Teledyne Technologies(TDY) - 2021 Q3 - Quarterly Report

Part I Financial Information Presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Financial Statements Teledyne's Q3 2020 net sales and net income declined year-over-year, while nine-month operating cash flow increased and total assets grew to $4,837.0 million Condensed Consolidated Statements of Income Presents the company's net sales, operating income, net income, and diluted EPS for Q3 and the first nine months of 2020 and 2019 Q3 & Nine Months 2020 vs 2019 Income Statement Highlights (in millions, except per-share amounts) | Metric | Q3 2020 | Q3 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $749.0 | $802.2 | $2,276.9 | $2,329.4 | | Operating Income | $122.5 | $128.7 | $336.3 | $357.9 | | Net Income | $93.9 | $106.7 | $269.8 | $286.6 | | Diluted EPS | $2.48 | $2.84 | $7.14 | $7.66 | Condensed Consolidated Balance Sheets Details the company's assets, liabilities, and equity as of September 27, 2020, compared to December 29, 2019 Balance Sheet Highlights (in millions) | Account | Sep 27, 2020 | Dec 29, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $454.5 | $199.5 | | Goodwill | $2,091.3 | $2,050.5 | | Total Assets | $4,837.0 | $4,579.8 | | Total current liabilities | $671.2 | $763.2 | | Long-term debt | $761.1 | $750.0 | | Total Liabilities | $1,811.0 | $1,865.1 | | Total Stockholders' Equity | $3,026.0 | $2,714.7 | Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the first nine months of 2020 and 2019 Nine Months Cash Flow Summary (in millions) | Activity | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $382.5 | $314.2 | | Net cash used in investing activities | $(80.9) | $(547.8) | | Net cash provided by (used in) financing activities | $(45.9) | $216.7 | | Change in cash and cash equivalents | $255.0 | $(14.0) | Notes to Condensed Consolidated Financial Statements Provides additional details on significant accounting policies, acquisitions, debt, and other financial commitments and contingencies - The company completed several acquisitions, including OakGate Technology, Inc. for $28.5 million in January 2020. Goodwill increased to $2,091.3 million as of September 27, 2020, up from $2,050.5 million at year-end 2019[25][30] - As of September 27, 2020, the company had remaining performance obligations of $1,742.0 million, with approximately 74% expected to be recognized as revenue within the next twelve months[57] - Total debt stood at $786.7 million, with an available borrowing capacity of $614.7 million under its credit facility as of September 27, 2020[66] - The financial exposure related to the bankruptcy of customer OneWeb Global Limited has been substantially reduced following new financing and modified contract terms for Teledyne[71] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2020 sales decline due to commercial aerospace weakness, offset by improved operating margins in other segments, while highlighting strong liquidity and strategic focus on acquisitions and cost control amidst COVID-19 impacts - The company's strategy focuses on growth in core markets (instrumentation, digital imaging, aerospace and defense electronics, engineered systems) through targeted acquisitions and product development, while emphasizing operational excellence and cost containment[88] - In response to COVID-19 and to improve performance, the company reduced headcount and consolidated facilities, incurring expenses of $3.3 million in Q3 and $15.1 million in the first nine months of 2020[78][92] - The company maintains a strong liquidity position with $454.5 million in cash and cash equivalents and $614.7 million available under its credit facility[90] Results of Operations Analyzes the company's net sales, net income, and diluted EPS performance for Q3 and the first nine months of 2020 compared to 2019 Q3 2020 vs Q3 2019 Performance Summary | Metric | Q3 2020 | Q3 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $749.0M | $802.2M | (6.6)% | | Net Income | $93.9M | $106.7M | (12.0)% | | Diluted EPS | $2.48 | $2.84 | (12.7)% | Nine Months 2020 vs 2019 Performance Summary | Metric | YTD 2020 | YTD 2019 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,276.9M | $2,329.4M | (2.3)% | | Net Income | $269.8M | $286.6M | (5.9)% | | Diluted EPS | $7.14 | $7.66 | (6.8)% | - The effective tax rate for Q3 2020 was 21.5%, significantly higher than 13.5% in Q3 2019, primarily due to lower net discrete income tax benefits in the current period ($1.2 million vs. $10.4 million)[111] Segment Results Provides a detailed breakdown of net sales and operating income performance across the company's four primary business segments Q3 2020 Segment Net Sales & Operating Income (in millions) | Segment | Net Sales | % Change YoY | Operating Income | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | Instrumentation | $263.5 | (6.9)% | $50.7 | (2.5)% | | Digital Imaging | $239.7 | (1.8)% | $45.5 | 10.4% | | Aerospace and Defense Electronics | $144.8 | (18.2)% | $26.7 | (32.4)% | | Engineered Systems | $101.0 | 2.9% | $12.5 | 17.9% | - Instrumentation: Sales decreased across all product lines (marine, test & measurement, environmental), though recent acquisitions provided some offset[123] - Digital Imaging: Operating income grew despite slightly lower sales, driven by a favorable product mix and greater sales of infrared detectors for defense[130] - Aerospace and Defense Electronics: Sales and operating income fell sharply due to continued weakness in the commercial aerospace industry, negatively affecting aerospace electronics sales by $25.6 million[138] - Engineered Systems: Sales and operating income increased, reflecting higher sales from space and nuclear programs and a better mix of higher-margin manufacturing programs[145] Financial Condition, Liquidity and Capital Resources Assesses the company's financial position, cash flow generation, debt levels, and capital expenditure plans - Net cash from operating activities increased to $382.5 million for the first nine months of 2020, up from $314.2 million in the prior year, driven by lower tax payments and improved accounts receivable collections[150] - Net cash used in investing activities decreased significantly to $80.9 million from $547.8 million year-over-year, due to lower acquisition spending in 2020 ($29.0 million vs. $483.7 million)[151] - The company maintains a strong credit position, with a Consolidated Leverage Ratio (Net Debt/EBITDA) of 1.38 to 1, well below the requirement of 3.25 to 1[156][157] - Capital expenditures for 2020 are expected to be approximately $70.0 million, with $52.0 million spent in the first nine months[155] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from foreign currency and interest rates using derivatives, with a hypothetical 10% USD change impacting Canadian dollar hedges by $14.8 million and a 100 basis point interest rate increase raising annual interest expense by $2.75 million - The company utilizes derivative instruments, including foreign currency forward contracts and interest rate swaps, to mitigate risks associated with foreign currency fluctuations and variable interest rate debt[168] - A hypothetical 100 basis point increase in interest rates would increase annual interest expense by approximately $2.75 million on the $275.0 million of variable-rate debt outstanding[170] - A hypothetical 10% adverse change in the U.S. dollar exchange rate would result in a change in fair value of approximately $14.8 million for Canadian dollar hedges and $29.9 million for Euro/U.S. Dollar cross currency swaps[169][170] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 27, 2020, with no material changes to internal controls over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period, September 27, 2020[171] - There were no changes in internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[172] Part II Other Information Presents additional required disclosures including legal proceedings, risk factors, and a list of exhibits filed with the report Legal Proceedings The report refers to Note 11 of the financial statements for details on legal proceedings, with management not expecting a material adverse effect from pending matters - For details on legal proceedings, the report refers to Note 11 of the Financial Statements[174] Risk Factors No material changes to 2019 Form 10-K risk factors are reported, with references to MD&A for COVID-19 risks and Item 3 for updated market risk disclosures - There are no material changes to the risk factors disclosed in the 2019 Form 10-K. The report references other sections for updates on COVID-19 and market risks[174] Exhibits Lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Lists exhibits filed with the report, including Sarbanes-Oxley certifications and XBRL data files[175]