1 $ 0.2 200.0 % $ 1.0 $ 0.4 $ 0.6 150.0 %
Operating income $ 13.0 $ 12.2 $ 0.8 6.6 % $ 39.8 $ 35.1 $ 4.7 13.4 %
As a percentage of net sales:
Cost of sales 84.0 % 83.7 % 82.6 % 83.6 %
Selling, general and administrative expense
5.3 % 5.6 % 5.6 % 5.7 %
Research and development expense
0.2 % 0.1 % 0.3 % 0.1 %
Operating income 10.5 % 10.6 % 11.5 % 10.6 %
Third quarter of 2026 compared with the third quarter of 2025
Net sales increased primarily due to higher sales of engineered products.
Cost of sales increased primarily due to higher net sales. Cost of sales as a percentage increased slightly. SG&A expense increased slightly, and SG&A expense as a percentage of net sales decreased slightly.
Operating income increased primarily due to higher net sales. Operating income as a percentage of net sales decreased slightly.
First nine months of 2026 compared with the first nine months of 2025
Net sales increased primarily due to higher sales of engineered products.
Cost of sales increased primarily due to higher net sales, partially offset by favorable program mix. Cost of sales as a percentage decreased due to favorable program mix. SG&A expense increased primarily due to higher employee compensation costs, and SG&A expense as a percentage of net sales decreased slightly.
Operating income increased primarily due to higher net sales and favorable program mix. As a result, operating income as a percentage of net sales increased.
Financial Condition, Liquidity and Capital Resources
Our principal cash and capital requirements are to fund working capital needs, capital expenditures, income tax payments and debt service requirements as well as acquisitions. We may deploy cash for the stock repurchase program. It is anticipated that cash on hand, operating cash flow, together with available borrowings under our $1.2 billion credit facility, will be sufficient to meet these requirements as well as to fund the Varex acquisition during the next 12 months and during the period thereafter covered by our current longer-term business plan. To support acquisitions, we may need to raise additional capital. No cash pension contributions have been made since 2013 or are planned for 2026 for the domestic qualified pension plans.
Cash and Cash Equivalents
Cash and cash equivalents totaled $562.4 million at September 27, 2026, compared with $352.4 million at December 28, 2025, with the increase primarily related to cash generated from operating activities partially offset by certain investing and financing activities. Cash equivalents consist of highly liquid money-market mutual funds with maturities of three months or less when purchased.
Long-term Debt
Total debt, net of unamortized debt discount and debt issuance costs at September 27, 2026, was $2,027.8 million compared with $2,475.4 million at December 28, 2025. In the second quarter of 2026, the Company repaid $450.0 million of its Fixed Rate Senior Notes due April 2026.
At September 27, 2026, we had $55.4 million in outstanding letters of credit, including $41.6 million against our credit facility.
Our credit facility requires us to comply with various financial and operating covenants, and at September 27, 2026, we were in compliance with these covenants and had a significant amount of margin between required financial covenant ratios and our actual ratios. Currently, we do not believe our ability to undertake additional debt financing, if needed, is reasonably likely to be materially impacted by debt restrictions under our credit agreements. Available borrowing capacity under the $1.2 billion credit facility, which is reduced by borrowings and $41.6 million in outstanding letters of credit, was $1,158.4 million at September 27, 2026.
Our liquidity is not dependent upon the use of off-balance sheet financial arrangements. We have no off-balance sheet financing arrangements that incorporate the use of special purpose entities or unconsolidated entities.
We may at any time and from time to time seek to retire or purchase our outstanding debt through cash purchases in open-market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
See Note 7 to these condensed consolidated financial statements for additional information regarding our credit facility and long-term debt.
Stock Repurchases
In July 2025, our Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $2.0 billion of our common stock. As of September 27, 2026, $1.5 billion remained available under the repurchase authorization. The authorized stock repurchase program does not have a stated expiration date. Shares may be repurchased from time to time in open-market transactions at prevailing market prices, in privately negotiated transactions or via an accelerated stock repurchase program. Shares could be repurchased in a plan pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934. The repurchase program is expected to remain open continuously, and the number of shares purchased will depend on a variety of factors such as share price, levels of cash available, acquisitions and alternative investment opportunities available immediately or longer-term, and other regulatory, market or economic conditions. We currently intend to fund future share repurchases, if any, with cash on hand and available borrowings under our credit facility. During the third quarter and first nine months of 2026, the Company repurchased approximately 0.2 million shares for $94.8 million, with a weighted average price of $603.09 per share.
Cash Flows
Net cash provided by operating activities was $901.7 million for the first nine months of 2026 compared with net cash provided by operating activities of $812.3 million, with the increase primarily driven by favorable operating results and lower income tax payments, partially offset by higher inventory purchases in 2026.
Net cash used in investing activities was $160.4 million for the first nine months of 2026 compared with net cash used in investing activities of $840.9 million. During the first nine months of 2026, we spent $53.4 million on acquisitions compared with $764.2 million. Capital expenditures for the first nine months of 2026 and 2025 were $93.2 million and $77.5 million, respectively. During 2026, we plan to invest approximately $140 million for capital expenditures, principally to upgrade facilities and manufacturing equipment as well as to support internal growth initiatives.
Net cash used in financing activities was $527.8 million for the first nine months of 2026 compared with net cash used in financing activities of $93.5 million. In the second quarter of 2026, the Company repaid $450.0 million of its Fixed Rate Senior Notes due April 2026.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are those that are reflective of significant judgments and uncertainties and may potentially result in materially different results under different assumptions and conditions. Our critical accounting policies are the following: accounting for revenue recognition; accounting for business combinations, goodwill and acquired intangible assets; and accounting for income taxes.
For additional discussion of the application of the critical accounting policies and other accounting policies, see Note 1 to these condensed consolidated financial statements and also Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Note 2 of the notes to consolidated financial statements included in Teledyne's 2025 Form 10-K.
Safe Harbor Cautionary Statement Regarding Forward-Looking Information
From time to time we make, and this report 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, acquisitions, capital expenditures, stock repurchases, product synergies, integration costs, tax matters 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. All statements made in this Management's Discussion and Analysis of Financial Condition and Results of Operations and in other sections of this Form 10-Q that are not historical in nature should be considered forward-looking. Actual results could differ materially from these forward-looking statements.
Many factors could change anticipated results, including: global conflicts including the conflicts in the Middle East as well as the ongoing conflict between Russia and Ukraine, including among other things, higher energy costs and energy supply constraints, disruptions in shipping, supply shortages of critical materials, including aluminum, metals, chemicals and industrial helium supplies, disruptions to air travel, the risk of retaliation against U.S. targets, and slower global growth; the impact of policies of the U.S. Presidential Administration, especially with respect to new and higher tariffs, cutbacks in the funding of government agencies and programs, and the scaling back of environmental and green energy policies; escalating economic and diplomatic tension between China and the United States, including a "trade war" resulting in higher tariffs and restrictions on sales of goods and services; reciprocal tariffs from other countries, especially from members of the European Union; existing and new restrictions on the supply of rare earth minerals and permanent magnets from China; U.S. Government shutdowns, which in the past have resulted in delays in anticipated contract awards, delayed payments of invoices, and delays in the issuance of export and other licenses; the inability to develop and market new competitive products; changes in relevant tax and other laws; foreign currency exchange risks; rising interest rates; risks associated with indebtedness, as well as our ability to reduce indebtedness and the timing thereof; the impact of semiconductor and other supply chain shortages; higher inflation, including wage competition and higher shipping costs; labor shortages and competition for skilled personnel; inherent uncertainties involved in the estimates and judgments used in the preparation of financial statements and the providing of estimates of financial measures, in accordance with U.S. GAAP and related standards; disruptions in the global economy; changes in demand for products sold to the defense electronics, instrumentation, digital imaging, energy exploration and production, commercial aviation, semiconductor, and communications markets; funding, continuation and award of government programs; cuts to defense spending resulting from existing and future deficit reduction measures or changes to U.S. and foreign government spending and budget priorities triggered by inflation, and economic conditions; threats to the security of our confidential and proprietary information, including cybersecurity threats; risks related to artificial intelligence; natural and man-made disasters; and our ability to achieve emission reduction targets and decrease our carbon footprint. Volatile oil and natural gas prices, as well as instability in the Middle East or other oil producing regions, could negatively affect our businesses that supply the oil and gas industry. Weakness in the commercial aerospace industry negatively affects the markets of our commercial aviation businesses. Lower aircraft production rates at Boeing or Airbus could result in reduced sales of our commercial aerospace products. In addition, financial market fluctuations affect the value of the Company's pension assets. Changes in the policies of the United States and foreign governments, including economic sanctions or in regard to support for the Ukraine or Middle East conflicts, could result, over time, in reductions or realignment in defense or other government spending and further changes in programs in which the Company participates.
While our growth strategy includes possible acquisitions, we cannot provide any assurance as to when, if or on what terms any acquisitions will be made. Acquisitions involve various inherent risks, such as, among others, our ability to integrate acquired businesses, retain key management and customers, and achieve identified financial and operating synergies. There are additional risks associated with acquiring, owning and operating businesses internationally, including those arising from U.S. and foreign government policy changes or actions and exchange rate fluctuations.
We continue to take action to assure compliance with the internal controls, disclosure controls and other requirements of the Sarbanes-Oxley Act of 2002. While we believe our control systems are effective, there are inherent limitations in all control systems, and misstatements due to error or fraud may occur and may not be detected.
Readers are urged to read our periodic reports filed with the SEC for a more complete description of our Company, its businesses, its strategies and the various risks that we face. Various risks are identified in our 2025 Form 10-K and subsequent Quarterly Reports on Form 10-Q.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. Teledyne assumes no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
Teledyne Technologies Inc. published this content on October 23, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 23, 2026 at 21:20 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]