Cash Flow

Cash provided by operating activities was $211.3 million for the second quarter of 2021, compared with $155.8 million. The higher cash flow from operating activities for the second quarter of 2021 reflected improved working capital management, which included a focus on inventory reduction initiatives and the cash flow contribution from FLIR, partially offset by higher income tax payments and after tax payments of $66.7 million for expenses related to the FLIR acquisition. At July 4, 2021, net debt was $4,046.9 million and comprised of cash and cash equivalents of $695.1 million and total debt of $4,742.0 million. At January 3, 2021, net debt was $105.4 million and comprised of cash and cash equivalents of $673.1 million and total debt of $778.5 million. The higher debt balance at July 4, 2021, included the debt incurred to fund the cash portion of the FLIR acquisition. At July 4, 2021, approximately $743.5 million was available under the $1,150 million credit facility, after reductions of $125.0 million in borrowings and $281.5 million in outstanding letters of credit. The outstanding letters of credit include a $260.0 million letter of credit to the Swedish Tax Authority, related to a disputed 2018 tax reassessment issued to a FLIR subsidiary in Sweden. The Company received $5.1 million from the exercise of stock options in the second quarter of 2021 compared with $18.0 million. Capital expenditures for the second quarter of 2021 were $20.8 million compared with $16.6 million. Depreciation and amortization expense for the second quarter of 2021 was $59.7 million, which includes acquired intangible asset amortization expense of $22.8 million related to FLIR, compared with $29.0 million. Non-cash inventory step-up expense related to FLIR was $23.4 million for the second quarter of 2021.

Income Taxes

The effective tax rate for the second quarter of 2021 was 29.8%, compared with 13.2%. The second quarter of 2021 reflected net discrete income tax expense of $4.1 million, which included $11.5 million expense related to foreign tax rate changes, partially offset by a $5.3 million income tax benefit related to the release of a valuation allowance and a $2.1 million income tax benefit related to share-based accounting. The second quarter of 2020 reflected net discrete income tax benefits of $10.4 million which included $9.8 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 25.3% for the second quarter of 2021, compared with 22.8%. The higher tax rate in the second quarter of 2021, reflects the impact of certain non-deductible transaction and integration costs as well as the impact of a change in the expected total year tax rate.

Other

Stock option expense was $3.6 million for the second quarter of 2021 compared with $5.7 million. Stock option expense for fiscal year 2021 is currently expected to be $20.8 million based on current options outstanding and stock options expected to be granted in the third quarter of 2021, compared with $24.7 million for fiscal year 2020. The decrease in stock option expense in the second quarter of 2021, reflects the absence of stock option grants in the first six months of 2021. Restricted stock unit expense for FLIR employees was $4.4 million in the second quarter of 2021 and is expected to be $8.2 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 second quarter of 2021, compared with $3.2 million. Interest expense, net of interest income, increased to $21.2 million for the second quarter of 2021 compared with $3.7 million. The higher 2021 amount included interest and debt expense on the debt incurred to fund the FLIR acquisition. Corporate expense increased to $84.2 million for the second quarter of 2021, compared with $13.8 million. The higher 2021 amount included $70.5 million of transaction costs related to the FLIR acquisition, including $52.2 million for the settlement of FLIR employee and director stock awards. Other income and expense, was income of $6.1 million for the second quarter of 2021, compared with expense of $1.4 million. The second quarter 2021 amount included $4.0 million in foreign currency income, compared with $2.5 million in foreign currency expense in the second quarter of 2020.