Teledyne Technologies(TDY) - 2024 Q1 - Quarterly Report

Part I: Financial Information Financial Statements Teledyne reported increased Q1 2023 net sales and operating cash flow, despite a decline in net income primarily due to tax normalization Condensed Consolidated Statements of Income Q1 2023 saw increased net sales and operating income, but net income declined due to a shift from tax benefit to expense Q1 2023 vs Q1 2022 Income Statement Highlights (in millions, except per-share amounts) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net sales | $1,383.3 | $1,321.0 | | Operating income | $242.5 | $223.5 | | Provision (benefit) for income taxes | $44.9 | $(9.6) | | Net income attributable to Teledyne | $178.7 | $212.6 | | Diluted earnings per common share | $3.73 | $4.46 | Condensed Consolidated Balance Sheets Total assets slightly increased to $14.43 billion, while liabilities decreased, leading to higher stockholders' equity Balance Sheet Highlights (in millions) | Metric | April 2, 2023 | January 1, 2023 | | :--- | :--- | :--- | | Total current assets | $2,882.4 | $2,817.9 | | Goodwill | $7,925.5 | $7,873.0 | | Total Assets | $14,429.3 | $14,354.0 | | Total Liabilities | $6,059.9 | $6,181.1 | | Total Stockholders' Equity | $8,365.7 | $8,169.2 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to $203.0 million in Q1 2023, offsetting increased cash usage in investing and financing activities Cash Flow Summary (in millions) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $203.0 | $(216.7) | | Net cash provided by (used in) investing activities | $(76.9) | $(19.6) | | Net cash provided by (used in) financing activities | $(103.4) | $42.6 | | Change in cash and cash equivalents | $27.1 | $(190.4) | - The significant year-over-year improvement in operating cash flow was partially due to a $296.4 million payment to the Swedish Tax Authority in Q1 2022 related to a disputed pre-acquisition FLIR tax matter[113] Notes to Condensed Consolidated Financial Statements Key notes include the ChartWorld acquisition, segment sales growth, remaining performance obligations, debt reduction, and tax rate normalization - In Q1 2023, the company acquired ChartWorld International Limited for $52.5 million in cash, adding it to the Digital Imaging segment[25] - As of April 2, 2023, the company had $3,198.8 million in remaining performance obligations, with approximately 82% expected to be recognized as revenue within the next twelve months[40] - The Q1 2023 effective tax rate was 20.1%, compared to -4.7% in Q1 2022, which included a $50.0 million non-cash income tax benefit from the resolution of certain FLIR tax reserves[55][89] - Subsequent to the end of the first quarter, on April 3, 2023, the Company repaid $300.0 million of fixed rate senior notes[53][109] Management's Discussion and Analysis (MD&A) MD&A highlights Q1 2023 sales growth across all segments, improved operating income, and strong liquidity despite tax rate normalization - The company's strategy focuses on growth in its four core segments through targeted acquisitions, product development, and operational excellence[74] - Business is affected by ongoing supply chain challenges, cost inflation for parts and labor, and adverse impacts from the strengthening of the U.S. dollar[76][77] Results of Operations Q1 2023 net sales and operating income increased, but net income declined significantly due to a shift in income tax provision Q1 2023 vs Q1 2022 Performance (in millions) | Metric | Q1 2023 | Q1 2022 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $1,383.3 | $1,321.0 | 4.7% | | Operating income | $242.5 | $223.5 | 8.5% | | Net income attributable to Teledyne | $178.7 | $212.6 | (15.9)% | - Excluding discrete tax items, the effective tax rate was stable at 23.0% in Q1 2023 compared to 23.1% in Q1 2022, with the prior year's reported rate skewed by a $50.0 million benefit from resolving FLIR tax reserves[89] Segment Results All four business segments, including Digital Imaging, Instrumentation, Aerospace and Defense, and Engineered Systems, reported sales and operating income growth Q1 2023 vs Q1 2022 Segment Performance (in millions) | Segment | Net Sales (2023) | Net Sales (2022) | % Change | Operating Income (2023) | Operating Income (2022) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Digital Imaging | $772.5 | $750.5 | 2.9% | $122.2 | $115.7 | 5.6% | | Instrumentation | $333.5 | $308.9 | 8.0% | $80.7 | $71.6 | 12.7% | | Aerospace and Defense Electronics | $173.2 | $166.2 | 4.2% | $47.0 | $42.9 | 9.6% | | Engineered Systems | $104.1 | $95.4 | 9.1% | $10.0 | $9.4 | 6.4% | - Digital Imaging sales growth was driven by acquisitions and higher sales of industrial cameras, partially offset by lower sales of unmanned ground systems for defense[92] - Instrumentation growth was broad, with marine instrumentation sales up $16.3 million, test and measurement up $4.4 million, and environmental up $3.9 million[96] Financial Condition, Liquidity and Capital Resources The company maintained a strong financial position with reduced debt, improved operating cash flow, and ample credit facility availability - Net cash from operating activities was $203.0 million, compared to net cash used of $216.7 million in Q1 2022, which included a $296.4 million tax payment to the Swedish Tax Authority[113] - Investing activities included $52.5 million for the purchase of businesses and $24.4 million for capital expenditures[114] - Financing activities included a $100.0 million repayment on the credit facility[115] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported compared to the prior fiscal year's Annual Report on Form 10-K - There were no material changes to the disclosures about market risk from the company's 2022 Form 10-K[124] Controls and Procedures Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of April 2, 2023 - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of April 2, 2023[125] Part II: Other Information Legal Proceedings Ongoing trade compliance matters and voluntary export violation disclosures are pending, though no material adverse effect is currently anticipated - The U.S. Department of State closed the four-year Consent Agreement with FLIR, but the company has made other voluntary disclosures to U.S. and foreign authorities regarding potential export violations[69][70] - The company is unable to reasonably estimate the potential loss or penalty related to these ongoing trade compliance matters[70] Risk Factors No material changes to the previously disclosed risk factors from the 2022 Annual Report on Form 10-K were reported - No material changes to the risk factors previously disclosed in the 2022 Form 10-K were reported[126] Other Information Credit agreements were amended to replace LIBOR with SOFR and adjust the leverage ratio covenant for significant acquisitions - The company amended its credit agreements to replace the LIBOR benchmark with SOFR for U.S. dollar-denominated loans[127] - The leverage ratio covenant was modified to allow the ratio to temporarily increase from 3.50:1 to 4.00:1 for four quarters following an acquisition with consideration exceeding $100 million[128] Exhibits Filed exhibits include credit agreement amendments, officer certifications, and XBRL data files - Filed exhibits include amendments to credit agreements (Exhibits 10.1, 10.2, 10.3) and CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2)[130]